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<\/p>\nAs the return-to-office movement picks up steam, owners are busy trying to make their properties as attractive as possible for tenants. That means introducing pricey new amenities to buildings, but with the cost of debt elevated, owners are shying away from borrowing to fund those improvements.<\/p>\n
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\n Photo by Joe Woolhead, courtesy of Silverstein Properties\n <\/p>\n
\n Allen Matkins\u2019 Jonathan Berger, Corgan\u2019s Sean Kim Nickerson, ZGF\u2019s Antony Tavlian, MAD Studio\u2019s Eduardo Melgar, Lowe\u2019s Marty Caverly, Silverstein Properties\u2019 Harlan Strader and Hackman Capital\u2019s Zach Sokoloff.\n <\/p>\n
\u201cYou can’t do that anymore, or you can on a rare occasion,\u201d Lowe Executive Vice President Marty Caverly said at\u00a0Bisnow\u2019s\u00a0Los Angeles Creative Office and Workplace of the Future event on Nov. 19. \u201cAnd until that comes back, the landlord is sort of stuck building out a nice space, but without going bankrupt doing it.\u201d\u00a0<\/p>\n
Although the\u00a0federal funds rate was cut again last month<\/a>, it hasn’t been a cure-all for what ails office owners. Building values remain depressed, which makes it hard to borrow. The interest rate is still elevated above\u00a0prepandemic levels and yields on the 10-year Treasury have remained above 4% for roughly a year.\u00a0<\/p>\n The cost of doing tenant improvements has gone up, due to capital costs but also the price\u00a0of labor and materials to get the job done. This has changed the way that some landlords\u00a0rationalize decisions<\/a>\u00a0around forking over cash to build out space and lock in tenants.\u00a0<\/p>\n \n Photo by Joe Woolhead, courtesy of Silverstein Properties\n <\/p>\n \n Colliers\u2019 Adam Tischer, McCourt Partners\u2019 Patrick Rhodes III, Harbor Associates\u2019 Paul Miszkowicz, Uncommon Developers\u2019 John Barganski and Kilroy Realty Corp. Andrew Schlegel.\n <\/p>\n Removing that access to capital adds a challenge when money is tight and the landlord is looking toward not only the current tenant but whoever might move in next.<\/p>\n The balancing act required of landlords means that sometimes, it is not possible to meet all of a tenant\u2019s demands around outfitting their space, Caverly said at the event, held at the U.S. Bank Tower.\u00a0<\/p>\n With tenants in a position of power, some owners noted that even among trophy buildings, occupiers are being very, very picky.\u00a0<\/p>\n \u201cAll of our clients want the biggest and the best and the boldest and the newest and the most creative, but it really comes down to who’s going to ultimately pay for it, and that really determines the decision of what gets pushed forward,\u201d Corgan Associate Principal Sean Kim Nickerson said.<\/p>\n<\/p>\n