America’s Office Real Estate: The Slow Burn of Distress

Last year, only 3.5% of office sales were from distressed sellers, a situation attributed to optimism in the market and leniency from lenders.

America's Office Real Estate: The Slow Burn of Distress

Last year, only 3.5% of office sales were from distressed sellers, a situation attributed to optimism in the market and leniency from lenders.

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Good morning. Despite challenges for office-building owners since the pandemic, the expected rush of distressed sales hasn’t occurred. Meanwhile, in March, confidence among builders of new single-family homes soared to its highest level since July 2023.

Today’s issue is brought to you by AirGarage: Increase your property's NOI with full-service parking management technology.

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America's Office Real Estate: The Slow Burn of Distress

Amerca's office fire sale has barely begun.

Covid-19 drained many occupants from office buildings, but that doesn’t mean owners are desperate to sell—yet. PHOTO: JIMIN KIM/ZUMA PRESS

Despite the impact of work-from-home on office occupancy, a flood of distressed sales in the US office real estate market is yet to materialize.

What happened: Despite the significant impact of Covid-19 on office occupancy, a fire sale of distressed office properties in the U.S. is yet to materialize. Data from Colliers reveals a rise in the vacancy rate from 11% pre-pandemic to 17%, surpassing levels seen during the 2008 financial crisis. However, forced sales remain a rarity with only 3.5% of office deals in 2023 involving distressed sellers, a figure that dipped to 2.7% in January 2024.

Economic resilience: A robust economy has kept most tenants paying rent, delaying the reckoning for office building owners. The market sees a slow buildup of pressure as companies shrink their office space by 30% to 40% at lease renewals. Lenders, too, are playing a waiting game, opting to extend loans rather than enforce sales in a tepid market, with only a quarter of the $35.8 billion in office loans due in the commercial mortgage-backed securities (CMBS) market last year being paid off in full according to CRED iQ.

Opportunistic investors: Despite the lack of distressed sales, opportunistic investors like Reven Capital, Blackstone (BX), Brookfield (BN), and others are gearing up for the anticipated fire sale. Reven Capital aims to raise $1B in an IPO for office-focused distressed lending. Blackstone and Brookfield are also preparing for distressed opportunities.


Holding on: With a forecasted $72.7 billion refinancing gap looming by the end of 2025, the current slowdown in distressed sales might simply be the calm before the storm. Hopes for a market rebound are clashing with the reality of a sector under strain, highlighted by plummeting office values and the costly upkeep of increasingly obsolete spaces. Despite the gloom, the expected flood of distressed sales is unfolding more as a slow leak than a burst dam, and some see a golden opportunity to buy at rock-bottom prices.


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✍️ Editor’s Picks

  • Tax exodus: New Yorkers moving to Florida and Texas for lower taxes are discovering diminished savings due to soaring housing costs.

  • Doubling down: Over three years, global investors poured $96B into SoCal property, making LA a top commercial market nationwide.

  • Market movers: Last month, a number of Manhattan's top CRE properties hit the market. The Big Apple saw $9.7B in transactions last year, down 55% from 2022.

  • From boom to bust: Austin, once America's hottest housing market, sees home prices fall by more than 11%, leading to a national property cool-down.

  • Signs of life: Bill Rudin, co-executive chairman at Rudin Management, joins CNBC’s ‘Money Movers’ to discuss how offices are faring relative to pre-pandemic levels.

  • Revitalizing the capitol: Washington, D.C.'s Union Station redevelopment project was approved by the FRA. It’s estimated to cost $8.8B over 13 years.


  • Where Brooklyn at? EMP Capital Group secured $109M in construction financing from QuadReal Property Group for two 247-unit Brooklyn towers.

  • CEO shuffle: Freddie Mac (FMCC) appoints Michael T. Hutchins, a financial services veteran with 30+ years experience, as interim CEO effective March 16th.

