Buyers Snap Up Aging and Empty Office Buildings for Deep Discounts

A perfect storm of plunging property values for aging buildings, weak tenant demand coming out of the pandemic and high interest rates for new loans and refinancing has left the $2.4 trillion office building sector wobbling.

For some real estate investors, that may be a good thing.

Several big office buildings nationwide — including in Manhattan — have recently sold at steep discounts of as much as 70 percent to opportunistic buyers, who are gambling that they will score big profits when prices eventually rebound.

In April, a little-known firm, Yellowstone Real Estate Investments, paid $185 million for 1740 Broadway, a storied office tower near Columbus Circle in Manhattan. The investment giant Blackstone had paid $600 million for the building a decade earlier. And this week, two real estate firms snapped up a Midtown Manhattan tower for less than $50 million, according to Bloomberg.

Even though these are relatively small buyers, their emergence is a sign of the pain building in the U.S. commercial real estate market. Distressed deal-making is one of the more visible illustrations of trouble brewing in the sector that could lead to large losses for hundreds of banks and investors in real-estate-backed loans.

Isaac Hera, the chief executive of Yellowstone, said his firm was making deals based on calculations that “our current investments will not be adversely affected if office prices continue to drop.” Mr. Hera added, “We never try to time the markets.”

Some industry analysts have cautioned that the bargain hunting is the tip of the iceberg, more a sign of quick deal-making than an indication that prices of office buildings have hit rock bottom — especially ones built decades ago.