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Spencer Levy
ULI’s 2025 Fall meeting in San Francisco covered a lot of ground, including a focus on tech innovations in real estate, which is an area you might expect at a conference set in the shadow of Silicon Valley. But we took the opportunity to detour into a real estate topic that’s decidedly old school. Office, that is. And on this episode, we hear from an investor who sees opportunities and even strength amid the challenges in this sector. 

Brandon Shorenstein 
We bought multiple office assets last year in ‘24 and on a majority of those we had literally no competition. In most of those cases we were really competing against the seller as to whether the seller was going to sell to us. 

Spencer Levy 
That’s Brandon Shorenstein, third-generation CEO of Shorenstein Investment Advisors and related companies, a San Francisco-based family-owned firm which has done nearly $20 billion in investments in office and mixed-use real estate in a series of funds since 1992. Brandon currently oversees a portfolio of predominantly Class-A office properties with over 13 million square feet of property under management. 

Patrick Gildea 
Today what we’re seeing is a much more balanced model between the amount of value that comes from current return, from operations, and then generally speaking flat residual cap rates right now. 

Spencer Levy
And that’s Patrick Gildea, a CBRE Vice Chair and the co-head of U.S. Office Capital Markets. Based in Charlotte, North Carolina, Patrick oversees the East Region and has been involved in more than $10 billion in investment property sales during his two decades in the business. Coming up, a conversation about opportunities in office, investments in conversions, and more, with an active investor who is working on, dare we say, a new frontier in a familiar space. I’m Spencer Levy, and that’s right now on The Weekly Take. 

Spencer Levy
Welcome to the Weekly Take, and I am so happy today, we are talking about office. And no two better people to talk about it with than Brandon Shorenstein, Chairman and CEO of Shorenstein. Brandon, thanks so much for coming out today. 

Brandon Shorenstein
Thank you for having me. 

Spencer Levy
And then my old friend, Patrick Gildea, Vice Chairman and co-head of Office Capital Markets for CBRE. Patrick, great to have you here today. 

Patrick Gildea
Very happy to be here, Spence. Thank you. 

Spencer Levy 
Look guys, office has had a tough go the last couple of years. But, Brandon, what do you think? 

Brandon Shorenstein
Yeah, I think we hit bottom last year in 2024. We bought multiple office assets last year in ‘24, and on a majority of those we had literally no competition. In most of those cases, we were really competing against the seller as to whether the seller was going to sell to us or just hold. And today there’s a lot more competition, still way off where we were prior to COVID, but we’re everything we bought this year, there have been multiple rounds of bidding. Some cases we’ve had to go higher than we initially thought we wanted to, but it does feel like things are coming back. The debt capital markets are again nowhere near where they were before COVID or even before rates going up in 2022, but it does really feel like we’ve come off the bottom. 

Spencer Levy 
But debt is available? 

Brandon Shorenstein
Debt is a hundred percent available. To put that into context and how far we’ve come in the past year, we bought an asset in Dallas in September of 2024, International Plaza Two. And when we went out to get debt through our broker who we bought it from. I think we got two quotes. Both were CMBS executions. And then we bought another asset in Dallas just a few months ago, and when we went out to get debt, we got 19 debt quotes at much more aggressive term. 

Patrick Gildea 
Yeah, the combination of spread compression and SOFR going down – it’s had a meaningful impact in opening up more transitional assets which were unfinanceable a year ago. 

Spencer Levy
How’s the positive leverage story here in office? 

Brandon Shorenstein 
Oh, it’s great. I mean the past fourteen, fifteen months we’ve closed nine new transactions. Eight of those have yield. One of them was an empty office building. Eight of those have yield. We’ve bought anywhere from seven and a quarter cap to north of ten caps, all with accretive leverage and that’s distributing cash on cash yields of anywhere from eight and a half to as high as fourteen, fifteen percent. So being able to in a world where very little is distributing, both in and out of real estate. I mean, most of our investors are in venture, they’re in buyout, they’re in other non real estate private equity. The IPO market’s been very slow. 

Patrick Gildea
It presents a really interesting opportunity for folks like you to buy some of the best quality assets. The acquisition you just made in Nashville a few weeks ago is a great example of an asset that would have been a core fund or a a pension fund or potentially a public REIT a few years ago. And now you guys as a private equity fund were able to acquire that because of the cash flow that that’s going to be able to push off in the next five years. And I like the fact that you guys have been well balanced in acquiring completely vacant buildings like 14th and Spring, and then have the ability to offset that with cash flow in some of the best quality assets in the strongest markets.

