Distressed Office Sales Accelerating In 2025

Office owners across the United States are coming to grips with a dire reality.

Sellers are trading buildings at fire sale prices, desperate to escape their investments, the Wall Street Journal reported. Stubborn interest rates, declining values and hybrid work environments are driving down the market, though it’s also creating buy-low opportunities.

There were more than 200 sales of distressed office buildings last year, according to MSCI, up from 133 such sales in 2023. Trades of the properties through foreclosure processes or bankruptcy auctions totaled $5.2 billion.

The distressed office market appears to be accelerating. Through January and February, sales volume in the category hit $808 million, up nearly 25 percent year-over-year.

“We’re six years from the shock of Covid, but that’s how long it takes someone to capitulate and give up such a highly valued asset,” said MSCI executive director Jim Costello.

It’s an admission for owners, particularly of non-trophy assets, that the old “extend and pretend” was no longer a viable strategy. Lenders are chasing repayment and sales, with many willing to accept losses after improving balance sheets and building reserves in recent years.

The final price of certain office sales across the country is shocking, especially compared to previous transactions for the same properties.

Marc Calabria purchased a Chicago building for $4 million, down from $68.1 million a decade prior. Asher Luzzatto bought a two-building complex in Denver for $5.3 million, down from $176 million in 2013. And Hossein Fateh bought the former GSA office building in Washington, D.C., for $24 million, just over $25 per square foot.

None of those buyers plan to keep operating the aforementioned buildings in the same fashion as before.

Calabria proposed transforming the long-vacant eight-story landmark at 401 South State Street in Chicago’s Loop into an urban farming and food innovation hub. Luzzatto plans to convert at least one of its towers in Denver from offices to housing. And Fateh plans to do the same, eyeing a conversion for the 50-year-old D.C. office property into a multifamily complex, a process that will require a major gutting.

— Holden Walter-Warner