CONNECTING

DWC Team on the Move

DWC President Michele Vives has been appointed to the State Board of the California Receivers’ Forum (CRF). She will also serve on the regional council for the San Diego Receivers’ Forum chapter as well as the organization’s Membership Committee.

Founder and Chairman Douglas Wilson will speak on a panel at the upcoming Meet the Money National Hotel Finance and Investment Conference in Los Angeles, to be held May 1-3. The event is hosted by Global Hospitality Group and brings together hotel owners, developers, investors, advisors, consultants, brands, lenders and capital sources.

DWC’s leadership team will attend the 35th annual California Bankruptcy Forum Insolvency Conference, to be held in La Quinta, Calif. May 19-21.

The team also will attend the CRE Finance Council’s annual conference June 1214 in New York City.

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CEO Douglas Wilson. “Stakeholders often don’t know what to do with this collateral.”

A variety of consequences

For the various players involved, office space continues to create challenges with many of the resulting scenarios ending up in distress. Some owners, faced with significant equity losses, are choosing simply to exit their positions and write off the losses. In some recent instances, owners are realizing losses of as much as 50% relative to their purchase prices within the recent short term.

We are finding that owners no longer want to put in additional capital for tenant improvements and leasing commissions, especially when facing the difficult headwinds to secure new financings. This scenario will often result with the lender petitioning the court to put in a Receiver to safeguard their collateral. This process may result in the sale of the property through a court-approved receivership sale, which allows the asset the be sold without the lender having to foreclose and step into the chain of title.

“Some of these shifts show a market that is returning to equilibrium as real estate markets are going through what is a natural adjustment right now,” Wilson says. “In office, the challenges are particularly bad.”

A long-awaited adjustment

The shift in the market is painful for commercial stakeholders, but in many ways it is a long awaited return to equilibrium following historically low interest rates and a market characterized by unnaturally high values.

The resulting market will have more availability, less development and less construction lending throughout 2023, according to CBRE’s outlook, along with a growing disparity between prime and secondary office buildings.

“Demand for the best buildings in attractive locations will support rent growth in top-tier office towers,” CBRE notes. “By contrast, there will be a smaller pool of tenants interested in older office buildings.”

The developer’s perspective

While office development will continue to fall in the near term, those with experience in this market can offer a unique viewpoint, particularly for those properties facing distress. With national factors at play as well as local influences such as those markets with burgeoning businesses in certain sectors like biotech and life sciences, experience is critical in navigating this market cycle.

DWC’s foundation was the development of San Diego’s 1 million square-foot mixed-use Symphony Towers property, including 575,000 square feet of office space. Since then, we’ve completed numerous office projects during prosperous times and we have served as a fiduciary and an advisor to countless office owners and lenders during times of distress.

In one noteworthy case, DWC served as the for Receiver to preserve, protect and complete the construction of a 400,000 square foot LEEDCertified, Washington, D.C. Capitol Riverfront District office building with three levels of subgrade parking and ground floor retail. The building was 30% constructed at the onset of the assignment, following the borrower’s filing for Chapter 7 bankruptcy with additional takeout financing in place. With our expertise in development and construction, we were able to utilize the balance of the construction loan to complete the project — including meeting dozens of conditions — and resulting in a full recovery to the lender.

Throughout the years, the firm has been involved in office properties in many capacities: as a management company, developer, agent and receiver. As a receiver, we use the specific skill set and cyclical experience we learned as a principal developer, so that we can complete and stabilize partially-built projects, protect office assets in distress, and otherwise protect collateral at risk during these market cycles.

“Today’s environment is giving rise to a need for us to step into complex projects involving construction, environmental and entitlement issues—all areas we are intimately involved in as a developer,” says DWC President Michele Vives. “We anticipate the demand for this expertise will only continue through this troubled time for the office sector.”