- Lower demand due to remote work is driving office valuations lower, prompting sales below outstanding mortgage amounts.
- Older buildings struggle to attract office tenants, pressuring owners to cut their losses and sell at reduced prices.
- Investors like Empire Capital Holdings are capitalizing on distress by snapping up discounted properties.
According to Bloomberg, a well-known NYC office building was just sold for 67% less than its 2018 purchase price, a sign of the times for the nation’s still-struggling office sector.
Fire Sale
Empire Capital Holdings and Namdar Realty Group agreed to acquire 321 W. 44th St. for under $50 M, a 67% markdown from Related Fund Management’s 2018 purchase.
The agreement will involve a short sale arrangement, with Canadian Imperial Bank of Commerce and other lenders accepting a sale below the existing mortgage amount.
But 321 W. 44th St. is hardly an outlier. Berkshire-owned properties like 1740 Broadway are also facing valuation adjustments. And many other NYC office towers have seen their market values dip below their outstanding loan balances.
Everyone Loses
Office property devaluation across the U.S. is due mostly to higher borrowing costs (if you can even secure a loan) and remote work trends.
While newer office buildings with modern amenities and spacing are seeing success, older towers and highrises are struggling to attract tenants, resulting in frozen markets and forced fire sales.
Banks and office owners are both compelled to facilitate deals, like short sales, to address maturing loans and escalating costs.
Pouncing on Distress
Investors like Empire Capital and Namdar are actively pursuing discounted office deals despite market uncertainty. They’ve made several high-profile purchases and have partnered on previous acquisitions to capitalize on the distressed property market.
Related Cos., a key player in the office sector, also maintains a presence through strategic developments such as Hudson Yards.