Brandon Shorenstein
Yeah, no, we love our asset at 14th and Spring that he mentioned, which was a brand new asset. 

Spencer Levy
In Nashville?

Brandon Shorenstein
Sorry, in in Atlanta. 

Spencer Levy
Atlanta. 

Brandon Shorenstein
That we’ve been leasing up the past year and a half or so. But what’s really exciting about our opportunity right now, to his point, is we’re investing in what has historically been core opportunities with core very low risk, but they’re pricing to opportunistic returns. 

Spencer Levy 
I’m glad you used the phrase, Brandon. I often say risk adjusted return. When I wake up in the morning, that’s what I think about is risk adjusted return. And so, like when we’re in the retail sector, I say, listen, I love grocery anchored retail, but you know, it’s priced to perfection. And this space screams just like retail did seven, eight years ago when it was disfavored, spreads were wide, not a lot of institutional ownership, and then the spreads came in rapidly. 

Brandon Shorenstein
You do have to pick the right office though. I mean, all throughout the country we’re still experiencing very high vacancy. But for the right assets, for the right submarket, for the right micro market, vacancy is extremely low, and that’s where you can find really exciting yield. 

Spencer Levy 
And one of the things that I’ve noticed years ago in this business is I grew up in the New York business, and our equilibrium vacancy rate was like eight percent. And then you looked at Dallas and they had an equilibrium vacancy rate of like sixteen percent. And does it mean that Dallas is worse or better than New York? No, it’s just a different equilibrium rate. But I think it goes right back to what we’re saying here. If you exclude some of those office buildings, whatever you want to call them, B-minus and below, from the data set, vacancy looks a whole lot better. You agree with that, Patrick? 

Patrick Gildea 
In some markets, we’ve started to track prime versus non-prime. And prime are the better quality, better located assets, and prime is essentially everything else. And we’re seeing in a lot of major markets where that difference in vacancy rate is as much as 10 to 15% from market to market. And if you look at the statistics, I’ve said this before, if you look at the statistics from COVID to today, 80% of the negative absorption in the office market in the last five years occurred in 10% of the inventory. So that’s where I would draw a corollary to retail is if you were to lop off that 10%, the market is a lot stronger than people give it credit for. Not suggesting that that 10% is going to go away, but we are seeing the office inventory nationally decline for the first time in history. So we are working through that cycle of obsolete inventory being removed, whether it’s demolition or conversion, and effectively anemic new construction delivering. So you’re going to continue to see the same thing they did in retail, which is inventory challenges at the same time that fundamentals are strengthening. 

Spencer Levy
Now I firmly believe that the best use for A-minus and above office is office. But there are some people out there who said, you know what, let’s convert this stuff. What do you think? 

Brandon Shorenstein
I think it depends on the market. I know New York has been incredibly successful at converting office buildings to residential, particularly downtown. We’ve looked at it in some of our assets in San Francisco. In particular, we looked at it for this asset. As you guys know, most office buildings, the floor plate doesn’t lend itself particularly well for hotel or residential conversion. However, in this building here in San Francisco, our tower floors, the floor plates–the building wedding cakes up and the the floor plates are pretty small up top and it lays out great for residential. But we looked at the costs and we looked at the again, your point, risk adjusted returns. And it really didn’t make sense. Here in San Francisco, downtown is not a residential market. There’s no grocery stores. There are no 24/7, seven day a week amenities. So I think until there’s a real groundswell of conversions here in San Francisco, it’s not gonna happen. And there really have been very few, if any, done in San Francisco. 

Spencer Levy 
So Patrick, when you’re selling a building and I know you sell everything from trophy to less than that, how do you make the decision when you’re marketing a building, say this is an office story or this is a conversion story? 

