A new wave of midcareer commercial real estate entrepreneurs is capitalizing on what some call “once-in-a-generation” opportunities to invest in distressed or otherwise discounted properties in today’s market—especially in the office sector.
Nationwide, there’s been an uptick in new investment firms started by development and investment professionals with 10–25 years of industry experience—some of whom left major firms to do so. These firms aim to buy cheap offices and reposition them through leasing, capital improvements, or conversions to apartments.
Anthony Chang, ULI’s Washington chair and the founder of Silverline Equities in Washington, D.C., is among these professionals. So is Hai Chien Wang, a value-add investor who cofounded the D.C.–based Taicoon Property Partners just over a year ago.
Other entrepreneurs focus on dislocation in different sectors. Roberta “Bobby” Bosfield, who sits on ULI Washington’s WLI Steering Committee, recently left her role as vice president at Linden Property Group to launch Rawson Square, a D.C.–based firm specializing in multifamily acquisitions and developments.
Sandy Albert—a Los Angeles–based developer, incoming co-chair of ULI NEXT LA, and former member of the ULI Technology & Real Estate Global Product Council—decided to leave Common and join ground-up multifamily development firm CityPads as a principal and managing partner in 2021, expanding its geographical reach to the West Coast. Together with Andy Ahitow in Chicago, Albert launched a new fund to create attainable rental options in walkable, transit-oriented L.A. and Chicago locations for “missing middle” renters. The pair predicted that a supply-demand crisis, coupled with discounted land opportunities arising from the capital environment in the years to come, would drive the firm’s success.
“Our fund ended up being successful because the writing seemed to be on the wall, with rates continuing to go up and liquidity, debt, and equity financing tightening,” Albert says. “We knew discounts were coming [into] the markets we operate in: we were a ground-up multifamily developer in Los Angeles and Chicago at a time when no one wanted to invest in L.A. or Chicago—or ground-up development. We thought to ourselves, ‘This is about to be our time!’”
This nimble, creative, and well-connected investment class can spot unique opportunities, secure nontraditional capital, and adapt more swiftly than established firms, which could indicate a “generational shift,” Chang says, noting that many prominent firms in the D.C. area were founded 25–30 years ago, making the market ripe for disruption.
A sizable portion of recent founders consists of women and other underrepresented groups, which could mean a healthy dose of leadership diversity in an industry starved for it.
“The new crop of entrepreneurs in the CRE space is absolutely the most diverse group that has ever been visible in the industry,” says Madi Ford, managing partner of Audeo Partners, a real estate development and advisory firm in the D.C. area. “I think this is a national trend—not solely regional.”
Strategies for capitalizing on dislocation
The office market was primed for mortgage delinquencies in 2023, with high interest rates and future-of-work uncertainty stalling financing transactions and sales.
Sandy Albert—a Los Angeles–based developer, incoming co-chair of ULI NEXT LA, and former member of the ULI Technology & Real Estate Global Product Council—decided to leave Common and join ground-up multifamily development firm CityPads as a principal and managing partner in 2021, expanding its geographical reach to the West Coast.
(CityPads)
This year, distressed sales are slowly picking up as property values become clearer—as are bargain-bin deals that are not technically distressed but do have dislocated prices. Assets are trading at 60 to 70 percent discounts in such markets as Washington, D.C.; San Francisco; Chicago; and Los Angeles.
With institutional capital on the sidelines, room exists for dextrous investors to work with nontraditional capital sources and acquire properties that they know how to improve.
“Office isn’t going away, and the capital markets are pricing office as if it [is] going away,” Chang says. “The [better] 50 percent of offices [is] going to do just fine.”
In March 2024, Chang left Stream Realty Partners and launched Silverline Equities with Barry Bass, previously the CFO at several real estate companies. The duo targets dislocated office investments in well-positioned neighborhoods along D.C.’s Silver Line metro. By leveraging leasing, operational excellence, and targeted capital investment, they aim to increase asset value significantly.
Although major investors have blacklisted office investments, and debt financing has mostly dried up, family offices, high-net-worth individuals, and small private equity funds are often able to pay cash for a deal, thus circumventing reliance on traditional financing at a time when it’s expensive and hard to come by, according to Chang. These nontraditional buyers, who are smaller and more agile, dominated the buyer pool for offices during the past year.
Small investment outfits such as Silverline—ones that work with nontraditional capital providers—can act swiftly and strategically without the need to satisfy a wide range of stakeholders. By leveraging strong connections, many of which were forged through ULI networks, Chang believes that Silverline can achieve high returns on discounts in the current market.
Chang and Bass decided to pursue nontraditional capital instead of launching a fund, which could take a year or 18 months. At that point, “the opportunity might be gone,” Chang says. “We don’t know how long this dislocation in the office market will last.”
