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BA Investment Advisors bets on suburban office buildings

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BA is swimming upstream, making it a perilous time for office landlords as large real estate firms flee a market plagued by a surge in vacant homes, shrinking businesses and rampant loan defaults. Its latest purchase came at a pandemic-era discount and included an updated building with amenities that help lure tenants, limiting risk compared to outdated and mostly empty properties. But another important piece of the paper reveals clues about the future of his work in the office. BA targets almost exclusively buildings with a high density of businesses under 10,000 square feet per building.

Their way of thinking echoes the conventional wisdom of pre-corona office landlords, who have long emphasized strong balance sheets and prime credit profiles for large publicly traded companies renting out most or all of the space in their office buildings. overturn However, many of these companies are under pressure to allow their employees to work from home, reducing their office footprints.

In contrast, smaller companies are returning employees to the office at a relatively high rate. Bernstein and Elbaum think such a tenant-filled building would be a good investment. If they get it right, it could not only bring their venture a hefty return, but also provide a roadmap for other investors seeking opportunities in the stark suburban office market.

“At the beginning of the pandemic, we believed that office space wasn’t going away, it was just being used differently,” says Elbaum. “We saw something that meant a lot to us.”

The results so far look promising.The company has renewed or extended leases with a number of tenants 570 Lake Cook Road Deerfield and Eden’s Corporate Center at Northbrook. Together, the two properties have more than 50 tenants and are currently more than 80% leased, according to Elbaum. According to brokerage firm Jones Lang LaSalle, this is well above the 73% average for first-class suburban buildings, or Class A buildings.

“We don’t face the risk of a single tenant moving out,” says Elbaum, who doesn’t risk dramatically damaging the building’s cash flow. He began his real estate career at Bernstein as an office his lease his broker in midtown Manhattan before moving to Chicago and establishing his lease his broker. Bradford Allen Realty Service, 2003.

Smaller tenants are typically not as well capitalized as larger tenants, and buildings full of tenants require ongoing attention to leasing. Dividing a building into dozens of smaller users also makes it difficult for such an enterprise to expand when needed.

But as the effects of the pandemic fade, such companies are finding it easier to bring employees back to the office on a regular basis. According to a survey of office tenants nationwide conducted in December by JLL, companies with 150 or fewer employees use the office 3.1 days a week on average, and companies with 500 or more employees use the office an average of 2.2 days a week. understood.

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