  • Revamping lux living: Madison Realty Capital plans to add 65 luxury apartments to a former Neil Shekhter site on Wilshire Boulevard in LA.

  • Student housing debacle: Nelson Partners seeks to sell three student housing complexes to deal with $115M in debt and multiple lawsuits from investors.

🏭 Industrial

  • Industrial frenzy: During the pandemic, industrial property demand surged, resulting in 1.2BSF created in the U.S., but the numbers show growth is now slowing.

  • Phoenix splash: CapRock Partners purchased Chandler Airport Business Park for $45.5M at around $143PSF, with no leases signed.

  • Dallas dominates: Dallas-Fort Worth led the nation with 61.9MSF of new industrial space in 2023, attracting diverse companies to the growing metro area.


  • Revamping retail: After recent restructuring under Chapter 11, Party City is now focused on store optimization, entrusting Excess Space to manage real estate.

  • Revitalizing NY: The redevelopment of Great Northern Mall near Syracuse, NY, includes a $1B investment in mixed-use, retail, medical, and housing space.

  • Crashing crafts: Fabric and crafts retailer Joann (JOAN) files for Chapter 11 bankruptcy with $132M in new funds, aiming to reduce debt by $505M.

  • Credit crunch: Record credit card debt may surpass all-time levels, with $1.13T balances in 4Q23 as consumer spending shows mixed signals.


  • Third Avenue Saga: In NY's office market, Third Avenue struggles with a 29% availability rate, prompting landlords to renovate and explore new markets.

  • Domino effect: Last year, legal office leasing activity hit a post-pandemic high, which is expected to carry through 2024.


CRE Daily has partnered with Redwood Living Inc. for a FREE 30-minute webinar on the current state and future outlook of the Build-to-Rent (BTR) market. Register to watch this session for insights into the impact of jobs, wages, and broader economic factors on this booming sector.

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Homebuilder Confidence at Highest Level Since July 2023

March saw builder confidence in newly built single-family homes hit a peak not seen since July 2023.

Why it matters: The NAHB Housing Market Index (HMI) reflects homebuilders' outlook on single-family home sales based on a monthly survey of ~900 builders. They evaluate present sales, forecasts for the next six months, and buyer traffic. Scores above 50 indicate optimism; below 50 indicate pessimism.

By the numbers: HMI surged three points to 51 in March, marking the fourth consecutive month of sentiment gains, which are at the highest level since July 2023. Most economists expected a score of 48. The index hitting 51 highlights growing confidence in new home construction and a positive outlook for the housing market's trajectory, particularly amid potential rate cuts later this year and limited housing supply.

Mortgage demand: According to Freddie Mac, the average rate on the 30-year fixed mortgage declined to 6.74% from 6.88% the previous week. This downshift signifies a potential opportunity for prospective buyers to enter the market, as lower financing costs could incentivize home purchases and new construction projects in the coming months.

Zoom in: The HMI revealed growth in all major U.S. regions, with the Northeast, Midwest, South, and West all seeing improvements in their three-month moving averages. Builders are also easing off on price reductions; only 24% reported cuts in March, a notable decrease from December 2023. Meanwhile, the use of sales incentives remains stable, with around 60% employing them to attract buyers.

Impact of shortages: The scarcity of inventory has propelled potential buyers into considering new builds as a viable housing option. Homebuilders have reaped the rewards, with increased interest in new construction projects due to limited availability in the established housing sector.


Big picture: Contrasting the recent upswing in single-family homebuilder confidence, multifamily developer sentiment dipped into negative territory in Q4 2023, signaling divergent paths within the housing market. While single-family homebuilders ride a wave of optimism driven by strong demand and easing mortgage rates, multifamily developers face headwinds from tight lending, high development costs, and an oversupply concern.


Target has disclosed a selection of the initial new outlets it plans to launch nationwide, marking the beginning of an ambitious expansion strategy that encompasses over 300 physical retail sites.

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