How Much Are Office Buildings Worth? A Scary Amount Less Than They Used To

A new analysis from Trepp suggests that the concerns many CRE owners and investors have had about office property valuations may have been overly optimistic. Working through an examination of CMBS office-secured loans — because there is publicly available data, unlike privately transacted loans — the firm estimated that the average total loss ran from 52% for construction after 2000 to 60% for pre-1950 buildings.

The firm looked at CMBS office loans with 2023 maturities, including ones that have already matured. The full value of the 2023 maturities was $22.9 billion, with $14.5 billion yet to mature. Of the full list, 16.2% (45) were built before 1950, 26.4% (161) between 1950 and 1980, 32.6% (447) between 1980 and 2000, and the remaining 24.9% (364) from 2000 on. The biggest portion of value, $7.5 billion, was in the 1980 to 2000 vintage. The 45 pre-1950 buildings had a total value of $3.7 billion.

More than $13 billion of the office loans still outstanding are current on payments, with maturities occurring later in the year. Of these, $6 billion were buildings constructed before 1980 and $7 billion after.

Weighted average DSCR figures by age class were as follows: pre-1950, 0.93; 1950 to 1980, 0.89; 1980 to 2000, 1.76; and 2000 on, 1.31. The two oldest classes displayed net negative cash flow.

Trepp then put together a table of valuation loss based on appraisal reductions since January 2023 for loans that had a remaining term of six months or less. The breakdown was by property again, again, showing average total value loss, average loss per year as compound rate of change, and the number of years.

• Pre-1950: average loss 60%, average compound rate of loss 7.6%, number of years 9.7
• 1950-1980: average loss 55%, average compound rate of loss 8.7%, number of years 10.1
• 1980-2000: average loss 56%, average compound rate of loss 8.7%, number of years 10.5
• 2000-on: average loss 52%, average compound rate of loss 4.0%, number of years 12.3

What might be the most concerning set is the most recent one. “Although the newest buildings performed the best relatively, their 52% value reduction is easily the most concerning, and displays truly how much distress is present in the office sector,” Trepp wrote. “This group has the highest percentage of Class A buildings, but its reduction value over the past decade is still approximately on par with buildings constructed over half a century prior. With north of $150 billion in securitized maturities beyond 2023, these trends set a gloomy tone for their future and the performance of office properties as a whole.”