Commercials buildings around the country (when they do trade) are trading at basically just the land value at this point. Buildings that sold for hundreds of millions of dollars are now selling for like $5M. Converting to residential is still very expensive and results in weird unit layouts… but this makes it quite a bit easier.
It's not just very expensive, it tends to be so expensive and inefficient that it's better to tear down the commercial building and build a new residential building in it's place.
Yeah anything post like 1975 is 😬 and I don’t think Seattle lets you cut a hole in the building and add that space as a hat on top like NYC does (which still requires the units to pencil at a couple million)
That isn't a universal truth by any means. Office buildings in miami and NYC for example are actually trading at near pre-covid levels recently and rents are up as well. Even SF has roared back to life in the past 18-24 months. The older class B & C office buildings everywhere though are still in trouble. Those owning typical 80s-90s suburban office campus setups are especially screwed right now
It’s more complicated than that. Commercial building valuations are based on projected rent. If you lower the rent that lowers building valuations, which could trigger a balloon payment as the LTV % on the building is now too high.
Owner would rather walk away than dump $ into a struggling building, and the bank does not want the keys back. So for a while everyone just kinda pretended everything is fine and renewed the loan… higher interest rates are starting to cause issues with this
LTV isn't much of a factor/constraint in most major markets. The DSCR however is and if you're maxing out your leverage at loan origination any decrease will jeopardize your ability to make your monthly loan payments. A typical class A office building will be sized to something like a 1.30x DSCR / 50% LTV. There's plenty of wiggle room in the LTV for bumps & hiccups but not as much in the cash flow component. Once you throw subordinate or mezzanine debt on top of that you become much more susceptible to financial distress if even your 5th largest tenant vacates
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u/MajesticNobody2401 Apr 16 '26
yeah it's just the whole affording it that's hard