Patrick Gildea 
It starts with the bones, as Brandon just said. There are only a small percentage of buildings, probably less than 10% in most markets that can be converted, and more in a market like a San Francisco or a New York that has an older inventory with smaller floor plates. But in a lot of the markets like Dallas or South Florida, the buildings are 90s and 2000s vintage with larger floorplates, and the depths don’t work for conversion. So the first thing is just functionally, structurally, can the building be physically converted? And you can eliminate a large percentage of the inventory with that question right there. And then the next is can you get it for a cheap enough basis that allows for the rest of the math to work? And oftentimes the answer to that is no. Okay, you think about it, there’s the developers yield on cost, which is market-driven, rental rate is market-driven, and construction cost is market-driven. So what’s the variable that fluctuates is what can I pay for it to make everything else work? Sometimes that number is zero. So it’s a lot easier said than done. But you are still seeing it done in a number of markets. A year ago, Matt Carlson and I got asked at our investor symposium, what is the best opportunity in office today? And to your point, Spencer, we said going one tier down from double-A. At that time, everybody was focused on if we’re buying office, it’s going to be 2010 or newer double A. We said go one tier down to solid A buildings that are in need of investment. And at the time there was very little capital in that space, as you guys saw, because you bought some of those like at 14th and Spring. Now we’re starting to see incredible demand in that segment. Looking here in San Francisco, our partners in San Francisco sold eighty eight Kearney earlier this year. They had almost seventy property tours on that asset. And it’s just indicative of the amount of capital that’s starting to come back into that space. 

Spencer Levy
So, Brandon, I think it’s fair to say we’ve had a tectonic shift in the office space. And that tectonic shift is pre-COVID, there was a certain way of office investing, certain expected yields. And then there’s today, going in today, where you’re going to get things like current cash flow. Tell me about the old school underwriting of office and new school, and is it a permanent shift? 

Brandon Shorenstein
Yeah, I would say the old school way of underwriting office, in particular value add or opportunistic office opportunities was in retrospect far more speculative than it is today. The old school, prior to COVID, we’d invest in a building, either build a brand new building, buy a vacant building, or buy a building that was 50% vacant, and assume, speculate that we were gonna lease up the remaining space in two years, three years, no more than that, and then sell it for an exit cap that was lower than where cap rates were at that moment in time. And today I just see far more downside protection given the yield that you’re able to buy. You can buy a seven, seven and a quarter cap to upwards of north of a ten cap, put a creed of financing on it, produce nine percent to in some cases fourteen or fifteen percent cash on cash yields. And if the leasing market improves, rents go up, your yields are only gonna go up, and then if and when rates or spreads come down, you should be able to sell for a lower cap rate and produce very high returns. So I think there’s far more downside protection today in the way that all investors are able to underwrite office investing. 

Spencer Levy 
I’m not trying to over simplify office investing, but I will tell you something that was said to me in the prior cycle. They said the only way you make money in office is on the sale. I’ve heard that said to me. He said, You know what? Very hard to get cash on cash. TIs are so high. In fact, I have some people changing the way they look at office from a NOI based model to a free cash flow based model. Is that a shift that’s happening today? 

Brandon Shorenstein
Yeah, prior to COVID, a majority of office investors made a majority, if not all, of their return on the residual, on the exit. And today you’re able to get return monthly, which is just a big, in your word, tectonic shift over the last couple of years in how people are investing in office.

Patrick Gildea
At the components of value between cash flow from operations and residual, it was pretty out of whack in the 2010s. And the business plan was based entirely on the residual. Today, what we’re seeing is a much more balanced model between the amount of value that comes from current return, from operations, and then generally speaking, flat residual cap rates right now, and more of a focus on cash on cash. I think that’s all healthy, arguably should have been done the whole way, but we had free money, we had lenders largely funding TI dollars, and so landlords were willing to push TI if it meant they’re gonna get another dollar or two on rental rate because they could count on getting that capitalized on the back end. We’re now in a situation where folks are underwriting post monumental shift, to use a different word, in a much more pragmatic manner, focused on current cash, and that’s a healthy thing. 

Spencer Levy 
So Brandon, first of all, tell me a little bit about the family history and maybe how that played into being a first mover and coming back into buying. 

Brandon Shorenstein 
Yeah, well, I would just say office has always been in the DNA of this company and our family. My grandfather started our company. He was a leasing broker for Milton Meyer in San Francisco. And then Milton Meyer retired, and my grandfather took over his leasing practice. And then about 10, 15 years later, he started putting together office deals on the buy side with institutional partners like IBM, the Bechtel family, MetLife, et cetera, and became at a for a time the largest landlord in San Francisco. And then my father took over the company in the late 80s. And in the early 90s, he met David Swenson from Yale, who wanted my dad to take what we knew about real estate in San Francisco and invest Yale’s endowment all throughout the country. So we raised our first fund in 1991. 

Spencer Levy
How big was that fund? 

