What’s the Real Worth of Office Buildings Today?

Trepp’s recent study on CMBS office-secured loans in the commercial real estate sector indicates significant value losses across different building age groups, debunking previous optimism surrounding office property valuations.

What's the Real Worth of Office Buildings Today?

Trepp's recent study on CMBS office-secured loans in the commercial real estate sector indicates significant value losses across different building age groups, debunking previous optimism surrounding office property valuations.

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Good morning. A recent study by Trepp indicates that earlier optimism surrounding office property valuations may have been too high. Silverstein Properties and Metro Loft Management are partnering on one of Manhattan's biggest office-to-residential conversions.

Meanwhile, Miami's booming market is beginning to cool following its first population decline in years.

Today's edition is brought to you by Greysteel—a leading middle market real estate firm for private and institutional investors.

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Decoding Distress: What's the Real Worth of Office Buildings Today?

skyline in new york

A recent study conducted by Trepp has sparked debate among Commercial Real Estate (CRE) owners and investors about office property valuations, suggesting that previous predictions might have been overly positive.

Examination of CMBS office loans: The research focused on CMBS office loans maturing in 2023, with a total value of $22.9 billion. Out of the loans, 16.2% were in buildings constructed before 1950, 26.4% between 1950 and 1980, 32.6% between 1980 and 2000, and the remaining 24.9% from 2000 onwards. Of the outstanding office loans, more than $13 billion are current on payments. The weighted average Debt Service Coverage Ratio (DSCR) demonstrated that the two oldest classes had net negative cash flow.

Breakdown of valuation loss: Trepp's analysis also outlined a detailed table of valuation loss, breaking down the losses by property age:

  • Pre-1950: 60% loss, 7.6% compound rate, 9.7 years

  • 1950-1980: 55% loss, 8.7% compound rate, 10.1 years

  • 1980-2000: 56% loss, 8.7% compound rate, 10.5 years

  • 2000-on: 52% loss, 4.0% compound rate, 12.3 years

Concerns over new buildings: The most concerning findings were related to the newest buildings (constructed from 2000 onwards). Although they performed the best relatively, their 52% value reduction highlights significant distress in the office sector. This group, mostly consisting of Class A buildings, had a reduction value over the past decade approximately on par with much older structures.


Zoom out: The analysis paints a bleak picture of the future performance of office properties. The substantial loss in value across various age classes, combined with the distress in the newest buildings, sets a worrisome tone for the market. With over $150B in securitized maturities beyond 2023, these trends indicate potential challenges ahead for CRE owners and investors, calling for a critical reassessment of strategies and expectations in the office property sector.


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Silverstein, Metro Loft’s Bold Transformation in Lower Manhattan

Silverstein, Metro Loft’s Bold Transformation in Lower Manhattan

The tower at 55 Broad St. in Manhattan is slated to be redeveloped into a 571-unit residential tower. (Joe Woolhead)

Silverstein Properties and Metro Loft Management are teaming up to convert a 30-story office building in Manhattan's Financial District into a 571-unit apartment tower, marking one of the city's largest office-to-resi conversions.

First time's a charm: Silverstein Properties, known for its successful redevelopment of the World Trade Center after 9/11, is venturing into office-to-residential conversions, partnering with Metro Loft Mgmt. to transform a former Goldman Sachs office building at 55 Broad St. into a 571-unit residential tower. The move comes amid record-high office vacancies in the city and rising demand for apartments, making it an opportune time for Silverstein's venture into multifamily development.

Now trending: The office-to-resi conversion trend has gained momentum in lower Manhattan, with over 19 MSF of offices converted into apartments since 1995, turning the area into a thriving 24/7 mixed-use neighborhood. The trend continues in New York and other cities as companies reduce office space due to remote and hybrid work and has been driven by increased demand for apartments and record-high rent prices in the city.

Betting on multifamily: New York's average apartment rent has reached a record high of over $3,000 per month, with FiDi rents soaring to $4,470 based on CoStar data. Office vacancies in NYC, the top US office market, have reached a record 13%. While office-to-resi conversions are appealing, floorplate size and cost limit their use. But with lower Manhattan's success as a model, there’s more interest in converting vacant offices to residential use in other areas of the city.


Successful track record: Metro Loft, a pioneer in office-to-resi conversions in lower Manhattan, has a track record of redeveloping iconic city landmarks. 55 Broad, the building designed by Emery Roth & Sons and once HQ for Goldman Sachs, is currently about 60% occupied. The conversion project will commence construction next month and is expected to be completed over two years, offering various apartment layouts and amenities such as a private club, wellness and fitness activities, a coworking space, social areas, a 45-ft-long rooftop pool, landscaped sundeck, and grill area.


📖 Read: In their recent investor letter, Knightvest Capital provides an update to investors, expressing confidence in the performance of its 97 properties despite challenges in the short-term macro environment.

📊 Download: Marcus & Millichap’s Special Report on Industrial Outdoor Storage (IOS) analyzes the sector’s strong demand drivers while outlining its potential challenges.

🎧 Listen: In this episode of The Matthews Podcast, Josh Bishop, a leading broker specializing in single-tenant net lease, discusses the changing landscape of the “recession-proof” dollar store sector.


