By late 2025, the office market finally did something it had resisted for years: it printed enough distressed trades that investors can stop guessing where the bottom is. Across major markets, the trickle of one-off sales has turned into a steady flow of transactions large enough to anchor cap rates and price expectations for troubled properties, especially in older, commodity office buildings. For lenders, buyers, and special servicers, that shift is turning “price discovery” from an abstract talking point into hard numbers that can drive actual decisions, according to a Trepp podcast.
Distressed Office Enters the Benchmark Era
For much of the post‑2020 period, office price discovery was defined by what was missing. There were notable foreclosures, some high‑profile handbacks, and a handful of sales in gateway cities, but not enough volume to establish a reliable clearing level for assets facing structural vacancy or large capital needs.
Trepp’s Lonnie Hendry described it as “onesie twosie deals in certain markets,” insufficient to know “directionally, if prices had bottomed out or where they were.” That lack of trading kept bid‑ask spreads wide, slowed workouts, and left both lenders and equity owners reluctant to crystallize losses.
That picture has changed over the last year. Hendry noted that “at this point in most major markets, we’ve had enough price discovery to kind of know what a distressed office asset should trade for” and “what the cap rate should be on those deals.”
While the podcast did not release a single national benchmark figure, the emphasis was on pattern rather than outliers: a body of transactions large enough to define a believable range for yields, loss severity, and recovery values on older or non‑prime office. The result is that valuations that once felt speculative now have direct comps.
Volume and Liquidity Fuel Price Credibility
The rise in transaction volume is emerging even as distress remains elevated. Office delinquency in CMBS has climbed to almost 12%, versus about 7.5% across all property types, underscoring the extent of unresolved stress still sitting on lender balance sheets.
Yet Hendry argued that the increase in sales and transfers is a sign that “the wheels have started in motion,” with more deals expected to transact in the final weeks of 2025 and into the first half of 2026. A broader recovery is helping that activity in liquidity: CMBS issuance is on track to reach roughly $120 billion this year, with some market participants now predicting pre‑GFC‑style volume next year.
Specific trades outside the office segment are also shaping investor expectations. Brookfield’s purchase of a portfolio of older, lower‑cost warehouses for $428 million is one example Trepp cited as evidence that capital is again willing to price non‑trophy assets where the story and basis make sense.
On the office side, SL Green’s acquisition of Park Avenue Tower—a 36‑story Midtown building—stood out as one of the biggest deals of the year, reinforcing the bifurcation between top‑tier, well‑leased properties and everything else. Together with refinancings such as Tishman Speyer’s deals on the Spiral and Rockefeller Center, these transactions show that investors are differentiating sharply between resilient, Class A assets and distressed or transitional buildings.
Bifurcation Drives Transaction Outcomes
That “tale of two markets” has direct implications for how distressed deals clear. In better‑located, higher‑quality buildings, the new price points are often framed as repricing events rather than liquidations, even when the transaction follows a transfer to special servicing or a maturity default. For a commodity office with persistent vacancy, aging systems or an unfavorable lease roll, the same pricing levels are being treated as accurate distress benchmarks, setting expectations for loan haircuts and equity wipeouts.
With enough of these sales now on record, appraisers and credit teams no longer have to extrapolate from a single forced sale to build a valuation case.
Benchmarking Distress and Enabling Restructuring
Trepp’s Steven Buschbom pointed to this normalization of distressed pricing as one of the reasons overall office delinquency came in at the lower end of his forecast range. His initial “bearish end” scenario had envisioned office delinquency pushing into the mid‑teens, but the actual rate peaked just over 11% by mid‑2025, closer to his baseline.
One explanation is that clearer benchmarks have made negotiations more straightforward: borrowers and lenders can now triangulate around observable cap rates and per‑square‑foot prices rather than hypothetical values. That clarity has supported a higher volume of extensions, modifications and recapitalizations that keep some loans from tipping into full‑blown default.
The renewed functioning of the CMBS and SASB markets is part of the same story. Despite well‑publicized interest shortfalls that in some cases have reached into AAA tranches, demand for SASB deals has remained strong and oversubscription levels “incredibly encouraging,” as Buschbom put it.
Some of that demand is necessity—fixed‑income investors need yield. But it also reflects greater comfort with where spreads and collateral values now sit. When buyers can underwrite office exposure with reference to a growing set of distressed comps, they are more willing to participate in new issues, even in structures backed by transitional or partially vacant buildings.
From Guesswork to Execution
For special servicers and banks, the shift from model‑driven marks to transaction‑driven marks is changing internal behavior as well. With observable pricing, holding on and hoping for a rebound is harder to justify against regulatory pressure and capital charges. The emerging pattern is more proactive: moving assets into special servicing earlier, soliciting bids and using recent trades as a framework for negotiated note sales, discounted payoffs or deed‑in‑lieu agreements. That approach does not eliminate losses, but it turns them into quantifiable outcomes rather than open‑ended uncertainties.
Investors are responding by segmenting the opportunity set. On one end, there is a narrow but active market for high‑quality, well‑located buildings that can still command aggressive pricing and tight cap rates, as seen in the Park Avenue Tower transaction. On the other hand, a broader market is forming for deeply discounted, distressed office where buyers are less concerned with replacement cost and more focused on going‑in yield, re‑tenanting risk and optionality for alternative uses. The gap between those two markets is where price discovery has done the most work in 2025.
None of this means that office is out of the woods. Trepp’s team stressed that there is “still a lot of distress to work its way through the system,” with elevated delinquency levels and a long list of loans facing near‑term maturities. But with more transactions closing and more capital leaning into both CMBS and direct acquisitions, price is no longer the primary unknown for many assets.
For investors, that may be the year's most significant structural change. Instead of debating whether the market has a bottom, they can now argue about whether the new, lower numbers are good enough to underwrite.
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