Brandon Shorenstein
Oh God.

Spencer Levy
I’m gonna guess it was like thirty million dollars. 

Brandon Shorenstein
No, it was bigger than that.

Spencer Levy
Was it? Because back in the day it was… 

Brandon Shorenstein 
It was I think two hundred fifty million. 

Spencer Levy 
So it was–actually that’s very large for that period of time. Yeah.

Brandon Shorenstein
It was also a 25-year life vehicle. 

Spencer Levy
Okay. So I wasn’t that far off looking at one year, right? 

Brandon Shorenstein 
Yeah, exactly. And so since then we’ve raised 13 funds. The last fund we raised was 740 million. Okay. But that was raised in 2021 and 2022 when no one was working in an office in the country. There were all these questions about return to work. We had every headwind thrown in our face with COVID. Thankfully, now when I meet with investors, we have in our pitch book a slide on return to work. And you know, we have a pie chart of the percentage of Fortune 1000 companies that are working in the office three days a week, four days a week, five days a week, there’s thankfully a very small sliver that are working fully remotely, and we never spend any time with prospective investors on that page. It feels like the return to work question is past us, which is great. And then your question on why we were a first mover investing in office, as I said, it’s in our DNA, it’s what we know the best. We didn’t do a new deal for almost two years from when what was the get that gap period? We did a deal a little bit before interest rates went up in at the beginning of 2022, and then we didn’t do a single deal as values came down until June of last year, 2024, when we bought 14th and Spring in Atlanta. So we don’t always just put money out because we have to, but it felt like the market had fully bottomed and we were starting to see attractive opportunities at very attractive basis compared to where values were just a couple years prior. And then we’ve been pretty aggressive in the past year and a half. 

Spencer Levy 
Let’s go to occupiers for just a moment. And one of the interesting things about occupiers, particularly when you’re dealing with big multinationals, is they think bigger. And they think about not just the transaction at hand, they think about the strategic relationship with the counterparty. What do occupiers think today versus what they thought, say, five, six years pre-COVID? And how has that changed? Is it more strategic? Just give me your big picture on how occupier behavior has changed. 

Brandon Shorenstein 
They’re a lot more focused on the experience of their employees. A lot more focused on wellness, a lot more focused on ESG amenities in a building. If a building, as an example, here in San Francisco doesn’t have a tenant amenity gym, you’re gonna miss out on a lot of tour activity here in San Francisco. So you have to create an environment where employees will want to come back to the office and be there during the week. So that’s changed a little bit, and I think build-outs have also gotten a little more open. There’s not as many offices. People have phone booths on the interior and a few big conference centers. But people like big open, airy spaces for them to work. 

Spencer Levy 
And, Patrick, from your perspective and what are some of the big changes you’ve seen from occupier behavior that’s impacting the capital markets? 

Patrick Gildea
Well, a lot of it goes down to the fundamentals. And if you look at what was happening in two thousand twenty-three and twenty-four, we had a lot of occupiers who were signing short term leases in existing space because of the uncertainty around what their space needs were. And they didn’t know exactly what their stabilized square footage needs would be at the time. And now we’re in a position where most of those, not all, but the overwhelming majority of occupiers know what equilibrium is. And so they’re willing to commit longer term to the spaces that Brandon mentioned. So they want to be in buildings that are exciting, that are experiential, that their employees want to go to. That’s the good news is we’re seeing in a lot of major markets rental rates push past levels that they’ve ever seen before. And we’re hitting new watermark rental rates in quite a few markets. The tenants don’t care about the rate as long as they’re getting the right product. And that right product is–it’s not a vintage issue, it’s the experience altogether. And is it an asset that’s had appropriate investment in common areas and amenities. 

Spencer Levy
And I think, not to be tongue in cheek about this, but I’ve said often – I said it on air before, I’m gonna say it again right now – I still believe the number one amenity in an office is other people. Whether it’s experience that gets them there, whether it’s the gym that gets them there, whether it’s more open air space, getting more people there is it. How’s that going, Brandon, right now? Getting more people back in the office, whether it’s through amenitization, changing corporate policy, and how’s that impacting your business? 

