A pair of century-old Midtown Manhattan office buildings are trading at a steep discount as lenders look to cut their losses, Bloomberg News reported. Empire Capital Holdings agreed to buy the properties at 229 W. 36th St. and 256 W. 38th St. for less than $50 million, or at least 68% below the roughly $157 million the buildings last sold for in 2017. 

The deal was a short sale for lender Investcorp, according to Bloomberg. Short sales have become more common as office values have plummeted, often below loan amounts. Last year, Empire Capital and a partner purchased a West 44th Street office building in a short sale.

Bloomberg reported that CBRE’s Doug Middleton and Jack Stillwagon are handling the sale. The buyer is considering either keeping the sites as offices or turning them into storage properties for now, a source told Bloomberg. Both properties also sit within a rezoning district.

CBRE’s Capital Markets team in San Francisco arranged the sale of 410 Townsend St., a four-story, 78,000-square-foot office building in San Francisco’s South of Market (SoMa) submarket. The property was formerly a hub for early-stage tech startups such as Eventbrite and Zendesk.

New York Life Real Estate Investors (NYLREI) and Bridgeton, a vertically integrated real estate investment firm, purchased the property for $22 million. The sale price represented a substantial discount on the nearly $86 million that Clarion Partners paid in 2019, according to published reports. NYLREI and Bridgeton were represented by Mike Taquino and Kyle Kovac of CBRE.

Although CBRE didn’t identify the seller, the San Francisco Business Times reported that Nationwide Life and Annuity Insurance Company, once the building’s lender, took ownership of 410 Townsend after Clarion handed over the property last December. By that time, occupancy had declined to around 25%.

“It’s our opinion that this is the start of the recovery for the San Francisco real estate market and 410 Townsend provides us with the opportunity to acquire a best-in-class creative brick and beam office asset well below replacement cost and where the asset traded in 2013 and 2019,” said Albert Pura, senior director of transactions for NYLREI.

Leaders From Rialto Capital Management, AEW, CIM, Rexford Industrial, EQR and Cushman & Wakefield come together on the Capital Markets panel at Connect Los Angeles 2024 on May 1 at the InterContinental in DTLA. Register now to hear from these industry experts and more. 

South Korean investment manager Consus Asset Management has agreed to pay $145 million, or $145 per square foot, for the one-million-square-foot office tower at 777 S. Figueroa St. in Downtown Los Angeles, reported Bloomberg News. The company is buying the 52-story building at a deep discount from a Brookfield Properties affiliate that had assumed it through its 2013 acquisition of MPG Office Trust Inc. 

Trepp reported that the Brookfield affiliate had defaulted on the property’s $318.6 million of debt in 2022. Late last year, Eastdil Secured was hired to find a buyer. 

A $268.6-million piece of the debt is held by a group of banks led by Wells Fargo Bank and pays a coupon pegged to Libor plus 180 basis points, according to Trepp. The remaining debt is held by Mesa West Core Lending Fund. The entire debt package is scheduled to mature in October. 

The 52-story building, which opened in 1991, is now 52% leased, down from 73.1% a year ago. 

AEW Capital Management bought Three Water Ridge in Charlotte for $35 million in 2016. They recently sold the 107,545-square-foot asset to Perkins Fund for $15 million. Three Water Ridge, was fully occupied by Walmart at the time of sale; the retailer has been a tenant at the property since 2015.

Commercialsearch.com reports, that at five stories tall, Three Water Ridge came online in 1991 and underwent renovations in 2018. The property is part of the 11-building Water Ridge Office Park, so tenants can access three fitness centers, outdoor picnic areas, walking trails, 24/7 security and a tenant lounge, among other amenities. 

Located at 2118 Water Ridge Parkway within the I-77 Corridor submarket, the property is close to Billy Graham Parkway and West Tyvola Road, across from the 170-acre City Park master-planned community. Downtown Charlotte is approximately 7 miles northeast, while Charlotte Douglas International Airport is 6 miles away.

The coronavirus pandemic created a work-from-home revolution that may lead to a decline in tax revenues from commercial properties, and cities will suffer as they cannot provide important services to residents, a new report warns.

If current trends persist, demand for commercial real estate space could drop by 12% to 25% in key cities, leading to a correlated drop in assessed values, and thus in city property tax revenue. The full effects haven’t yet been felt because federal funding from the American Rescue Plan has so far cushioned the blow, but city leaders should prepare.

That’s the takeaway from a new report titled “Impact of Work From Home on Commercial Property Values and the Property Tax in U.S. Cities,” commissioned by the Communications Workers of America.

The pandemic could result in empty workspaces.

The report was authored by researchers from the City University of New York and the University of Illinois at Chicago and released Thursday by the Institute on Taxation and Economic Policy.

“Though magnitudes vary somewhat across cities, all face significant fiscal risks,” the report says.

Researchers focused on eight cities — Atlanta, Austin, Charlotte, Chicago, Los Angeles, Miami, New York and San Francisco — where commercial real estate accounts for an average of 37% of property taxes, ranging from 26% in LA to 56% in Atlanta. A high proportion of white-collar jobs in these places can be performed out of offices and have a ripple effect on the economy.

Using data from the Bureau of Labor Statistics Quarterly Census of Employment and Wages, the researchers tracked employment changes in 2020 by city and industry. Even with no change in space per worker, employment effects alone will cause the value of commercial real estate to fall by an average of 6% — from 1% in Austin to 13% in San Francisco — they found. With two days or less of work-from-home, that number rises to 12%, and three or more days of work-from-home, it’s 25%.

The report found that New York and San Francisco are the most vulnerable of the eight cities, with predicted commercial price drops ranging from 25% to 43%.

“Declines are smaller, but still significant, in the other cities,” the report says. 

Using a special database on city finance, the researchers translated the decline in CRE property values into effects on property tax and city revenues. Larger cities with diversified revenue structures won’t feel as much impact, but smaller cities like Austin and Miami, which are more dependent on property tax, will have to adjust.

The analysis found that Atlanta will have the largest revenue effect, with an estimated 5.7% loss. Austin, New York and San Francisco face revenue losses between 2% and 4%.

Cities and states have gotten fiscal relief this year under the federal American Rescue Plan, but those funds will phase out between 2022 and 2024. The report’s authors say that one future solution may be to divert funds away from suburbs to city centers most affected — but warn that any reallocation is likely to draw “furious resistance” from jurisdictions that would be the perceived losers in any such shift.

The authors said there’s a “paradox” in cases like Florida and Texas. Political leaders tout low taxes and no income tax, but those states will soon see economic detriment in their major cities as they face negative impacts from the increase in working from home.

Some leaders have long predicted these problems. In Texas, lower taxes, light regulation and cheap housing lured 4.2 million people and hundreds of corporations in the past decade, but left little revenues for infrastructure improvements and social services — deficiencies that were evident during a winter storm and a massive power outage last winter.

“We are not sufficiently looking down the road. And we’re not sufficiently investing,” former Houston Mayor Annise Parker, who led the city from 2010 to 2016, told Bisnow in February.

“The bill will come due,” University of Houston Political Science professor Brandon Rottinghaus told Bisnow.