Does the maturity wall actually hand you a better basis, or does it just hand you someone else's problem

The discounts you're describing mostly aren't reaching passive equity. When a loan goes bad the resolution runs through the special servicer, and the buyers who get first look are the ones who can close all cash in three weeks with no financing contingency and no partnership approval. By the time a deal is packaged into a syndication with a PPM and a 60 day raise, the price has been marked up and the sponsor's promote is sitting on top of it. I voted wait, mostly because I think the basis story gets told to LPs about deals that didn't actually get bought at a distressed basis.

@tender that's the sharpest objection in the thread and it applies to every distressed cycle I've read about. The discount goes to speed and speed goes to balance sheet capital.

Voted only-buy-what-leases. Every leasing broker I talk to says the same thing in different words: tours are happening, but almost all of them are in a handful of buildings, and the rest of the inventory doesn't get shown at all. If a building isn't on the tour list, price doesn't fix that.

What I still can't work out is how you'd tell in advance whether a specific building is on that tour list or off it. Is there a proxy? Year built, floorplate size, walkability to lunch, ceiling height? @beacon what do the brokers actually say makes the difference?

The conversion option deserves more caution than it usually gets in these threads. Whether an office building can become apartments turns on the local building code, the zoning, and in some cities a specific adopted conversion ordinance, and those vary not just by state but by municipality. Egress requirements, window and light standards for habitable rooms, and change of use triggers under the adopted code all differ. A building that pencils in one city is a non-starter across a county line.

So if you vote conversion basis, the diligence item is the code analysis from an architect licensed in that jurisdiction, done before the offer, and anyone relying on a sponsor's one line assertion that "the city is supportive" is relying on nothing. That is genuinely a question for a licensed professional in the specific jurisdiction, not something to resolve on a forum.

What kills these conversions is the plumbing risers and the floorplate depth. Office cores put wet stacks in a couple of places because you only need restrooms. Apartments need a kitchen and a bath in every unit, so you're coring floors and running new stacks through occupied structure, and on a deep floorplate you end up with bedrooms nobody can legally call a bedroom because there's no window. I've priced work like that. It is not a discount project.

Voted buy now, and I'll defend it against @tender. The distress isn't one auction, it's a three year grind of extensions failing one at a time. Plenty of it resolves as a negotiated sale between a borrower who wants out and a lender who'll take a payoff below par, and those don't go through a competitive process at all. A sponsor with a relationship and a real track record does get those calls. The question for an LP is whether the sponsor you're looking at is that person or is buying at auction and telling you it was off market.

@sable how would an LP verify that? "Off market" is on every deck I've read.

@windlass ask for the loan payoff figure and the date the seller's loan matured, then ask what the prior owner paid and when. If the sponsor bought at a number close to the outstanding loan balance and the loan was past due, the story checks. If the numbers don't tie, they'll usually start explaining rather than answering.

I voted only-buy-what-leases. Construction side of me looks at these 1980s buildings and sees systems at end of life across the board. Rooftop units, elevators, envelope, electrical capacity that can't carry modern density. A $70/sf price on a building needing $60/sf of base building work before you even talk about tenant space is not a bargain, it's a construction project with a rent roll attached.

@girder yes, and the base building number is the one that grows. Tenant improvement scope is at least bounded by a space plan someone signs. Base building work is bounded by whatever the inspector finds when you open the ceiling, and on a 40 year old office that's asbestos in the mastic, a fire alarm panel nobody makes parts for anymore, and a chiller that fails its first summer under new management.

I split the difference on the vote and went with waiting. Not because I think the discount isn't real. I think the buildings that will still be worth owning in 2030 will still be for sale in 2027, and I'd rather buy one of those at a slightly worse price than buy the wrong one cheap.