Brandon Shorenstein
It’s about having the amenities and the experience as well as being in the right submarket or micro market. It’s having walkable amenities that might not be in your actual building, but restaurants, coffee shops, bars nearby. I think you’re right. People want to be around other people. Companies and people don’t want to be in an empty office building. If you’re coming back into the office, you want to be around other people, you want to be in an activated space, and you have to have amenities and you have to be in the right submarket. There are plenty of submarkets around the country in great cities that are just not activated and therefore they’re not getting people and they’re not getting leasing demand. So I think you’re right, people want to be around other people and you have to have the right amenities, the right experience to bring people. 

Spencer Levy 
And I think that it comes down to this balancing act between how much do I amenitize these four walls versus the sub market. Because I don’t know that you can amenitize if you’re just in the wrong sub market. What do you think, Patrick? 

Patrick Gildea
I completely agree. And you can have the same building and pick it up, move it from one location to the other, and it can be wildly successful in one and completely empty in the other. And the commonality is exactly what Brandon said, which is live-work-play neighborhoods. That doesn’t mean it has to be a CBD location, but areas that have walkable amenities, retail, hotels, multifamily that are proximate to the office. And you can look at any major market, even some of the markets that have material headline risk right now, and there are micro markets that are performing exceptionally well, and every one of them will be a live-work-play sub market. 

Spencer Levy 
There are some major submarkets within major markets. We’re in the financial district. This is considered the financial district of San Francisco. When you go to the financial district of Boston, you go to some other cities and how do you, when you’re buying, when you’re amenitizing, how do you think about the places that have million square foot buildings versus the smaller areas that don’t? 

Brandon Shorenstein
We like to call those downtown-adjacent markets. So here in San Francisco, that would be Mission Bay. That’s where OpenAI’s office is, that’s where the Warriors’ arena is. It’s very close to where the San Francisco Giants’ ballpark is. And Mission Bay, 15, 20 years ago, was not an office market. There was a little bit of life science, but it was essentially warehouses and tumbleweeds. And over the last 15 years, it’s developed into a 24-7 live, work, play, office, resi, and restaurant environment. And I think a lot of the reason that people want to be there is that all the developments are new. Personally, I think that geographically it’s not a great location for San Francisco, but people like new and they like the amenities, and you can get that in a new built-out environment. 

Spencer Levy 
I used to use an expression: New is the new new. It never made a t-shirt. I had another one. I said that indecision makes a flat squirrel. That didn’t make a t-shirt either, but in any event, the broader point is this:I still see this distinction between the financial districts, the old-school financial districts that have the million square footers, like in LA, Bunker Hill versus Century City. We see it in Atlanta a little bit, downtown Atlanta versus midtown versus Buckhead. How do you see the older markets versus the new emerging markets and how is that impacting the buyer pool? 

Patrick Gildea 
Well, the positive about the financial services firms, professional services firms, is that they’re largely back in the office. And in most cases, minimum four days a week. So I do think you’re starting to see improvement in some of those traditional financial districts because of the physical occupancy starting to come back. And that will have spillover effects into all of the other surrounding uses. So I’m a believer that you’re gonna start to see some of those return. That’s also where you’re seeing a lot of these older vintage buildings, because a lot of these are ‘70s vintage or older, particularly again in some of these older markets like a San Francisco, where you can actually make the conversion work. So you’re gonna bring in some other uses that are gonna help to elicit more activity in those markets. So it’s gonna take longer than the more niche neighborhood markets you’re talking about, but I am a believer long term. 

Spencer Levy 
I’m a huge San Francisco fan, just you know I said it was the most oversold market a few years ago, but we still are coming back here in San Francisco. What’s your point of view on San Francisco? 

Brandon Shorenstein
I also have always been a big believer in San Francisco. San Francisco has always been a boom and bust town, even before tech. It’s been great to see a lot more tenant demand in San Francisco. And like a lot of other markets, the trophy tier one in San Francisco is doing extremely well and has been doing extremely well all throughout COVID. Even in a market like San Francisco where vacancy is 35%, the tier one vacancy is in the single digits. We own one of those buildings, 50 cal, and every time we get a floor back at 50 cal leases immediately, we do a lot of tours. However, everything below tier one is still a little soft. There is a ton of AI leasing demand, which is great. However, outside of the real big boys in AI, they really only want to sign three-year leases because they don’t know in three years if they’re gonna need a million square feet or zero square feet. And in a market where tenant build-out costs are at least at a minimum two hundred to two hundred and fifty dollars a foot, it doesn’t really make a lot of sense beside a two or three-year lease. So that’s the only softness I would say in the market. There’s a lot of demand, but a lot of that demand comes with very short term.

