The New York Times: Buyers Finding Deep Discounts in the Office Building Market

A perfect storm of plunging property values for aging buildings, weak tenant demand coming out of the pandemic and high interest rates for new loans and refinancing has left the $2.4 trillion office building sector wobbling. In New York 1740 Broadway which Blackstone had paid $600 million for ten years earlier just sold for $185 million. “Office vacancies are going to heights we have never seen before,” said Chad Littell, national director of U.S. capital markets analytics at CoStar, a commercial real estate data and research firm. “As vacancies are rising, it’s difficult to get debt for buying or developing an office.”  The question is, how can we tell when we are truly at the bottom? I remember back in the 1990’s when the entire savings and loan industry went upside down, and out in my area of the East Bay over 25% of all our office buildings were foreclosed…and there were several where the investor purchased an office complex thinking they had gotten a steal and bargain price, only to lose the investment a few years later in a second foreclosure on the same property when it went to an even lower value. As I have stated repeatedly, we will bounce along the bottom for several years to come and when you see major lenders once again making reasonable loans on office buildings this may be a key sign that we are headed back to normality.