Brian Adams explains why office real estate demands matching your time horizon to your risk tolerance. Midtown Manhattan office values are down 80% year-to-date, which works fine for a 100-year horizon but kills a 2-3 year return target. Ask your investors what timeline and returns they actually need before you deploy capital.
Like most things, when you talk to investors and you talk about asset classes and food groups and what's doing well and what's not doing well, it really comes back to what is your time horizon and what's your return profile versus your risk that you're willing to take. If you have a 100-year time horizon, you're going to be okay with office. Like, you're going to ride that out. It's going to appreciate. You'll figure something out creative to do with it. It's not a big deal. If you're trying to hit a big IRR and you've got a 2 to 3 year window to invest and turn a deal, office is super challenging unless you take on a huge amount of risk. And so I don't think it's the right question to say like what's good or bad. I always ask LP, well, what is your timeframe and what's your return profile versus the risk you want to take on here? And that will dictate where you allocate capital. Because if you look at like what the REIT market is saying right now, office in Midtown Manhattan is about 80% down on value from the beginning of the year. So if you've got conviction and a long time horizon, you should go buy a bunch of Midtown. Midtown's buy. Yeah. But if you've got liquidity needs and you don't want to take a lot of risk, then you can't do that. You can't allocate to those deals.
