Commercial Real Estate Values Continue To Be ‘Slashed’ 60% to 70%, But Investors Still Trust The Asset

I’ve been posting commercial office price drops here fairly regularly and the anecdotal drop in value is hovering around two-thirds of the pre-pandemic value (before WFH was super-charged). The most recent commercial office sale in Manhattan was a 67% discount from a 2018 purchase. This building, 321 West 44th Street, ironically houses the headquarters of the Commercial Observer, a widely-read commercial office trade publication.

Source: Commercial Observer

Empire Capital Holdings and Namdar Realty Group struck a deal to buy the property at 321 W. 44th St. for less than $50 million, Bloomberg reported, citing sources familiar with the matter. That’s a 67% discount compared to the nearly $153 million paid by Related Fund Management in 2018.

Bloomberg via MPA

It gets better. The previous purchase of 321 West 44th Street by the Related entity was at a 7.3% discount from what the previous owner paid. While May Kastle commercial office occupancy in Manhattan has steadfastly remained at about 50% as has Kastle’s national average, one would expect that values would be down at least 50%. However, anecdotally the reporting continues to show 60% to 70% commercial office discounts. Why the spread? I suspect it has a lot to do with the much higher interest rate environment since 2022. Low unemployment and higher wages aren’t bringing workers into the office like they did pre-pandemic. This reflects a profound structural change in the relationship between work and office. I suspect there will be a lot more of this price-reset activity over the next five to seven years as commercial landlords clean up their portfolios (Slash).

I suspect the following Gallup poll that shows the trust in long-term real estate investment will be reset soon. The survey needs to differentiate between the various types of real estate assets. As we are learning – not all real estate assets are performing the same way. Commercial office values are being “slashed” nationwide.

And what happens when values are “slashed?” Things tend to break.

UPDATE 5:57 pm ET – I forgot to insert this chart when the post went live…

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Less is more. The type of content will largely remain the same but in a shorter format and the delivery will be daily instead of weekly. Starting immediately, Housing Notes will be released 5 weekdays each week at that same 2 pm Eastern time moment. My sidebar passion project Appraiserville is being moved to the Beehiiv platform soon and I plan on releasing it weekly while linking from here temporarily. More on that soon.

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