What is a realistic going-in cap rate for buying distressed office in 2026?

For stabilized or near-stabilized suburban Class B office in secondary markets, buyers require 9-11% going-in yields on actual current income. For significantly distressed assets where a substantial reposition is needed, cap rates are less relevant, buyers underwrite to total return on an equity-multiple basis over a 5-7 year hold. In those cases, the relevant metric is acquisition price per square foot relative to replacement cost, not cap rate on distressed income.

Should I use a broker when buying a foreclosed office building?

For assets marketed by special servicers and REO departments, your competition is typically using representation. A buyer's representative familiar with commercial distressed transactions can add value in navigating the bidding process, interpreting servicing agreements, and negotiating PSA terms. For direct receiver transactions or off-market approaches, representation is optional but experience in distressed closings is not, use qualified counsel at minimum.

How do I value an office building that is 60% vacant?

There are three defensible approaches: (1) income approach on existing stabilized cash flow, discounted for vacancy and capex required to stabilize, yielding a current value; (2) land value plus conversion cost approach if conversion is viable; (3) price per square foot relative to market comps on distressed office trades (publicly reported by JLL, CBRE, CoStar for recent sales). All three should be triangulated, relying on any one approach in isolation produces unreliable results.

What environmental risks are common in older office buildings?

For buildings constructed before 1980: asbestos in floor tiles, ceiling tiles, pipe insulation, and roofing materials. For buildings with underground storage tanks: petroleum contamination. For buildings with photovoltaic systems or HVAC systems with refrigerants: specific regulatory compliance obligations. Phase I environmental assessment is mandatory for any commercial acquisition; Phase II (testing) is warranted whenever Phase I identifies recognized environmental conditions.

Can I assume the existing CMBS loan when buying a foreclosed office building?

Not typically. CMBS loans are generally not assumable as part of a foreclosure transaction, the debt is extinguished through the foreclosure process. If you are buying the property before foreclosure (through a deed-in-lieu or negotiated sale), loan assumption may be possible with the servicer's consent and may provide economic benefit if the in-place rate is below current market rates. This is increasingly rare given the 2026 rate environment.

How to Buy a Foreclosed Office Building