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Distressed Office Sales Top $5B as Discounts Reset the Market

Distressed Office Sales Top $5B as Discounts Reset the Market

After years of bid-ask paralysis, distressed office trades are moving again, and the discounts are doing the ugly work of establishing a new floor.

Jordan B.
April 13, 2026

Together with

Good morning. Distressed office buildings are finally trading again — at prices that would have been unthinkable five years ago — and the deep discounts clearing the market today are quietly laying the groundwork for what comes next.

Today’s issue is sponsored by Terrakotta—AI-powered prospecting with direct contact info for 20M+ CRE tenant decision-makers.

🎙️ This week on No Cap—Jack and Alex sit down with Chris Hentemann (Founder & CIO, 400 Capital) to break down how structured credit works, where capital is flowing, and why the biggest opportunities often emerge from market dislocations.

CRE Trivia 🧠

What was the first office building in the United States to be converted into residential apartments?

(Answer at the bottom of the newsletter)

Market Snapshot

S&P 500

GSPC

6,816.89

Pct Chg:
-0.11%

FTSE NAREIT

FNER

803.43

Pct Chg:
+1.28%

10Y Treasury

TNX

4.317%

Pct Chg:
+0.024

SOFR

30-DAY AVERAGE

3.65%

Pct Chg:
-0.00

*Data as of 4/10/2026 market close.

Finding a Floor

Distressed Office Sales Top $5B as Discounts Reset the Market

After years of bid-ask paralysis, distressed office trades are moving again, and the discounts are doing the ugly work of establishing a new floor.

The volume is picking up: More than 200 distressed office properties traded in 2025, up significantly from 2023, with foreclosure and bankruptcy-related transactions alone topping $5 billion. Early 2026 is already outpacing that momentum. Buildings that once commanded nine-figure valuations are changing hands at fractions of those levels — downtown Chicago towers trading under $30 per square foot, assets in Denver and Washington D.C. at prices that would have been unthinkable a decade ago.

New York is converting its way through the problem: Discounted acquisitions in Manhattan are fueling a growing office-to-residential pipeline. David Werner has built a repeat strategy around it, picking up older office buildings at steep discounts — his latest Hell's Kitchen deal closed at roughly a third of its 2018 price.

Case in point: Nathan Berman's Metro Loft and Idan Ofer's Quantum Pacific are in contract on 1 Whitehall Street for just over $100 million, planning a rental conversion after its foreclosure out of the Chetrit Organization. RXR's $500 million recapitalization of 55 Broad Street alongside Silverstein and Metro Loft signals that institutional capital is now comfortable stepping into stabilized post-conversion assets.

Not everyone has a conversion plan: Igal Namdar — fresh off his $280 million purchase of ESRT's 250 West 57th Street — represents a different buyer profile entirely: opportunistic investors targeting midtier buildings with enough income to justify a long-term hold at a dramatically lower basis. No conversion thesis required. Just a bet that today's pricing leaves enough room for upside regardless of use.

Chicago and LA are the deepest in the hole: Chicago is seeing some of the steepest discounts nationally, with sales driven by distress rather than vision — vacancy is still rising and conversions haven't been enough to offset shrinking demand. Los Angeles is working through a wave of defaults tied to legacy debt, pushing large assets into deeply discounted trades with no clear resolution timeline.

South Florida is sitting it out: Deal flow in the region has slowed as buyers wait for better visibility on rates and the broader economy. The market remains attractive in theory — but selective in practice.

➥ THE TAKEAWAY

Why it matters: Distressed office trades are doing the market's dirty work — establishing price discovery where there wasn't any, unlocking deals that were frozen by bid-ask gaps, and giving buyers with different playbooks a reason to engage. The reset isn't pretty, but it's necessary.

