Navigating The Office Apocalyspe

The Real Estate Espresso Podcast

Navigating The Office Apocalyspe

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Navigating The Office Apocalyspe

Welcome to The Real Estate Espresso Podcast, your morning shot at what’s new in the world of real estate investing. I’m your host, Victor Menasce.

On today’s show, we’re talking about an office turnaround that can serve as a powerful lesson to all investors. This is a single office building in downtown Toronto. The address is number seventy York Street and why its turnaround is one of the most practical case studies we have for navigating what many are calling the office apocalypse.

It’s a story about control, execution and discipline to create certainty in an uncertain market. So let me set the stage. Number seventy York is a 17‑story building, roughly 210,000 square feet, connected to the PATH system, which is a well‑located asset in Toronto’s downtown core. It’s not a brand‑new glass tower, it’s a mid‑eighties vintage building with the kind of fundamentals that can still work if you get the leasing right.

Then it lost its anchor tenant, HSBC. Now, when an anchor tenant like that leaves, it’s not just space that goes dark; the entire narrative around the building changes. The market interprets the vacancy as risk, lenders interpret it as impaired cash flow, and prospective tenants start to wonder if the owners knew something the rest of the market doesn’t.

Enter an equity fund called Kingsett. They eventually became the owner when the building was nearly empty, roughly 80% vacant or 20% occupied. A lot of owners faced in that situation do exactly the wrong thing. They panic, they discount the rent aggressively, they signal weakness, they sign tenants on short terms, and they convince themselves that they’re creating momentum.

That’s not creating momentum; they’re digging a deeper hole. They’re training the market to see the building as distressed.

So how did the turnaround occur? First, you have to understand the most important thing. Kingsett didn’t buy the building as a conventional acquisition. They got control of it through the capital stack. The building was foreclosed on by Kingsett’s Senior Mortgage Fund, and even if you’re not the senior lender, you can often get control by purchasing the senior debt.

And this is the first lesson in surviving the office apocalypse. In a dislocated market, control often comes from being senior in the stack, not from winning a bidding war. When the world is uncertain, equity is expensive and risk is high, but debt, especially senior debt, gives you downside protection and a path to ownership when the original business plan fails.

In a period where office valuations are definitely resetting and being reassessed, the refinance risk is the dominant risk. Having the ability to take the keys matters. Now this is not a strategy for everyone, but it is a framework. You don’t just look at assets. Look at positions in the capital stack to give you control when the cycle turns.

Once you have control, then the focus shifts to execution. The turnaround at number seventy York over three years, taking occupancy from twenty percent to over ninety percent, specifically 92.5% by the time of the sale.

Kingsett took ownership in 2021 and they completed a meaningful volume of leasing—about 115,000 square feet of deals—with a reported weighted average lease term of 6.8 years. That’s not just cosmetic leasing. It’s not jamming a few short‑term tenants in the building to make the lobby feel busy. That’s a real turnaround.

So, what can we learn from how they did it? In a broken office market, your product has to match what tenants actually want today, not what tenants wanted back in 2019. The office apocalypse is not just about vacancy; it’s about tenant decision‑making changing. Tenants have fewer employees coming in, they’re shrinking their footprints, they’re demanding better space. They want more amenities, better connectivity and higher quality, and they want landlords who can execute.

This particular building is directly connected to public transit and it’s very close to Union Station. That’s a big advantage in Toronto. It’s not a guarantee, but it’s a lever. It reduces friction for those commuting into the office and it improves the tenant experience. It eliminates the cost of parking, which can be very high in downtown Toronto.

So, if you own a building today, you need to be brutally honest with yourself about the building’s competitive position. Are you in the top tier in the sub‑market, or are you competing with better buildings and just hoping for a miracle? The office apocalypse is unforgiving to mediocrity.

The third lesson is, don’t confuse cheap rent with market rent. When a building is empty, it’s tempting to cut the rent to fill the space, but cutting rent is not the only lever; it’s the most destructive lever. When you want durable tenancy, credit quality and terms matter. A 6.8‑year average lease tells you that Kingsett went after durable income. That matters for refinancing, and it matters for valuation, and it matters for an eventual buyer.

They sold the building to Desjardins Global Asset Management and the Desjardins Group Pension Fund for $134 million at a 6.5% cap. That comes to about $639 a square foot. In a world where transactions are scarce, capital is extremely cautious, an off‑market institutional sale tells you something. It tells you that stability, even in an office market, still has a buyer.

But you’ve got to notice the order of operations. They didn’t sell a vision. They sold certainty. And that’s the number one lesson—exit is not created on a spreadsheet. It’s created by your ability to execute. In the office apocalypse, buyers don’t pay for your plans. They pay for your leases.

If you are sitting in an empty building, the question isn’t, “When does the office come back?” That’s the wrong question. The right question is, what specific kind of tenant will lease this building in the next 12 to 36 months and what will it take to get them?

We are seeing a bifurcation. The very best buildings in the best locations with the strongest amenities will still lease—not like they did before—but they do lease. The worst buildings are those that are functionally obsolete, and their future might not be office at all.

Many owners are frozen between those realities. They’re hoping for a cyclical recovery when what they’re facing is actually a structural shift. Our number seventy York Street is a case study in how to operate inside that shift. It’s not the best building, but it was one that was good enough in a great location.

In times like this, the winners are not the ones with the boldest predictions, they’re the ones who can create certainty for capital, and Kingsett actually proved that with this example.

So as you think about that, have an awesome rest of your day. Go make some great things happen, and we’ll talk to you again tomorrow.

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