Federal Office Lease Cuts Could Shake Up $15.6B in CRE Loans

The Trump administration's drive for federal office space cuts is shaking the commercial real estate market, jeopardizing billions in loans.

Jordan B.
February 26, 2025

SUBSCRIBE // ADVERTISE // MERCH // PODCAST // EVENTS

Together with

Good morning. A sweeping plan to slash federal office leases—up to 300 per day—could derail the sector’s recovery, leaving billions in loans exposed and major government-dependent cities scrambling to adapt.

Today’s issue is brought to you by AirGarage—maximize parking revenue at your property.

🔥 This Week on No Cap Podcast 🔥 Jack and Alex sit down with real estate icon Bob Knakal from BK Real Estate Advisors about integrating AI into the industry—covering prospecting, deal-closing, and data analysis.

Market Snapshot

S&P 500

GSPC

5,955.25

Pct Chg:
-0.47

FTSE NAREIT

FNER

797.47

Pct Chg:
+1.19%

10Y Treasury

TNX

4.315%

Pct Chg:
+0.017

SOFR

30-DAY AVERAGE

4.328

Pct Chg:
0.0%

*Data as of 02/25/2024 market close.

Market Trends

Federal Lease Cuts Put $15.6B in CRE Loans at Risk

The Trump administration's drive for federal office space cuts is shaking the commercial real estate market, jeopardizing billions in loans.

Big picture: A new directive from the General Services Administration (GSA) aims to slash federal office leases at a pace of up to 300 per day. This move threatens to disrupt the $28.7 billion in GSA-backed leases that currently serve as collateral for commercial mortgage-backed securities (CMBS) and CRE collateralized loan obligations (CLOs).

What’s at risk? According to KBRA, 13.8 million square feet of GSA-leased space secures 201 loans, amounting to $15.6 billion in outstanding balances. These loans underpin nearly 200 CMBS transactions, with some properties seeing as much as 50% of their collateral space leased to the federal government.

Workforce and office demand: The impact of these cuts is clouded by conflicting data on federal employee work arrangements. The Office of Management and Budget (OMB) states that 54% of civilian employees work on-site, while other reports suggest the number is as low as 6%. Meanwhile, recent buyouts and potential layoffs of up to 200,000 probationary employees could further reduce office space needs.

➥ THE TAKEAWAY

Zoom out: With the government downsizing its real estate footprint, cities reliant on federal leases could face prolonged office market struggles. While the administration’s return-to-office mandates may boost demand, they likely won’t offset the flood of vacant space hitting the market.

TOGETHER WITH AIRGARAGE

Upgrade Your Parking Manager Before the Summer Season

Is old-school management and outdated parking technology hurting your property value? That's where AirGarage comes in.

AirGarage is a full-service parking operator that combines local operational excellence with technology built in-house to boost your parking income.

Most parking management companies outsource their technology which means they are reselling you expensive equipment that breaks down often.

AirGarage handles the basics—sweeping, cleaning, and enforcement—while replacing legacy equipment like payment kiosks with a QR code-based camera payment system, boosting revenue and cutting OpEx.

With parking facilities across 40+ states and new cities launching every week, it's no wonder AirGarage is America's fastest-growing parking management company.

Get a custom proposal for your parking facility today!

*This is a paid advertisement. See the disclosure at the bottom of the newsletter.

✍️ Editor’s Picks

Be the Best Ever: Experience the premier CRE event for passive and active investors at the Best Ever Conference. Use promo code credaily25 to get 25% off.
On the rise: Cap rates increased across most property types in Q4 as lenders adapted to shifting market conditions, according to a CRED iQ analysis of $7B in securitized loans.
Slowing down: The total value of US homes hit $49.7T in 2024, growing just 5.2% YoY—the slowest pace since 2019—while Northeast markets led and Florida metros lagged.
Eyeing a reset: Investors see the current CRE pricing reset as a chance for first-mover advantage, prioritizing multifamily and industrial, while interest in retail and office continues to grow.
$725M bond sale: Illinois aims to issue $725M in Build Illinois Bonds, backed by sales tax revenue, to fund infrastructure projects amid ongoing budget negotiations.

🏘️ MULTIFAMILY

Rent-stabilized fire sale: A 29-unit East Harlem building sold for just $285K—97% below its 2016 price—highlighting deep distress in NYC’s rent-stabilized market.
The Hall of Shame: The SEC is seeking a permanent ban on Elie Schwartz after he misappropriated $52M from CrowdStreet investors, following his guilty plea for wire fraud.
Luxury rent deals: According to a recent RentCafe study, Seattle, Austin, and Scottsdale currently lead the nation in zip codes with high-end apartments that rent below city averages.
Affordable housing insurance: Empire State Development Corp. is lending $2M to Milford Street Captive Insurance, which will aid landlords facing soaring insurance costs in subsidized housing.
Mobile and flexible: Seville General Partners will redevelop Hallandale Beach’s Seville Mobile Home Park into a 750-unit mixed-use project amid South Florida’s mobile home conversions.

🏭 Industrial

Richmond sales dip: Richmond’s industrial real estate sales declined for the first time in five years, while office sales volume saw its first increase since 2021.
Buying in Vegas: MDH Partners acquired two industrial buildings near Nellis Air Force Base for $94M, marking its entry into the Nevada market.
Site sold: Alterra IOS acquired a Littleton industrial property as part of a 16-site national portfolio deal with TruGreen in a sale-leaseback transaction.

🏬 RETAIL

Retail leasing rebound: Manhattan retail leasing surged in 2H24, led by SoHo and Madison Avenue, as tourism, job growth, and return-to-office trends fueled demand, per REBNY.
Deal of the day: Blackstone (BX) acquired Retail Opportunity Investment Corp., adding 93 West Coast shopping centers, including eight in Orange County worth $275M.
Absorption soars: Orlando’s retail market saw a six-fold YoY absorption increase in Q4 2024, led by Northwest Orange and Kissimmee/St. Cloud, per Colliers.

🏢 OFFICE

Federal lease cuts: DOGE’s plan to end 100 federal leases, including 1.4M SF in DC, threatens the national office market recovery and raises vacancy risks in key government hubs.
Downtown struggles: Despite NYC’s broad office market rebound, Downtown Manhattan struggled in 2024 due to limited top-tier space and lingering perceptions of outdated stock.
Chicago sales rebound: Deep discounts on office properties drove Windy City’s highest office sales volume in nearly a decade, while leasing activity surged 32% in Q4.

🏨 HOSPITALITY

Healthy partnership: Therme Group and The Georgetown Company launched a joint venture to develop wellness resorts across the US, expanding Therme’s spa-like destination concept.