Deal-Making in Times of Distress

Commercial real estate distress is growing in the Washington, D.C. Metro area alongside markets across the country. Changes in demand, construction costs, financing costs, and other factors are cause building values to fall, and distress to rise. 

These issues are causing new challenges for landlords and tenants alike. Some landlords with upcoming loan maturities and/or high vacancy rates are finding it difficult to meet market expectations on deal financials, others are struggling to service debt, and still others are solvent but choosing not to transact in a challenged market. Tenants are encountering new issues in the search for space and recouping cash outlays like tenant improvement allowance. 

Meanwhile, the top echelon of inventory (Trophy and Class A+ buildings) remains a bright spot in the market. These classes have seen positive absorption and falling vacancy since the start of the pandemic, and rising rents over the last year. The buildings are healthy from the perspective of demand and occupancy, and solvent from a financial perspective as occupiers continue to engage in a flight to quality.