Why Commercial Real Estate Owners Are Looking to Do More Deals in 2025

The possibility that commercial real estate owners are considering jumping back into office assets in a bigger way — through distress pickups or otherwise — became a breakout theme at Commercial Observer’s “Fall State of Office” forum Nov. 13, for instance.  

“It’s top of people’s minds, and that usually means there’s a good level of likely dislocation, but also opportunity,” said Ben Brown, managing partner and head of Americas real estate at office giant Brookfield Asset Management. “The office market has been challenging, but there’s a lot to be optimistic and excited about.”

At the same time, several office buildings have traded in Manhattan in a flurry of closings and contracts that started just after Halloween, which means owners’ change of heart came months earlier — and well before interest rates started coming down in September. 

Recent deals include a $255 million trade of 799 Broadway; an $80 million one for 1370 Broadway; an $88 million deal for 767 Third Avenue; and an 11 percent stake sale in One Vanderbilt in a deal that valued the 73-story tower at $4.7 billion. The Durst Organization in mid-November also put 675 Third Avenue up for sale, hoping to fetch around $100 million.

Brown’s sentiment about landlords looking to add office assets to their portfolios was backed up in CO’s annual Owners Magazine survey, the results of which rolled in between the national elections and the run-up to Thanksgiving. 

“We like the investment opportunity around the office market heading into 2025,” Oliver Carr, CEO of Carr Properties, said in the survey. “Office is primed for a rebound.”

Carr noted that the firm sees potential in a distressed environment to pick up “good, quality office buildings” that can either be repositioned into other uses or delivered at a high quality to attract premium tenants. He said Carr Properties is also eyeing older office assets that can be repurposed for other uses. 

Craig Deitelzweig, president and CEO at Marx Realty, another office owner, views 2025 as a “once-in-a-generation” buying opportunity for the office segment. He plans to be selective with purchases, placing strong emphasis on the location and the infrastructure of the buildings.

“Our goal is to create trophy assets out of assets that have not been properly positioned, but have the right bones with the right imagination,” Deitelzweig said. 

Michael T. Cohen, principal of Williams Equities and long a champion of Class B office’s potential rebound, plans to push further into the office sector next year because of market opportunities for long-term investments. He said that’s particularly true of Manhattan’s Flatiron and NoMad neighborhoods. 

“We’ll be looking to take advantage of this current pricing cycle by investing in distressed assets that we expect will have significant upside as the market recovers,” Cohen said in his survey response. “This window of opportunity won’t stay open for very long. And we are going to stick to our knitting by investing in the asset class we know best, the A’s of the B’s located in neighborhoods with the broadest possible appeal to tenants and industries.” 

R. Donahue Peebles, chairman and CEO of The Peebles Corporation, said office buildings will be the “dominant asset class” his firm will be acquiring in 2025. He noted that high vacancy rates of 50 percent or more in an office property signals a “good sign for making an opportune investment.”

The office sector is also a big focus at Savanna as part of its plans to take advantage of distressed opportunities at discount prices. Nicholas Bienstock, co-chairman and CEO at the firm, said Savanna is poised to acquire a 2022-built, 170,000-square-foot “trophy quality” New York City office property at a 40 percent discount from a lender-controlled sale.

“As this real estate crisis rolls forward, we will be buying more great New York City real estate out of distress situations at generationally low prices,” Bienstock said in his survey response. 

Acquiring office properties with potential for residential conversion is also top of mind for commercial real estate owners heading into 2025. That includes Larry Silverstein, chairman of Silverstein Properties, who already implemented this type of undertaking at the former Goldman Sachs headquarters on 55 Broad Street in Lower Manhattan, working with Metro Loft, a prolific converter of office buildings. 

“I believe there’s a substantial market for it,” Silverstein said. “We have created 571 homes in the heart of Lower Manhattan. We anticipate it’ll be a success, and, if so, we hope to keep on going.” 

Jeff Gural, chairman of GFP Real Estate, said the owner will continue to sharply focus on acquiring office buildings for residential conversion in 2025. GFP partnered with TPG in June to purchase 222 Broadway for $150 million in an office-to-resi conversion play, and is also part of a joint venture to transform the iconic Flatiron Building into luxury apartments.

Steve Kaufman, president of Kaufman Organization, is also actively pursuing office assets for possible residential conversions with hopes that zoning changes could be implemented to make the process more manageable. 

“We’re particularly interested in the potential for commercial-to-residential conversions in the Garment District, where we own several buildings,” said Kaufman, who is also eyeing conversions of the firm’s office properties. “With anticipated zoning changes next year, we expect these conversions may soon be feasible.”

Jason Alderman, senior managing director at Hines, said the developer will be “actively” seeking buying opportunities across multiple asset classes which he hopes include its first post-“basis reset” office transaction. Alderman said he expects to be more focused on multifamily acquisitions in 2025 and potentially also industrial, depending what leasing activity looks like for the sector. 

There are still some owners reluctant to dip their toes into office properties with many unknowns remaining about what demand will look like. John Catsimatidis, chairman at Red Apple and at United Refinery Group, said he will not be purchasing office buildings in 2025 unless “numbers are dirt cheap,” choosing instead to target residential properties in New York City and Florida. 

“People always need some place to live,” Catsimatidis said. “Residential has the best potential at this time because many people remain reluctant to return to their offices on a regular basis.”

Andrew Coen can be reached at acoen@commercialobserver.com.