Another Washington DC office building has just been sold at a massive 75 per cent discount, a real estate entrepreneur said on Sunday. The 175k sq ft tower at 1101 Vermont Avenue sold for $16 million, he said, adding that the building was last sold for $60 million in 2006.
The building’s assessed value in 2018 was $72 million in 2018. The entrepreneur said that Washington DC, the capital city of the US, has been among the hardest hit office markets in America, with absolutely no rebound in sight.
Kotak Mutual Fund’s Managing Director Nilesh Shah said this Washington DC building goes for Rs 7,589 per square foot, 73 per cent lower than the last traded price 18 years back. “I did this calculation twice to confirm the number. The commercial real estate in the US is truly in deflation/fire sale. Who bears all these losses?”
In the US, the commercial real estate sector has been under intense pressure as interest rates have risen over the past couple of years. In the US, with the largest commercial property market in the world, prices have tumbled by 11 per cent since the Federal Reserve started raising interest rates in March 2022, erasing the gains of the preceding two years, the International Monetary Fund said in a note published on January 18, 2024.
The global lender said that higher borrowing costs tend to dampen commercial property prices directly by making investments in the sector more expensive, but also indirectly by slowing economic activity and reducing the demand for such properties.
Last week, an 11-story office tower in San Francisco was sold at a 60 per cent discount. The San Francisco-based firm bought the building at 60 Spear Street, a 56-year-old office building, for $41 million from Clarion Partners, which acquired the property in 2014 for $107 million.
On March 25, Reuters reported that the sales of new US single-family homes unexpectedly fell in February after mortgage rates increased during the month. The report from the Commerce Department showed the median new house price last month was the lowest in more than 2-1/2 years, while supply was the highest since November 2022. Builders are ramping up construction, while offering price cuts and other incentives as well as reducing floor size to make housing more affordable, the news agency reported.
link
