No bank wants the keys to office collateral.
How do you reduce special assets/REO/workouts?
Consider a strategic response and provide next-level relationship banking.
Now’s the time to help your office borrowers with consulting. Your RMs have the time.
Sweating Over Office Loans?
Trying to get a bank loan on an office building today is a hard “no”, “maybe” if it’s owner occupied.
Makes sense, a generational shift to remote work has created external obsolescence in many office properties.
Who wants office space in 2024?
Ask an appraiser about the state of the office market, you will get “it depends.” Not all office buildings struggle equally.
There are varying building class, build-out quality, urban vs. suburbs, space functionality, amenities offered, etc.
That said, the office product (in general) has undoubtedly taken a hard Tyson left hook to the head.
5 Strategies to Improve Office Collateral
- Tenants want a lot of amenities, but what they really want is MAXIMUM FLEXIBILITY.
- Effectively market (invest $$$ here) to drive referrals, leverage social media. Ideally find a tenant base that’s least impacted by economic volatility. Create a sense of belonging through community.
- Focus on the quality and duration of the cash flow, but considered (in the interim) very short-term leases, executive suite style.
- Build rapport with your tenants to take advantage of future space expansion, or if necessary, reduce their space (on the fly negotiations) while avoiding vacancy.
- Lose the 90 page lease, it’s the outline for the lawsuit in which neither side really wins. Consider a 1 page lease with outs for both sides. Tenants in 2024 want an “easy button.”
These tips won’t magically happen overnight, but may help occupancy and meeting debt service.
RMs Collaboration
Have conversations with the borrower to understand their specific predicament.
Create a collaborative effort offering your borrowers’ strategies to help minimize vacancy.
The bank may consider hiring outside consultants to help the strategic plan and marketing.
Beyond Deposits: Doubling Down on Relationships
Relationship banking is a strategy to strengthen customer loyalty and provide a range of different products and services.
Strengthen customer loyalty always has a positive ROI.
Offering a range of products and services will be a huge LTV (customer lifetime value).
Strengthening Customer Loyalty
Focusing on deposits is a plan, but double-down on relationships will win long-term customers.
Multifamily conversion of office product is a “no-go” for most.
At the end of the day, the bank needs to not lose money.
Hoping remote work goes away isn’t a strategy.
Office borrowers need a plan.
Provide one.