Spencer Levy
This is a key point. I speak to the big occupiers and they say the same thing over and again: How do we create a better box? 

Brandon Shorenstein 
We’re working on that, real-time, here in this building. We’re trying to build out spaces that can be durable where we can that’s shorter term in nature. Correct, where we can build out a spec suite that’s more open with fewer offices, maybe one or two conference rooms, maybe a few phone booths, polish concrete, expose the brick, and maybe it makes sense to lease to a shorter term for a tenant, and then if they blow out or if they expand in three years need more space, we can bring another tenant into that space and re release it for, you know, twenty to thirty dollars a foot as opposed to doing the full two hundred dollar build out. 

Spencer Levy
So, Patrick, we’re here in San Francisco, and as I mentioned, I’m a big San Francisco fan, but I’m also a big fan of the Southeast. I’m a big fan of Charlotte. I’m a big fan of Atlanta, notwithstanding some of the challenges downtown. I’m a big fan of Raleigh, of some of these smaller markets that are emerging around it. In the Southeast, when you’re looking at the trends, are they similar to what we’re seeing here in San Francisco where the financial districts maybe are taking a little bit longer than some of these emerging areas? Which point of view? 

Patrick Gildea
Yes, although getting out of the micro market and getting into the macro of the Southeast and Sunbelt markets, the markets that are doing the best right now are markets that are driven by financial occupiers and by professional services occupiers. So uptown Dallas is arguably one of the hottest markets in the country, driven largely by professional services and financial services firms moving and expanding in that market. We’re seeing the same thing in South Florida. We’re seeing the same thing in Charlotte. Some of the markets that are a little bit more tech driven are not quite there from a recovery standpoint and are a little bit behind lagging physical occupancy and then therefore tenants and market activity. So if you look broadly around the Southeast, those professional services oriented markets are doing very well, putting aside the traditional CBD and a lot of those markets, there’s a new CBD so to speak that’s emerged, like Midtown in Atlanta or uptown Dallas versus downtown, Brickle in Miami, the Gulch in Nashville, et cetera, et cetera, South End in Charlotte. So there is a new market that’s emerged in a lot of those. What’s really interesting though is we risk running out of space in a lot of those markets in high quality office. So it’s gonna be interesting to watch where the tenants go next after we run out of space. 

Spencer Levy
Well we’re now going to come back to Buckhead in Atlanta as an example. For a time, and it may still be the case overall that Buckhead was the number one submarket in Atlanta. But then for a while it shifted back to Midtown. And the reason why it shifted back to Midtown was the MARTA’s there, but they also had that cool Ponce City market. There was the Jamestown deal. Microsoft moved in there. So these sub markets evolve and they can evolve quickly. Can we see the same thing for these financial districts. 

Brandon Shorenstein
I think it’s gonna take time and it’s gonna take a lot of these buildings trading and resetting a basis that’s a lot lower than whatever the previous owner’s basis is. And with a lower basis you can invest a lot more capital into retail and common areas and a lot of the examples you just gave, like Ponce City Market. Ponce is amazing, but it’s just really, really high quality retail and restaurants and bars and you need money to develop that. And I think it will take time and as a lot of buildings go back to lenders and they get sold and basis gets reset at a much lower level, I think the capital will be invested into traditional downtown financial districts and I think the office will follow the retail. 

Patrick Gildea
I was thinking the same thing, Brandon, that one of the commonalities among a lot of those troubled old financial districts is issues with the capital stack of a lot of those larger towers. And you’ll see a concentration of troubled capital stacks in those markets, and as a function of buildings that require capital, maybe a large tenant or two left, the loan came due, and nobody wants to put money into it. And we’re starting to work through the cycle of cleansing through those troubled assets, and those fall into one of two buckets. Either it is a conversion candidate and can no longer be an office building. You know, there are office buildings that just simply cannot function as office anymore, whether it’s a window line issue or lack thereof, or ceiling heights or or floor plate size. There are buildings that it doesn’t matter what the rent is, they can no longer be office. So those are being converted or demolished. And then the others that are still very functional office buildings but require investment, to Brandon’s point, are getting a basis reset. Fresh capital is coming in, acquiring those at a lower basis that affords meaningful investment to put the appropriate amenities, spec suites, common area adjustments, et cetera, to make those relevant assets again. So it’s going to take a little while to get through this cleansing cycle, but that’s going to help to revive some of those CBDs. 

