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 the Manhattan borough of New York — have recently sold at steep discounts of as much as 70% 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.

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New York Times