While distressed office buildings are trading at historically low prices, institutional capital has largely exited the sector, leaving an opportunity that nimble private capital firms are seizing. Benjamin Wong, Partner and Chief Investment Officer at Tourbineau Real Estate Partners, explains why major players remain on the sidelines despite apparent bargains.
Wong’s firm has encountered little competition when acquiring distressed office assets, often acting as the sole bidder. This reflects a broader institutional retreat driven less by individual deal quality and more by the alignment and risk appetite of major capital sources.
“Institutional capital tends to be often, even though there are different names, they can be backed by similar players,” Wong said. Major real estate firms that appear to compete often share common limited partners, such as state pension funds, sovereign wealth funds, and other large institutional sources.
“You’ll have pick your institution A, pick your institution B, pick your institution C, they’re different names. They’re led by different people. They’re actually all backed by 10% of this state pension fund, 25% of this other state pension fund,” he noted. This overlap leads to synchronized decision-making across seemingly independent firms.
The result is what Wong calls a uniform “risk on and risk off barometer” that moves institutional capital in the same direction at the same time. When these shared backers become cautious about office investments, multiple firms withdraw together, regardless of individual deal merits.
The institutional withdrawal has been hastened by a shift toward private credit strategies over equity investments. Wong observed that institutions “thought that, given the fall in values, which is certainly happening, that on a risk-adjusted basis, it’s actually more profitable to be in the lender pool, not the equity.”
This change has created a cycle where institutions provide debt for distressed office situations but avoid equity positions, leaving acquisition opportunities for firms like Tourbineau that focus on ownership rather than lending.
The absence of institutional players has enabled Wong’s team to set not only price but also terms for due diligence and execution. In several cases, Tourbineau has been the only bidder, fundamentally shifting negotiation dynamics.
“We quite often, in our cases, we may be bidding for things where we’re one of the only buyers, and there have been actually cases where we’re the only bid,” Wong said. This position is important given the complexity and risk involved in office conversions.
Wong’s investor base is primarily “private capital, family office money” that values the team’s real estate experience and the strategy’s alignment with patient capital. Unlike institutional funds with set lifespans, private capital is typically more flexible and better suited for conversion projects that may take longer to complete.
The institutional retreat creates opportunities but also highlights market inefficiencies. Wong anticipated this environment when launching Tourbineau, assuming “most institutions were on the sidelines and were playing in the private credit realm.”
This assumption has proven correct, allowing his firm to acquire assets at prices that enable multiple exit strategies. Buildings bought at low basis points could remain as office space, convert to alternative uses, or be redeveloped entirely, depending on market conditions.
The gap between institutional capital and distressed office opportunities represents a structural mismatch that may persist through the current cycle. Wong’s experience suggests that smaller, specialized firms backed by patient private capital may be better positioned to take advantage of office market dislocation than traditional institutional investors limited by synchronized risk management and shorter investment horizons.
This situation raises questions about whether institutional real estate investment models are still suited for handling major market disruptions that require contrarian strategies and longer holding periods.
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