FTI Experts’ Hub: Contemplating Handing Back the Keys? Think Again

The total value of offices that were in danger of defaults, foreclosures or other forms of distress rose to more than $38 billion at the end of the first quarter of the year, according to data from MSCI Real Estate. In this context, no wonder many office landlords are considering handing back the keys of their properties to the lenders. But is that the best approach? What are the implications from a tax standpoint? Are there alternatives to capitulation?

In the second episode of FTI Experts’ Hub, our quarterly podcast series with FTI Consulting specialists, Commercial Property Executive Senior Editor Laura Calugar talks to Managing Director Scott Drago, who advises clients on a broad range of real estate and transactional tax matters.

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LISTEN TO: The Ins and Outs of the Bifurcated Office Market

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An old office asset in a Class B location is in a tough spot right now, Drago admits, and having that difficult conversation about the property’s financial prospects is necessary. But the borrower needs to have all the facts and options available to them, and also recognize and understand all the variables that go into every decision they might make.  

Here’s what Drago told Calugar about the aspects that should be considered:

• Still a bifurcated office market? (0:40)
• The financial prospects of Class B/C office properties (2:37)
• What borrowers should to do before handing their office assets to their lenders (3:51)
• Implications of transferring title to the lender (5:50)
• Tax considerations when reducing or restructuring debt (13:20)
• Other options (18:04)
• Why lenders are open to finding a mutually beneficial solution (21:15)
• Owning an office property through 2025 or beyond—is it worth it? (23:43)

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