Chang and Bass founded the company on the premise that office demand is transitioning to dynamic, mixed-use neighborhoods.
“The urbanization of suburbia will be the defining work of our generation in this industry,” Chang says. “Our investment thesis is that the walkable, mixed-use neighborhoods will dominate in the next 10 to 20 years. We pick the neighborhood first, then find opportunities to enhance buildings and create the experiences that employees demand to justify commuting and gathering together.”
He also believes that workplaces need to adopt elements from the multifamily and hotel sectors. According to Chang, many buildings and investors focus primarily on physical amenities but neglect the crucial “software” aspects—staffing, experience, and the elements that make a brand unique.
Hospitality has to win customers every night, and multifamily must win tenants every year. Historically, offices had to worry about tenant satisfaction every 7 to 10 years. Now, with lease lengths compressing and companies needing less space per person, the office sector needs to catch up, Chang says.
Taicoon Property Partners
Wang believes that trophy assets in prime locations present the best investment opportunities. Instead of focusing on the urbanization of suburbia, though, Wang targets CBD offices and ones in the older triangle area of D.C. He says he aims to “reinvigorate the urban block, maybe one building at a time.”
Taicoon Property Partners’ recent acquisition—a 12-story, 152,000-square-foot (14,120 sq m) office building at 1899 L Street, N.W., in D.C.’s CBD, along 19th Street’s vibrant Restaurant Row—exemplifies Wang’s investment strategy.
The firm purchased the asset for $26.7 million, a significant discount from the $43.7 million BlackRock paid for it 20 years ago, in 2004. Taicoon plans to renovate the building—updating the façade, restrooms, and common areas, while redesigning retail storefronts and modernizing amenities and infrastructure.
When it comes to financing a deal in this high-capital-cost environment, Wang believes in long-term relationships with institutional lenders, especially ones that don’t have much exposure to commercial real estate. D.C.’s CBD has been slow to recover, with an office vacancy rate of 22.5 percent at the end of the first quarter, according to CBRE. Amid dwindling demand, only select offices will continue to perform well. “Some [offices] will never stabilize again, but some have the opportunity to stabilize, and some will have the opportunity to be repurposed to residential properties and so forth,” Wang says.
This variance explains why Wang believes that finding offices with long-term potential is a generational opportunity. “There [are only a few] good apples among a lot of bad ones,” he says, stressing the importance of being able to spot which is which.
D.C. is not the only city ripe with opportunities for nimble, nontraditional buyers with cash to spend. According to Avison Young, during the first quarter of 2024, the L.A. office market remained in the red as it faced $10 billion in commercial mortgage-backed securities during the next three years and a first-quarter vacancy rate of more than 21 percent—with almost 27 percent vacancy in the downtown submarket.
Muhlstein CRE
Some entrepreneurs are seizing discounted offices to convert them into much-needed housing. California has 4,306 office-to-apartment conversions underway, according to Rentcafe’s analysis of Yardi Matrix data.
“To help address the transition, a growing number of local, state, and federal agencies are relaxing parking, offering tax incentives, and encouraging new mixed-uses [such as] co-living and even vertical hydroponic farming,” says Carl Muhlstein, a top L.A. broker who recently left an international director role at JLL and started his own advisory firm, Muhlstein CRE, in December 2023.
In L.A., however, zoning codes and local ordinances can often prevent conversions and demolitions. “You can’t demolish a 12-, 20-, 42-, or 50-story building to build apartments on a small parcel,” Muhlstein says, stressing the importance of the public and private sectors working together to encourage housing conversions.
“As office vacancies climb, [obsolescent urban in-fill] buildings are a rich source of infrastructure to be converted into [a] job-rich, transit-served, wide variety of housing,” Muhlstein says. “Shunned by discerning, rent-paying tenants, their values [as offices] have plummeted [to levels] reminiscent of their original land values.”
Junction Development
As cap rates in the multifamily sector begin to normalize—rising to 5.5 or even 6 percent, compared to the 3 to 4 percent seen in 2021 and 2022—now is a favorable time to seek out investment opportunities. That’s why Alisa Rosenberg, former chair of WLI Washington who has also held several leadership roles at ULI Washington and ULI National, launched Junction Development in D.C. at the tail end of 2023. She left her role as managing director at Republic Properties Corp. to focus on multifamily and mixed-use investment opportunities presented by current market dislocation.
Although office distress often grabs headlines, dislocation exists in other sectors. Rosenberg believes the current multifamily dislocation is a “normalization” after a period of low cap rates and an inflated value environment.
“A cap rate of around five and a half to six [percent] for multifamily properties is … normal,” Rosenberg says. “I anticipate it may eventually settle closer to five [percent], but there could be a transitional period [during which] it hovers around five and a half to six.”
