Overleveraged Office Owners Are Running Out of Options, NYC Broker Says

Written by:

Steve Marcinuk

Date:

28 Dec 2025

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Norman Bobrow, president and founder of Norman Bobrow & Co., Inc., warns that office buildings financed above 65% loan-to-value face fundamentally different constraints than conservatively financed properties – and tenants are bearing the consequences.

The current distress in the office real estate market is directly attributable to overleveraging during the last expansion cycle, according to Norman Bobrow, a New York City commercial real estate broker with 45 years of experience. Buildings burdened by high debt are now experiencing severe cash-flow problems, prompting some owners to abandon their properties entirely.

“When you have these high vacancies, and you have to put so much money into these properties, it’s a huge lift. A lot of landlords can’t go finance anymore,” Bobrow says. “Some landlords have actually walked away from their properties. Some have sold at major, major discounts.”

The 65% Leverage Threshold

Bobrow identifies a clear dividing line between properties that have weathered the downturn and those now in crisis: the 65% loan-to-value ratio. “I’m a huge fan of Warren Buffett, and Warren has always said, ‘Don’t leverage more than 65% of your property,’” he explains. Bobrow says this conservative approach has been crucial for owners who have survived the post-pandemic market.

The math is unforgiving. “A landlord has to pay his mortgage, and those mortgage payments are quite steep. If you have a 30% vacancy in your building suddenly, you’re not making your mortgage payments,” Bobrow says. Operating expenses, taxes, and tenant improvement costs remain constant regardless of occupancy, so a spike in vacancies immediately creates a cash flow crisis.

Bobrow says many people misunderstand how thin margins can be for landlords. “People think, oh, the landlord is making so much money, but after he pays his operating costs and real estate taxes and the buildout cost to put a tenant in the space, there is not that much room,” he says.

The Refinancing Dead End

When overleveraged buildings run into trouble, their options for relief are limited. “They can’t go and say, I’m going to borrow more money, because they don’t have the cash flow of the building to support that, and they have to come up with equity,” Bobrow explains.

This creates a split market. Buildings with lower leverage can withstand extended vacancy periods and invest in tenant improvements to attract new leases. Overleveraged properties, however, are forced to fill space quickly, often on unfavorable terms, to generate enough cash to cover debt service.

The impact on pricing is clear in certain submarkets. “The building that was suddenly up to $65 may be down to $45 a foot,” Bobrow says, referring to side street properties in New York. By contrast, buildings with manageable debt levels can maintain higher asking rents, while their overleveraged counterparts are forced to slash prices.

The Tenant Risk Factor

Tenants are increasingly exposed to risks when leasing space in financially stressed buildings. “He could get a work letter and sign a lease, and then find out the landlord’s insolvent and he’s tied up in this lease,” Bobrow cautions.

Bobrow cites a Madison Avenue building where the landlord lost 25% of tenants and defaulted on the mortgage. The landlord, with sufficient resources, continued making payments and eventually spent heavily to attract new tenants. “He had to spend a fortune to get all these new tenants in to replace the tenants that walked from their space,” Bobrow says.

In contrast, weaker landlords who lost tenants during the pandemic often lacked the resources to recover. “It wasn’t worth the cost of a lawsuit,” Bobrow says, explaining why some landlords chose not to pursue tenants who stopped paying rent during COVID. The resulting financial pressure pushed some owners past their breaking point.

The COVID Acceleration

Bobrow attributes the current wave of distress directly to the pandemic. “Covid came. Tenants stopped paying rent. Landlords suddenly got hurt very badly, because they suddenly had major vacancies in their building,” he says. The ability to survive this shock, he argues, depended almost entirely on the strength of a building’s balance sheet.

“It wasn’t worth it to go sue these tenants because it was too costly, too long, and he was suing someone that really didn’t have much money,” Bobrow explains. Even tenants with strong financials sometimes walked away, knowing that litigation costs would deter the landlord from taking action.

This environment allowed tenants to exit leases without consequence, leaving landlords to absorb the losses. Buildings with conservative leverage could withstand the blow. Highly leveraged owners, however, found themselves unable to recover, resulting in distressed sales or outright abandonment.

The Class A/B/C Divergence

The financing crisis has widened the gap between property classes. “The Class C and the Class B have been renting up slower than others, bigger concessions,” Bobrow says. These lower-tier buildings are under pressure to reduce rents and offer larger incentives to meet debt obligations.

Meanwhile, certain submarkets have stabilized or even seen price increases. “Most of the properties here have caught up in their price, and that’s very recently,” Bobrow says, citing Midtown, the Plaza District, Madison Avenue, Fifth Avenue, and Grand Central.

Bobrow argues that conservative financing not only protects owners during downturns but also preserves their ability to make long-term, strategic decisions. Overleveraged properties, on the other hand, lose flexibility and must react to immediate financial pressures, often at the expense of both landlord and tenant interests.

Why This Matters Now

The current office market crisis in New York and other major cities is not only a result of lower demand or remote work, but also a direct consequence of aggressive debt strategies during the last boom. As vacancy rates remain elevated and financing costs rise, the distinction between conservatively and aggressively financed buildings is driving outcomes for owners and tenants alike. With more landlords walking away, tenants are left to navigate a landscape where building stability can no longer be taken for granted.