Agellan: Why the Office Tail Still Sets the Math
Office is only 7.5% of Agellan’s investment-property value, yet it still dictated the 2025 arithmetic. Logistics kept generating positive revaluation, but Naperville and the rest of the office book still pushed the total picture into negative territory.
The main article argued that Agellan’s core sits in business and logistics parks, and that the bigger question is whether the 2025 refinancing really built room. This follow-up isolates only the office tail, because in 2025 it remained strategically small but financially loud.
The first point is simple. The company has 47 properties, of which 43 are business and logistics parks and only four are office assets, and it explicitly says it is not currently expanding its office activity. On a superficial read, that sounds like a side issue. In the 2025 math, that is exactly the mistake. Office property value at year-end stood at only $68.43 million out of $916.84 million of investment property, just 7.5% of the total. Yet office revaluation loss reached $6.521 million, while the entire portfolio ended the year with only a $1.994 million revaluation loss.
That means logistics did not break. Quite the opposite. Business and logistics parks generated a positive $4.527 million revaluation in 2025. What turned the overall picture negative was the office book. So the right question is not whether office matters strategically. It is whether office is already small enough to stop driving the way the numbers are read. In 2025, the answer is still no.
Four points matter right away:
- Office is small in book value, but not in effect. It is 7.5% of property value and 14.4% of NOI, yet it accounted for revaluation drag equal to 327% of the total portfolio loss.
- Reported NOI tells too friendly a story. Office NOI rose in 2025 to $6.463 million from $4.862 million in 2024, but adjusted office NOI collapsed to $1.936 million from $5.271 million.
- Naperville is the center of gravity. One asset, 500 thousand square feet, 44.7% of the office book by value, and 57.3% of office revaluation loss in 2025.
- This is no longer just a cap-rate issue. At Naperville, the 2025 valuation kept the same discount rate and terminal cap rate as 2024, 9% and 13%. The additional value drop came from lease events, not from another outward move in valuation assumptions.
This chart captures the whole thesis. If the office book had merely stayed flat, Agellan would have finished 2025 with a positive revaluation result. That matters because it separates two different questions: what is working inside the portfolio, and what still sets the headline. What is working is logistics. What still sets the headline is office.
The Real Problem: Reported NOI Is Too Flattering
The easiest way to miss the problem is to look at reported office NOI. On the surface, it rose by 33% in 2025. Anyone stopping there could conclude that office is already on its way out of the thesis. That is the wrong read.
The adjusted NOI table shows the opposite picture. Adjusted office NOI fell by 63.3% in a single year, from $5.271 million to $1.936 million. In other words, part of the income still appearing in 2025 belongs economically to the period before the full occupancy damage hit, while the adjusted number is already trying to reflect the business after tenant exits and the reletting gap.
This is not a cosmetic gap. It is the core of the math. When reported NOI rises while adjusted NOI collapses, the annual report is still carrying some inertia from older leases, but valuation is already pricing in a harder transition period. That is why the office book looks better in the income line than in value, and why the read gets distorted.
Naperville is the clearest example. There, actual yield in 2025 still stood at 17.59%, but adjusted yield was only 1.48%. It is hard to ask for a clearer sign that the accounting number for the year is not telling the same story as the economics of the next year.
Naperville: This Is Where the Weight Sits
Naperville Woods Office Center is not the whole office story, but it is the asset that determines whether the tail becomes merely annoying or remains thesis-defining. At year-end 2025, its fair value stood at $30.6 million, versus $37.9 million at the end of 2024 and $66.0 million at the end of 2023. That means another 19.3% decline in 2025, and a 53.6% cut over two years.
What matters is the reason. In both 2024 and 2025, the valuation used the same 9% discount rate and 13% terminal cap rate. So the additional 2025 decline cannot be explained simply by another round of harsher valuation multiples. The company states directly that the hit came from the exit or downsizing of two major tenants that together occupied about 250 thousand square feet and represented about 52% of occupancy. That impact took effect in the fourth quarter.