Even as Rosenberg focuses on off-market multifamily assets, she notices that publicly marketed deals are garnering more attention and competition. There’s a growing desire to see deals come to fruition despite relatively few deals actually closing so far, she says.
CityPads
“Ironically, when it’s hardest for most people to raise capital or get financing to buy assets, that’s exactly when you want to be buying,” says CityPads’ Albert, who, when he joined the firm in late 2021, anticipated that discounts would arrive in coming years. He had amassed 16 years of investment and development experience at the time he made that career change.
“I’ve always known I’m an entrepreneur,” Albert says. “It was just a matter of time and opportunity before making the jump.”
Albert says CityPads’ bet on discounts is succeeding. Prime land on L.A.'s east side, priced around $100,000 per unit two years ago, can now be acquired for $40,000 to $50,000 per unit or less.
“The deals we’re seeing and the sites we’re buying are all unique, bespoke, and … one-off … opportunities,” Albert says.
CityPads’ new fund, which now has 125 units built and more than 575 in some stage of development, has capitalized upon discounts on land sites sold by owners or developers who lacked the “experience, expertise, or capital” to fully use their properties, he says. He notes that the current capital environment requires discipline and patience, but he anticipates an 18- to 24-month window of incredible buying opportunities. “Right now, it’s all about sticking to your knitting and putting yourself in the position to be in the right place at the right time, where you’re seeing these opportunities or these opportunities are coming to you,” Albert says.
Despite launching the new fund to seize such opportunistic assets, Albert emphasizes that CityPads’ investment philosophy is not purely discount-based. Instead, the firm’s focus on developing walkable, transit-oriented multifamily housing in L.A. and Chicago aims to create attainable rental options for “missing middle” renters. His father, Stephen Albert—AIA, founder and principal of Albert Group Architects—became a key consultant and advisor to CityPads on architecture, navigating entitlements, and construction in L.A.
Rawson Square
“Over the past year and a half or so, many [capital sources] have remained on the sidelines,” says Bosfield, who recently launched Rawson Square. “However, we’ve … observed increased activity in existing multifamily properties, particularly picking up in the second quarter of this year and [probably] extending into the third and fourth quarters, which is a positive trend.”
Bosfield foresees significant challenges ahead for multifamily development, which might include layoffs due to the difficulty of financing traditional deals in the current climate. “But if you’re nimble and doing smaller deals—say, below $20 million or $15 million—I think you’ll be okay.”
According to Ellen Klasson, a managing director in RCLCO’s management consulting practice, the hiring environment in real estate has been challenging for the last year and a half. “Transactional roles [such as] development or acquisitions, those have been hit the hardest in terms of not adding new people and layoffs,” she says.
Steel Peak
Entrepreneurs are also seizing opportunistic investments in the industrial sector. In January 2024, Blake Rodgers and Pasha Johnson—previously at JLL and the commercial real estate finance firm Pacific Southwest Realty Services, respectively—launched Steel Peak, a San Diego–based investment firm focused on value-add and underused properties in the growing niche of industrial outdoor storage (IOS). They target IOS properties throughout Southern California in the $5 million–$50 million range.
Steel Peak’s relationship-driven investment strategy focuses on sourcing hidden opportunities that translate into outsized returns. The firm invests directly and in partnership with institutional capital and high-net-worth individuals. “Generally, when LP equity partners love an asset class, and most lenders still hate it, there is a window of opportunity,” Johnson says.
Diversity in commercial real estate’s new investment class
Rosenberg says women and minorities are increasingly launching their own firms, reshaping industry dynamics, and breaking through traditional barriers such as accessing capital and building networks. The sheer volume of female-led entrepreneurial activity in D.C. led the former ULI Washington chair to advocate for a larger focus on entrepreneurship in the region’s WLI chapter. Bosfield, who currently sits on the WLI steering committee, is also carrying this torch.
“There [are] a lot of diverse folks just doing their thing … smart and experienced people betting on themselves,” Bosfield says, stressing that the barrier to entry for starting a company is lower than it used to be, thanks, in part, to technology. “Instead of being like a superstar at a platform, you can … be a superstar and have your own platform,” she says.
Diverse voices at the table bring a wealth of varied viewpoints and approaches, promising a more inclusive and responsive real estate industry that caters to a broader range of needs. According to Ford, support from industry groups and institutional mandates for women and minority-owned general partnership have contributed to this shift. She says the industry needs to expand mentorship opportunities for these entrepreneurs and push for continued debt and equity investment in minority businesses. “The opportunities for women and minority businesses are not ‘just happening’—they are the result of intentional action around inclusion and to reach a point of equity,” Ford says. “We need to double down on those actions as an industry.”
