How much is an office building in a big city worth these days? No one really knows, Axios' Kate Marino writes.

The big picture: Investors have been poised to pounce on depressed office properties for a while now, but there hasn't been much opportunity for actual deal-making.

• Yes, but: That'll probably start to change this year. "This is really evolving. I would say that activity is picking up," says Cathy Marcus, co-CEO at PGIM Real Estate.

Why it matters: Where these values shake out will provide some clarity for a banking system that's still a little jittery from last year's mini-crisis. Banks hold about 38% of the trillions in outstanding U.S. commercial real estate debt, per the Mortgage Bankers Association.

Zoom out: The plunge in office values is one of the most well-telegraphed downturns in recent memory, thanks to the rise of both interest rates and remote work. Wall Street loves a good opportunity — and plenty of firms have been raising funds to scoop up office assets on the cheap.

• But it's got to be really, really cheap.
• Often this means buying a building's debt at a big discount to face value as a means to eventually take control.

But it's taking a while for banks to decide how to handle situations in which the building is worth less than the loan — some banks want to delay realizing losses for as long as they can, says one real estate investor.

• According to Scott Rechler, CEO of real estate investing firm RXR: "We are starting to see some movement — not a lot yet — in deals where lenders are willing to start trading at prices that better reflect the substantial discounts that you need, to attract capital to invest in office."
• He says that his firm made offers on about $1 billion worth of office loans back in January, but "we haven't gotten a lot of feedback yet."

Where it stands: It'll take some time "for the standoff between buyers and sellers on where values are, to work its way through the system," says Marcus.

• Even appraisals are all over the map. "We've seen multiple appraisals for the same building be 25% off of each other," says Rechler.
• Similarly, in a recent auction where a lender was trying to sell a bond backing an office building, "the [bids] were all over the place between the first round and the second round," Marcus says.

Between the lines: So far, sale data show that buildings in cities' central business districts have shed about 40% of their value on average versus the peak in April 2022, according to MSCI Real Assets.

• But each building is different, and the quality spectrum is incredibly wide. Some of these buildings no longer need to exist; while the most modern, amenity-packed buildings may only see a small dip in value.

What to watch: There's about $265 billion of U.S. office loans maturing throughout 2024 and 2025, according to data firm Trepp. That'll force more sales and restructurings. And a few more big deals will catalyze more big deals.

• "Once investors and lenders have better visibility of where values ultimately land and what structures are being used, I think you'll start seeing an uptick in trades," Rechler says. "It's going to be a process through this year and into '25."

Step outside of the major U.S. cities, and the standoff isn't nearly as pronounced.

State of play: Suburban offices have lost about 17% of their value since the peak, MSCI data show. That's not what anyone wants for their portfolio, but it's not nearly as bad as cities' central business districts (CBDs).

• The "good" news for regional and local banks: They have much lower exposure to CBD office loans than to suburban ones, according to MSCI.

Behind the scenes: For these smaller, lower-price point buildings (think under $100 million) all-cash buyers started appearing around the third quarter of last year, says Marcus.

• Since there was very little debt available for office buildings, all-cash buyers were suddenly at an advantage. And they appeared to be non-traditional real estate buyers taking advantage of the leg down in values.
• "Over the past two to three quarters, when we have sold assets ... the common denominator of the list of bidders is that we've never heard of any of them. That was one of the most striking things," Marcus says.

Zoom out: Big-name investors defaulting on once-coveted NYC buildings may get the most headlines — but Marcus has also seen plenty of building owners willing to put up more money to get a loan extension, and avoid default.

• "Not all investors have the same motivation. Families, who've held an asset for generations, and intend to hold it for more generations, are motivated by very different things than a five-year return," she says.

U.S. commercial real estate players are faced with a choice: Try to catch a falling knife in the U.S., or invest in much safer high-prestige projects elsewhere, Felix writes.

The big picture: The New European Bauhaus project is an ambitious attempt to make European Commission office space both architecturally and environmentally state-of-the-art — and it can come with healthy returns for private-sector investors, on the order of 15% per year.

How it works: The EC leased about 1 million square feet of Brussels office space in 2018, across multiple buildings, none of which was considered Grade A.

• Like most major tenants, it expects to need less space in the future — specifically, it anticipates needing just 700,000 square feet by 2030, all of which will be Grade A.
• That creates an opportunity. The Cityforward project, run by Europe's Whitewood fund manager, will buy up the old buildings and convert about 30% of the square footage to residential.
• The rest will be upgraded so that they're fully sustainable. In turn, that means the landlord will be able to charge higher rents to a tenant (the EC) that will never default.

By the numbers: Whitewood is aiming to raise a total of €2.9 billion ($3.2 billion), and is currently pitching U.S. investors on investing about €160 million of needed new equity and €460 million of debt.

The bottom line: This project helps improve a neighborhood, create housing, and increase the supply of carbon-neutral office buildings, all on the back of guaranteed rent payments from the best possible tenant.

• If a project like this is targeting gross project returns of 16%, that's a good floor for what investors in distressed U.S. projects will be looking to make.