Miami's Population Declines Amid Soaring Housing Costs

Miami's Population Declines Amid Soaring Housing Costs

Miami-Dade County’s population shrank between 2019 and 2022, its first population loss over a multiyear period since at least 1970. SAUL MARTINEZ/BLOOMBERG NEWS

Miami's global business and financial ambitions are overshadowed by surging housing costs and a fickle labor market, resulting in its first population decline in decades.

Boom or bust? While Miami is enjoying economic growth with a booming real estate sector, low vacancy, and unemployment well below the national average, many working and middle-class residents are being priced out. The high cost of living driven by white-collar job growth pushes people to seek more affordable places to live. That’s why, despite all the headlines that would make you think otherwise, Miami-Dade County's population actually shrank from 2019–2022, its first population loss over a multiyear period since at least 1970.

Population change by county, 2012 to 2022

Rising housing costs: According to Zillow, Miami home prices have shot up 53% since June 2020, the second-most out of the top 50 metro housing markets after Tampa. Despite a chronic shortage of affordable rental housing, the city's median asking rent has risen by 27% since 2019, making it one of the country's least affordable metros. The city has the highest share of "cost-burdened renters" of any major metro, with 61% of its rental population spending 30% or more of household income on housing.

Median home price to median income ratio

The fine print: While Miami attracts many new companies and migrants, it struggles to match the diverse economic base and employment opportunities of cities like New York, San Francisco, Phoenix, and Austin. Limited public transit and traffic congestion also hinder the city's ability to attract employers and provide residents with a good quality of living. The top destinations for professionals leaving the Miami area are Orlando, Tampa Bay, Atlanta, and Jacksonville


Reasons to be excited: Despite the challenges, there are reasons for optimism. An influx of wealthy residents and rising property prices are boosting tax revenues, and initiatives are being implemented to address the affordable housing crisis. A recent surge in new construction could bring down housing costs over time. Rent growth slowed down while wages went up. Although Miami still faces a population decline, recent trends show signs of improvement.


  • Redemption requests: BREIT redemption requests slowed down to its lowest pace this year as the fund limited withdrawals for a 9th straight month, returning 34% of what was requested in July.

  • Better times ahead? CBRE projects pricing stabilization by year-end as interest rates become less volatile, impacting cap rates in H1 2023.

  • Rapid rebound: After a year of pulling back from industrial, Amazon (AMZN) plans to double its number of same-day delivery centers. Good news for industrial landlords and developers affected by the company's previous slowdown.

  • Apartment starts: June saw a notable decrease in U.S. construction, with an 11.2% drop in multi-unit building starts and an 8.1% fall in overall housing starts.

  • Secret sale: The sale of 35 properties in West Philly, owned by former equities trader Thomas Domalski, raises concerns about potential rent hikes and displacement in the area.

  • Portfolio expansion: FNRP adds Village Shoppes of East Cherokee and Cherokee Commons to its grocery-anchored shopping center portfolio, boosting its presence in Atlanta and nationwide growth.

  • Chinese outlook: China's housing market is expected to stabilize and become more regionally focused after the government's crackdown, leading to a less volatile but also less exciting real estate industry over the next 5–10 years.

  • Net lease nosedive: A recent Northmarq report reveals a 54% YoY decline in investment sales in the single-tenant net lease sector, driven by rising rates and tighter lending standards, with retail being the worst-hit sector.

  • Leads on autopilot: Unlock the benefits of LinkedIn automation with AutoLinkGuru to connect with prospective clients and investors. They put you right in front of the people who matter most to your business.

  • Houston logistics boom: Phelan Development and Constellation Real Estate Partners are set to build two industrial projects, adding 1 MSF to Houston's thriving logistics market as industrial construction suffered a 40% dip in 2Q.

  • Summer lovin’: CRE lenders, brokers, developers, attorneys, and architects share how they spend their summers outside work—or balance vacation with work responsibilities.

  • Controversial exit: RMR Group is purchasing the Carroll Organization for $80M as real estate developer Patrick Carroll, embroiled in multiple scandals, departs the firm.

  • Tech incentives: Proptechs strive to make return to office more convenient, focusing on ease of access and location flexibility as the main attractions amid the challenges of the post-COVID era.

  • Cost-cutting: Cushman & Wakefield's (CWK) new CEO, Michelle MacKay, is cutting $40M in costs after a 95% decline in net income in Q2 due to lower deal volumes and higher rates.

  • More layoffs: CVS Health (CVS) plans to eliminate about 5,000 corporate jobs as part of its cost-cutting measures and strategic shift towards focusing on healthcare services.

  • AI Boom: Blackstone subsidiary QTS Data Centers will invest $8B in building new data centers to capitalize on growing demand for computing power driven by the AI arms race.

  • Recession prediction: Fannie Mae's (FNMA) analysts foresee a recession coming at the end of the year due to the ongoing effects of tighter monetary policy and stricter lending standards.

  • Fundraising success: Farallon Capital Management closed its oversubscribed Farallon Real Estate Partners IV fund, which will focus on US equity, preferred equity, and distressed debt.

  • Empty shelves: The global retail industry took a projected $1.77T hit, with empty shelves the main reason for consumer discontent in the grocery sector, according to IHL Group.


Public and private real estate cap rates

According to Nareit’s Mid-year Report, REITs have faced economic and capital market uncertainty during 1H23, yet have demonstrated resilience with sound operations, solid balance sheets, and successful equity and unsecured debt issuances in capital markets. And despite challenges in the mortgage market, REITs continue to be well-prepared to navigate ongoing economic uncertainty.

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