It's What's Inside That Counts

If you’re like me, growing up your mother told you no less than twice a day “…it’s what’s inside that counts” or “…don’t judge a book by its cover”.  I’m grateful for that advice, as it helps me be more mindful of bias, more open minded.  Did you know the same is true for office buildings?  That it’s not just about how the building looks, or where it’s located.  The nuanced details of the ownership, debt, and occupancy also matter…a lot.
 
We’re attracted to buildings based on external factors like architectural design and location.  But the extent to which a building is well suited to accommodate a tenant’s needs is a function of more than appearance.  After all, the most beautiful building might have capital stack issues that prohibit it from transacting at market.   It might be owned by an ownership that is notoriously bad at tenant relations.  Perhaps the lender is about to take back the building.  What are the real-world implications of these variables, how would they impact tenancy? 
 
Understanding the big picture requires both deep knowledge of all relevant data and the experience to know how to develop a strategic approach based on such data.  This is among the most valuable elements of the services provided by a good broker.  The best brokers have access to a wealth of knowledge (not easy to get) and know exactly what to do given varying market dynamics.  The big picture is always an aggregation of many small parts.  Capital market intel is vital in qualifying the existing capital stack (equity, debt) as it compares to market.  Understanding the nuances of the existing tenant dynamic (WALT, tenant rollover, in-place NOI) is key to understanding leverage.  It’s the sum of the parts that matters most, including that which is not apparent to the naked eye -- it’s what’s inside that counts.