Commercial Real Estate Crash: Giant D.C. Office Building Default On $161 Million Debt

With recent stress in the regional banking sector, sentiment in US commercial real estate (CRE) – and especially the office sector – has turned negative as investors prepare for potential spillover effects, especially as high-profile defaults continue to make headlines as borrowers face higher debt service costs and refinancing becomes much harder ahead of a $400 billion CRE debt maturities this year alone. 

The latest headline fueling concerns about a potential CRE crisis involves a fund belonging to CRE giant Brookfield defaulting on a $161.4 million mortgage for twelve office buildings in Washington, DC. 

The loan was transferred to a special servicer working with “the borrower to execute a pre-negotiation agreement and to determine the path forward.” 

Real estate data firm Green Street said DC office space values had slid 36% through March compared with a year ago due to rising vacancies amid the rise of remote and hybrid work post-Covid.

The gold-standard measure of office occupancy trends is still the card-swipe data provided by Kastle Systems. The average office occupancy across Washington, DC, is only 43% and has yet to recover to pre-pandemic levels.