TOGETHER WITH TERRAKOTTA.AI

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✍️ Editor’s Picks

Inflation Nation: U.S. inflation rose to 3.3% in March (vs. 2.4% prior), with gas prices jumping 21% month-over-month and construction costs already up 12.6% annualized, signaling renewed pressure on CRE.
Talent gap: Building a CRE back office shouldn't cost a fortune. Relay Human Cloud places dedicated Yardi specialists, accountants, and APMs — globally sourced, Dallas-managed, 75% less than U.S. hiring. (sponsored)
Fee squeeze: Surging HOA and condo fees—up roughly 26% since 2019—are compounding housing costs and increasingly pricing buyers and owners out of the market as rising insurance, maintenance, and special assessments strain affordability.
Commission dispute: Cushman & Wakefield is suing Sotheby’s for a $10.2M commission tied to the $510M sale of its NYC HQ (~200K SF lease involved), alleging it was cut out of the deal.
Global slowdown: Global REIT returns slowed to +1.3% in Q1, with North America leading at +4.7% while office lagged at -11.4% YTD amid rising volatility.
Built for scale: Turn Excel models into institutional-grade OMs and BOVs in minutes—dramatically cutting production timelines for high-volume deal teams. (sponsored)
Safe haven: Government-leased real estate is emerging as a defensive play, with investors targeting stable cash flows amid 3–4% inflation expectations and elevated rate uncertainty.

🏘️ MULTIFAMILY

CA slowdown: Orange County rents reached $2,736/month (+1.1% YoY), as growth moderates sharply from 12.5% in 2021–22 to ~3.4% recently amid weaker demand and rising supply.
Affordable funding: New York is deploying $152M in financing for two NYC projects, including a 193-unit Brooklyn development with 116 housing units, as part of a broader $350M statewide housing initiative.
Antitrust settlement: Camden Property Trust agreed to pay $53M to settle RealPage rent-fixing claims, joining landlords that have collectively paid $140M+ to resolve the nationwide lawsuit.

🏭 Industrial

Cap reset: Industrial cap rates have stabilized around 6.44%, ~120 bps above 2022 lows, as higher borrowing costs reset pricing and limit further compression.
The cost of war: Oil prices near $90/barrel have pushed inflation to 3.3% and lifted the 10-year Treasury to ~4.3% (+30 bps), raising capital costs while boosting demand for warehouse space.
Mega project: Covington secured approvals for a 9.4M SF industrial project on 510 acres in Palmdale, with total buildout exceeding $1.2B, marking one of LA County’s largest-ever industrial entitlements.

🏬 RETAIL

QSR demand: SRS brokered $78.5M across 14 Chick-fil-A properties in Q1, with assets trading at ~4.29% cap rates and 13.8-year lease terms.
Mall momentum: Open-air malls are leading LA’s retail comeback, with visits up 5.1% YoY and major deals like the $530M Victoria Gardens sale driving transaction volume higher.
Retail portfolio: Medipower acquired a 558K SF, 7-property retail portfolio for $115M (~$206/SF) that was 99.6% leased, highlighting strong demand for grocery-anchored centers.
Going dark: Apple is closing 3 mall locations in June as declining tenant bases and foot traffic signal ongoing challenges for struggling retail centers.

🏢 OFFICE

Midtown refi: Rithm Capital secured a $282.5M loan from JPMorgan to refinance its stake in the 825K SF, 34-story 1325 Avenue of the Americas, continuing activity across Paramount’s former office portfolio.
Shrinking supply: Chicago suburban office inventory is tightening, with 6.3M SF removed since 2020 and no new construction, helping stabilize vacancy at 26.8%.
AI pressure: Office vacancy could rise to 21.5% by 2030 (+170 bps) as AI dampens demand, following a record 20.6% vacancy peak in 2025.

🏨 HOSPITALITY

Hotel momentum: U.S. hotels posted a record Q1 with +5.9M rooms sold YoY and RevPAR up 3.6%, though demand dipped 4.6% during Easter week due to seasonal slowdown.
Distress: Bay Area hotels face rising defaults as rates hit ~6.5% and RevPAR rebounds to $155 (still ~24% below 2019), triggering a new wave of forced sales.

A MESSAGE FROM ZIFF PROPERTIES

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Vacancy is near historic lows. New supply is constrained. Necessity-based tenants are driving consistent demand.

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While typical GP commitments range from 5% to 10%, ZRP often invests 25% to 50% of the total equity in each transaction.

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*This is a paid advertisement. Please see the full disclosure at the bottom of the newsletter.

📈 CHART OF THE DAY

CRE Trivia (Answer)🧠

The Willard Hotel in Washington, D.C. is often cited as one of the earliest large-scale conversions, but the more historically documented answer is the Navarro Apartments in New York City — originally built as a hotel in the 1880s and converted to residential use shortly after. The practice of adaptive reuse has come full circle today, with New York leading the nation in office-to-apartment conversions with nearly 90,000 units in the pipeline as of 2026.

Distressed Office Sales Top $5B as Discounts Reset the Market

After years of bid-ask paralysis, distressed office trades are moving again, and the discounts are doing the ugly work of establishing a new floor.