7 U.S. Office Buildings Have Sold for More Than $100M Off This Year
A new report from Moody’s argues the U.S. office market might have hit bottom as distress sales prices indicate new valuations
By Brian Pascus August 16, 2024 1:01 pm
reprints
The evidence is in, and it’s not pretty: The U.S. office market continues to be a shell of its former self.
Seven office buildings have sold for more than $100 million less than their previous sale price thus far in 2024, including three New York City office towers that have also sold for at least $250 million less than their sales prices within the last 10 years, according to a new report from Moody’s.
The Moody’s report — authored by economists Christopher Rosin, Kevin Fagan, Matt Reidy, and Twinkle Roy — argued that even though the sale prices of these buildings are significantly less than their previous price tags, the transactions themselves indicate that the office market might have hit bottom as buyers and sellers engage in the long-neglected practice of price discovery.
The most shocking sales in 2024 have occurred in New York City: 1740 Broadway, a 620,928-square-foot building, sold for $185 million in April 2024, despite selling for $600 million in 2014; the 776,448-square-foot 222 Broadway , sold for $150 million in April, even though it traded at $502 million as recently as 2016; and 135 West 50th Street, a mostly empty 1963 property, sold for a stunning $8.5 million via an online auction, only five years after it sold for $285 million.
“While sales like this are typically very painful for equity holders and often bondholders, as was the case for 1740 Broadway, they are beneficial to the market,” wrote the authors of the report. “These sales provide the market with a tremendous amount of price discovery, which had been lacking.”
Other major discounted transactions have been the sale of 333 West Wacker Drive — an all-glass tower along the Chicago River — for $125 million in April, nearly $200 million less than its previous sale price in 2015; the 15-story Dexter Horton Building in Seattle, which sold for $36.6 million in July, approximately $114.4 million less than it sold New Year’s Day 2019; and The Westory Building, a historic build in 1907 in Washington, D.C., sold for $53.5 million in May, about $106 million less than its 2012 sale price.
Even though the trades have come at steep declines for the sellers, Moody’s argued that the capitulation indicates the market for office properties may have hit bottom and that transactions should continue, even amid historic losses.
To wit, the U.S. has now had three consecutive quarters of year-over-year increases in office sales, according to Moody’s. While transaction volumes for the asset class are still 150 percent lower than March 2022 high, there is a sense the market is moving past the potential of huge losses to swallow the bitter pill of price discovery.
“We are seeing signs that the market is beginning to function in a healthier way,” wrote the authors. “A significant increase in price discovery paired with reaching a bottom in transaction volume means we could be nearing a bottom in office pricing.”
Brian Pascus can be reached at bpascus@commercialobserver.com