Spencer Levy 
There’s the physical asset. There’s the sub market. There’s a hundred issues here. But the asset that we’re sitting in right here, right now, how old is this building? A hundred years old? And how does it work? 

Brandon Shorenstein 
It was built in the early ‘20s and at the time it was the tallest building west of the Mississippi. 

Spencer Levy
What’s the address here?

Brandon Shorenstein 
235 Montgomery. It’s called the Rust Building. 

Spencer Levy 
Yeah and how does it work? An older building? So you have an older building, we’re talking, well, functionally obsolete. Well this building’s a hundred years old, still working. 

Brandon Shorenstein 
Yeah. Going back to flight to quality and the new new and new winning, you know, new assets, assets that have been built in the past ten years, are the only vintage of asset that has seen positive leasing absorption since COVID started. Every building built in the 2000s, the ‘90s, the ‘80s, the ‘70s, etc., have all experienced negative rent absorption since COVID started. However, there are older buildings like this one where you can expose the brick. The lobby downstairs is a cool art deco lobby that you would never be able to build again today. And there are a lot of tenants that like that, and those create a lot of unique features that make it differentiated in a different way that new buildings can’t. 

Spencer Levy 
I think cool is universal, right? Cool’s still–and I hate to be so simple about it, but people want cool, but they also want functional. And sometimes cool goes too far if it’s at the expense of functionality. Is that a fair way to put it? 

Brandon Shorenstein 
Yeah, I agree. It’s also easier to put in amenity centers and conference areas and gyms and whatnot in brand new buildings than it is in an old Art Deco building. 

Spencer Levy
But your choice of when you put in the gym or when you put in the food offering or some other types of amenity isn’t just we want to have a battleship amenity building. It’s based on the sub market, ’cause some sub markets you may not want those amenities. 

Patrick Gildea 
Right. Yeah, I agree. We did an occupier survey recently and that can be something that you have to build inside your building in an amenity space embedded if that doesn’t exist elsewhere. Or if you’re in the right location, that can mean food service at the ground level. 

Spencer Levy 
That’s very interesting, and I want to bring up a kind of a sidebar case study. But continuity or connectivity to the streetscape to the local market is a competitive advantage of a dense urban environment, right? Suburban office is getting a bad rap, it’s been that for a little while. Make the case for suburban office. 

Patrick Gildea 
Well, when we talk about the declining inventory and some of the decline being from conversions and some being from demolitions. The conversions are largely urban environments. The demolitions are largely suburban. And so you are starting to see some of the older vintage B and C suburban assets demolished for whether it’s multifamily, industrial, mixed use, etc. But there is still very much a demand in the market from tenants for suburban office. They still want the same things. They want the better quality buildings in a given submarket. They want amenities. They want food service. So buying one or some of the better office assets in a true suburban market, I think, is still a really interesting investment profile. Doesn’t mean I’d go buy the oldest building and just hope that having the lowest rental rate is going to be successful. I don’t think that that’s a successful business plan. But going to a true suburban market and owning the best in class, I believe in. 

Spencer Levy 
We only have a few minutes left here, Bandon, so I just want you to make the case for office. 

Brandon Shorenstein
Well, first I feel like office gets grouped into just two buckets. It’s either A or B. And it’s not that simple. I think there is true trophy, which is either your older building but a generational building like Nine West in Manhattan or 555 Cal here in San Francisco, or brand new buildings all around the country that are getting premium rents and vacancies really low. And then I think there are probably five or six tiers below that. And then there’s probably a whole nother tier of buildings that are irrelevant, zombie buildings, whatever you want to call it, buildings that are irrelevant and over time need to be torn down or repurposed into something else. Our case for office is really what we’ve been talking about today. You can get real yield out of office. For probably 20 years, we in the office investing world went to a space where unless you were investing in the corest of core and your yields were extremely low, you are not getting real monthly d distributable yield. In real estate and office investing is supposed to be a fixed income alternative with upside on if there’s cap rate compression and upside on the back end. So we’re kind of back to the future a little bit today in the office world where you can put a creed of financing on a seven to a eleven or twelve cap, get to distributable cash on cash yields, and then should have some cap rate compression over time. And get some real appreciation on the back end. So that’s what we’re excited about in office right now. I think we have downside protection in the monthly yield we’re distributing to our investors. And you know, we have real upside if and when rates come down significantly. And as we said, the debt markets are already starting to come back. But if they get anywhere close to where they were pre COVID, it’s gonna be a generational buying opportunity. 