That makes the 2025 deterioration primarily a leasing event. The distinction matters. If the damage came mainly from another cap-rate move, one could argue the issue was mostly external and could partially reverse with rates. If the damage came from a tenant block of that size breaking, the problem returns to the asset itself: how long it takes to refill, at what rent, and with how much tenant capital.
There is, to be fair, another side to the story. The company has already started the reletting work. In 2025 it renewed one lease at Naperville for about 35 thousand square feet for five years at initial rent of about $15.75 per square foot, including tenant improvements of about $25 per square foot. It also signed another renewal for about six years at initial rent of about $20 per square foot. So this is not an asset that has been left without response.
But the scale still matters. Those renewals are important, yet they are still small relative to the space that was lost. That is exactly why the 2025 valuation shows stabilized NOI of $6.912 million but first-year NOI of negative $0.669 million. That is the formal valuation-language version of a simple idea: the appraiser still sees a recoverable asset, but the path there runs through a painful transition first.
There is one more point that softens the read slightly. As of the report date, there is no debt on Naperville. So the immediate risk at this asset is not lender pressure or a forced process. The problem is different: value erosion, damage to adjusted NOI, and the time it will take to refill the vacated blocks. That does not make the problem small, but it does mean the damage is first economic and accounting-driven rather than financing-driven.
What Remains in the Office Book Beyond Naperville
The temptation is to reduce the whole story to one troubled asset. That is part of the truth, but not the whole truth. Naperville is the center of gravity, yet the rest of the office book is not clean either.
| Component | Assets | 2025 fair value | 2025 occupancy | 2025 NOI | 2025 adjusted NOI | 2025 revaluation gain (loss) |
|---|---|---|---|---|---|---|
| Naperville | 1 | $30.6 million | 86% | $5.383 million | $0.453 million | ($3.734) million |
| Texas offices | 3 | $37.83 million | 52% | $1.08 million | $1.483 million | ($2.787) million |
This table explains why the discussion cannot stop at Naperville alone. The three Texas office assets are worth more in aggregate than the Illinois asset, but they still sit at only 52% occupancy at the end of 2025. So even after improving from 40% in 2024, this is still not a healthy book. It did not break as sharply as Naperville, but it is not clean enough to absorb fresh noise comfortably.
Still, Naperville remains the asset that sets the angle. It is 44.7% of the office book by value, yet 57.3% of office revaluation loss in 2025. Put differently, even after making room for the Texas vacancy problem, the Illinois asset is still what tilts the outcome.
That is also where the office paradox comes from. The Texas office book is operationally weak. Naperville is accounting-heavy. So the office tail remains problematic as a whole, but for different reasons in its two parts. In Texas, the issue is low occupancy and weak NOI intensity. In Naperville, the issue is the sharp break between still-high reported NOI and a first-year valuation read that already looks broken.
So Is the Tail Now Contained
The balanced answer is that the office tail is more bounded than before, but it is not yet absorbed.
What makes it more bounded? First, it is only four assets out of 47. Second, the company is not currently expanding office exposure. Third, the logistics core still represented 93% of property value and continued to generate positive revaluation in 2025. Fourth, Naperville currently has no debt sitting on it.
What keeps it from being absorbed? The fact that office alone turned 2025 revaluation negative. The fact that adjusted office NOI collapsed even while reported NOI rose. And the fact that at Naperville, the company has already signed renewals but still shows a negative first-year NOI in the DCF. All of that means the pain no longer sits in whether this is a core business. It sits in when the office book stops distorting the math for the whole group.
So in 2025, office is still a small tail that sets the arithmetic. For it to become just a tail again, two things need to happen at once: the vacated space at Naperville has to be relet without destroying the economics, and the Texas office book has to show a real occupancy recovery. Until then, even a 7.5% office exposure can continue to dictate the way Agellan is read.
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