In the commercial real estate market, the low price of entry stopped working as a sign of a good deal. A discount today more often signals a hidden problem of an object than a loss of other benefits. In this article I will tell you what is actually behind the low price, how to consider the real economy of the transaction and at what point the cheap asset manages to become expensive for the new owner.
Discount as market message
The gap between the purchase price of an object and the value that can be created after the transaction has been a source of benefit before. It’s just that earlier this gap arose almost automatically: the market grew, money was cheaper, tenants expanded, and a weak object pulled out a general increase in the value of real estate.
Today, the market forgives less. A cheap asset is often cheap, not because it was underestimated, but because the price already reflects a problem: weak cash flow, future CAPEX, short lease agreements, outdated function, site restrictions, complex right, lack of the next buyer.
I have long revised the attitude towards the discount. A low price in itself does not prove the existence of an investment opportunity – it invites you to figure out exactly what problem the seller is offering a discount for. In practice, this difference is often not profit, but a budget for repairs, downtime, interest on a loan and a change of tenants.
Seller urgency or market diagnosis
Two different scenarios are hidden behind the low price, and it is expensive to confuse them. Sometimes the owner just needs money: the loan ends, liquidity is required for another project, the strategy changes. In such a situation, I can get a high-quality object with a temporary discount.
Another thing is when the asset is exposed for a long time, the price has decreased several times, and professional buyers do not enter the deal. Here I ask myself a simple question: has the price dropped because the seller urgently needs money, or because the next buyer does not want to buy this object even cheaper? In the second case, the discount is not a market anomaly, but a market risk assessment.
Behind a long exposure at a low price there is most often one or more factors:
- inflated or unstable net operating income;
- dependence on a single tenant;
- short residual term of contracts;
- accumulated CAPEX
- weak engineering;
- land restrictions or legal risks.
At the same time, expensive money did not kill the demand in the market as a whole. According to CORE.XP, in the first quarter of 2026, investments in retail real estate grew 5.5 times year-on-year and reached 62 billion rubles. Capital has not left the market, but has become more selective and concentrates on high-quality objects, leaving problem lots without demand even at a discount.
What the trap looks like from the inside
The logic of an investor who finds himself in a difficult deal in a year or two usually looks convincing at the entrance. The object is 30% cheaper than comparable offers, the price per meter is lower than that of neighboring buildings, and the decision to buy is made on the basis of this comparison.
Then an optimistic scenario is built: tenants will remain, the vacancy will close quickly, the repair will be cosmetic, the rate will be raised. A year later, it turns out that the tenant is leaving, new ones need benefits and investments in decoration, engineering requires modernization, and approvals are delayed. At the same time, debt service continues regardless of the load of the facility.
The trap arises because the investor counted only the entrance and did not count the path from purchase to sustainable cash flow and exit. A cheap asset becomes expensive not on the day of the transaction – it becomes expensive every month, when it does not create value, but continues to consume capital.
Why the cost of money is more important than the price of a meter
The price of the object is fixed once in the contract. The cost of capital is charged all the time of ownership, and with expensive financing, time itself turns into an expense item. Each month of downtime, reconceptions or protracted approvals increases the real purchase price.
If I received a 20% discount, but the launch of the facility took two years, during which I had to pay interest and not receive the planned income, a significant part of the discount disappears even before the asset stabilizes.
The situation is aggravated by the fact that the cheap money cycle has ended: from July 27, 2026, the key rate is 14%, and the Bank of Russia predicts the average rate for the entire year in the range of 14.5-14.6%. Waiting, which used to be free, costs money every month today.
I always consider the full cost of bringing the asset to investment readiness separately from the transaction price: purchase price, transaction taxes, cost of debt and equity, CAPEX, operating costs of downtime, loss of income during rotation of tenants, reserve for exceeding the budget and deadlines. The model does not start with the question «how much will I earn» but with the question «how much time and capital can an asset take before it starts working».
The price per square meter remains a convenient but deceptive metric. Two buildings can cost the same per meter, but one holds long contracts with reliable tenants and a low future CAPEX, and the second carries a hidden vacancy and outdated engineering systems. Formally, the metric area is the same, economically these are two different assets. The heterogeneity of the market is confirmed by CMWP data: about 30% of free office space in Moscow in the first quarter of 2026 was exhibited for more than a year, and the actual liquid share of free space on the market was only 3.7%. Part of the offer is formally present on the market, but for months, it has not found a real user.
The ten signals I check before the deal
Over the years, I have collected a list of signs of a problem asset, which I look at even at the stage of viewing the object, before signing the contract:
- the seller explains the price only by urgency and does not disclose the economy of the object;
- NOI is noticeably higher than the market, but it depends on one tenant or time rate;
- large gap between physical and economic occupancy;
- high future CAPEX not included in the price;
- closed documentation – no engineering surveys, repair history and cost breakdown;
- outdated function of the building without the possibility of adaptation to other demand;
- weak or limited right to land;
- lack of demand for premises even at a reduced rate;
- the financial model requires both ideal occupancy, rising rates and cheap refinancing;
- the next customer is not clear.
I consider the last point decisive. If an asset can be bought only because it is very cheap, but it is impossible to formulate who and why will buy it in five years, this is not an investment strategy.
What is important to the investor when choosing a cheap asset
The gap between the transaction price in the contract and the price of investment readiness is rarely visible at the start. The investor says: I purchased the object for a billion rubles. However, if then he invests another 300 million, carries interest for two years and receives less than 150 million in income, his real entry point is far from the stated figure. The entrance shows how much the investor paid. Ownership shows what he bought. The output shows whether it was capital.
I propose to test a specific investment hypothesis before the deal in a few questions:
- why the asset is cheap and is the cause provable;
- whether the problem is finite and avoidable or inherent in the nature of the object;
- how much capital and time will be required before stabilization under a stressful rather than optimistic scenario;
- whether there is a demand for the facility after the problem has been rectified;
- whether the economics of the transaction will withstand the current cost of capital.
Separately, I always say the question of the next buyer: who and why will pay more for the asset – and not for expectations, but for the quality already created. If tomorrow the asset has to be sold without improvement, but there is no convincing answer to this question, the discount may not be a margin of return, but an advance for future losses.
Technical, legal, financial and urban due diligence checks the facts. Nevertheless, it does not replace investment thinking. Before the transaction, the investor must prove the causal relationship between the problem of the object, his actions and the future value.
It is easy to mistake a distressed asset for a ready-made solution just because it is being sold at a discount. However, the bill for the problem is always paid by the one who did not calculate it in advance.
By Konstantin Konov, entrepreneur, investor and founder of YOUKON