Spencer Levy 
Great. So, Patrick, what are we looking at in the next couple of years? I know there was an expression Survive till ‘25. And ‘25 started off great, then we had April, and then it’s certainly gotten better since, but we’re still not quite perhaps as robust as we were. What’s your outlook? 

Patrick Gildea
Well, being here at Fall ULI in San Francisco, the tone around office is exponentially better than it was even at Spring ULI and certainly at last year’s Fall ULI. We have a perfect storm of fundamentals improving, capital flow is coming back into the office sector, declining inventory, lack of new supply, as you said, all the things that happened in retail, but this is happening much more expeditiously than it did in the retail sector. So I think ‘26 is going to be an incredible year. And I really like the phrase that you said, back to the future. I was thinking about this earlier today, and I’m going to get a little bit personal, but I grew up in North Carolina with a dad that built office buildings and warehouses. And I remember the amount of time and thought and detail that he put into his office buildings. From the architecture to the landscaping to statues that he would have built out front to the smell in the lobby and the sounds in the lobby, things that I didn’t understand at the time. And I asked him why are you doing this? Why do you put so much time and energy into this? And he said, because people spend the majority of their waking hours in these buildings, and I want them to be excited about going here. I want them to enjoy being in this setting since they’re spending so much of their time here. And I think we got away from that for a little while, and now we’re coming back to realizing the true value of the office, which is that’s where you build lifelong relationships. That’s where cultures are built. That’s where you spend a majority of your waking hours. And we saw in the last few years that it’s considerably harder to build a culture and to grow young talent when folks aren’t in the office and together and building those relationships. Now we’re seeing corporations start to realize that again, and I’m really excited about the future. 

Spencer Levy 
You know, Patrick, I’ve known you for almost twenty years and that’s the first time you’ve told me that story about your dad. I’m so glad you told that story. I wish I knew it sooner. 

Patrick Gildea
Yeah. Today would have been his seventy-fifth birthday if he were still with us. So it was on the mind. 

Spencer Levy 
Maybe this isn’t the segue we were looking for, but I think there’s some unbelievable value in having an intergenerational company like Shorenstein. You know, we’re talking about our dads here, right? And it’s our moms too, it’s the family thing. Because we’re dealing with things that are not on your Excel spreadsheet. We’re dealing with things that have durable value. How do you see that, Brandon? 

Brandon Shorenstein
Well to Patrick’s point, we’re dealing with real assets that people interact with on a day-to-day basis. And to your point about this building we’re sitting in today, it was built over a hundred years ago. And the people who built this building were not expecting that we’d be contemplating sitting here doing a podcast in this building, but here we are. And so it’s a very good point. It’s one of the rare industries where what we do and what we create and where we spend our dollars influences not just companies and people today, but future generations. 

Spencer Levy 
That’s right. And I try to not oversimplify these things. When I speak to rising professionals in the space, I say the same thing over and again. I say, determine what is value. And what is value isn’t the value of the building. That’s a derivative. Value is creating that value. And value is creating demand. And you create that demand through all the things we just talked about here today. So on behalf of The Weekly Take, what a fantastic discussion. I want to thank Brandon Shorenstein, Chairman and CEO of Shorenstein, for coming out today. What a great conversation. Thank you.

Brandon Shorenstein 
Thank you so much for having me. 

Spencer Levy 
And one of my oldest friends at CBRE. And I’m so glad you told me your story about your dad, it meant a lot to me. So proud of you, Patrick. Patrick Gildea, Vice Chairman CBRE, co-head of our office space, rock on. 

Patrick Gildea 
Thank you, Spencer. Very fun conversation. 

Spencer Levy 
We hope you enjoyed that conversation too. And as always, there’s a lot more in our archive – episodes filled with professional insights and personal touches from the best in the business. So check that out along with related content. It’s all on our website, CBRE.com/TheWeeklyTake. Or you can find it on the podcast platform where you listen to the show. Looking ahead to next year, we’re working on some new wrinkles. So make sure to subscribe and we’ll keep you informed about what’s coming up. Also, as our 2025 season draws to a close, we’d love to hear your thoughts and feedback. So review the show on those platforms or feel free to drop us a line through the website, which again is CBRE.com/TheWeeklyTake. Thanks for joining us. I’m Spencer Levy. Be smart. Be safe. Be well.