The Office Isn’t Dead…It Needs A Donor

In 2021 I started hearing “the office is dead” from multiple angles reporting on a shift in the workforce paradigm. Well, Newmark just reported half of every office building that changed hands in Los Angeles County between Q2 2025 and Q2 2026 closed at a loss. Narrow that down to buildings over 100,000 square feet, the kind most mid-to-large companies actually occupy, and it gets worse; nearly 4 out of every 5 large office sales lost money for the seller.

The reason is straightforward on the surface. A large share of these sales are lender-driven, meaning a bank or debt fund forced the sale after a loan went bad, not an owner choosing to cash out. Kevin Shannon put it plainly, when the seller is a lender, the sale is almost always going to be a loss. Los Angeles isn't an outlier either, just look at San Diego’s class A & B office sales. The 50 percent rate reduction is roughly in line with the national average over the same period.

But there are two bigger forces underneath worth understanding, because they explain why this is happening now and what's coming next.

The first is rates. The Federal Reserve raised its benchmark rate a quarter point to 3.75 to 4 percent in mid September, its first hike since 2023. That reversed what had been a cutting cycle just months earlier, and the Fed's own projections now point to rates staying higher for longer than anyone expected heading into this year, with officials eyeing 4.1 to 4.4 percent by year end. Higher rates mean higher cap rates, which mechanically means lower building values, and they mean refinancing costs far above what owners locked in years ago. A huge wave of the office loans now maturing were written in 2016, as ten year CMBS loans, or in 2021, as five year loans. Both groups borrowed in a completely different rate environment than the one they're refinancing into today.

The second is the end of a strategy of ‘extend & pretend’ the industry has leaned on for years. Research out of the New York Fed documented how undercapitalized banks responded to distressed office loans since 2022 by simply extending the maturity date rather than recognizing the loss on their books, avoiding the capital hit that an honest writedown would require. It worked as a stalling tactic for a while, and is quickly running out of road. Lenders are increasingly unwilling to grant another extension without real concessions, fresh equity from the borrower, a meaningful principal paydown, something that changes the risk. Industry commentary now describes this shift bluntly, ‘extend and pretend’ is giving way to ‘resolve or reset’.

Combine these forces and you get the maturity wall hitting office building owners right now. Industry trackers put total CRE debt maturing in 2026 somewhere between 875 billion and 936 billion dollars nationally, with office loans making up a disproportionate share of the distress, 35 to 40 percent of at-risk maturity volume despite office being a much smaller slice of the overall debt stock. CMBS office delinquency hit a record high above 12 percent earlier this year. Another wave, several hundred billion more, lands in 2027. The fourth quarter of 2026 alone carries the heaviest concentration of maturities this year.

This is the actual mechanics behind the 50 percent loss. Owners who spent the last two or three years getting extension after extension are now running out of road at the exact moment refinancing got dramatically more expensive. Many don't have a clean option left, refinance at a rate the building's income can't support, write a large equity check to bring the loan down to a level that pencils, or sell, often at a steep discount and let someone else solve the problem with fresh capital.

Here's what that means if you occupy space in any major market right now. For tenants, the lesson from before still holds and gets stronger. A building that sells at a steep loss hands the new owner a much lower cost basis, and often real room to be aggressive on rent and concessions to stabilize occupancy fast. Go a step further than before, ask not just who owns the building, ask when their loan matures. A landlord staring down a 2026 or 2027 maturity on a loan written at old rates has real urgency to show a lender strong occupancy, and a well-structured renewal from you is exactly the kind of leverage they need walking into that refinancing conversation. That urgency is worth something at the negotiating table.

For owners and landlords, the math is no longer forgiving. The extensions that bought time for three years aren't coming as easily anymore, and a loan that looked fine at 2016 or 2021 rates may not pencil at all against current debt costs. The owners moving fastest right now, locking in strong tenants, bringing in new equity, or selling before a forced sale, are the ones controlling the outcome instead of having it decided for them.