MacKenzie and InspiRE Form Alliance to Help With Distressed Properties

In particular, Asset Adversity Group plans to target small to mid-size banks in Washington, D.C., and the mid-Atlantic with assets valued between $5 million and $50 million.

“We see distressed office buildings as the primary target as they are the most impacted by increased vacancy and value erosion,” Brendan O. Gill, MacKenzie’s president and chief operating officer, told Commercial Observer. “In addition, we predict there will be some distress in multifamily projects which were underwritten when debt was historically low and has now gotten significantly more expensive. Projects under construction are particularly vulnerable to the impact of rising debt costs.”

This is especially true in the District, he said, which is seeing some distress in the office sector due to tenants downsizing or giving back significant space as working from home and hybrid work becomes permanent.  

“While D.C. was historically somewhat immune to dramatic impacts on real estate during recessions due to the underlying constancy of the federal government, this time will be different as the federal government and those who take space around the federal government are downsizing in response to work from home,” Gill said. 

The District’s older office stock is particularly vulnerable, said Marc Fischer, president and founder of InspiRE CRE. A growing number of office buildings are in danger of becoming distressed, especially those in need of upgrades or whose tenants include large companies likely to downsize when leases come up for renewal.

“While we expect that many of the foreclosures will occur in the office sector, we are well positioned to assist investors and lenders across all commercial real estate sectors, including retail, industrial, medical office, mixed use, and multifamily,” Fischer told CO. “With significant debt that needs to be refinanced within the next two years and rising interest rates, landlords of even fully leased assets might struggle to refinance their assets.” 

Gill explained the two companies began talking about a partnership in 2020, once the pandemic caused disruption to the industry and the number of distressed assets skyrocketed. The new alliance will provide consulting services and also boots-on-the-ground assistance.

“The initial step in improving asset value is to preserve asset value,” he said. “We will work to renew tenants early, stabilize the rent roll, and stem any vacancy increases as the first priority. Secondarily, we can help position a building so that it is in the best situation to absorb new tenancy by providing amenities and other incentives to attract workers back to the office.” 

Additionally, Asset Adversity Group will work to help a lender decide when the time is right to sell the asset so as to maximize their selling price while limiting their capital outlay.

The advisory group will be based out of both Lutherville and Frederick, where the two companies are headquartered.

Keith Loria can be reached at Kloria@commercialobserver.com.