Office REIT Inches Closer To Bankruptcy As Cash Dwindles And Debt Maturities Loom

Office Properties Income Trust has found itself in dire financial straits as it stares down the two trends weighing heaviest on the office sector.

Facing a cash squeeze and a mountain of maturing debt, the board of trustees for the office REIT appointed John Castellano as chief restructuring officer this month. The move follows a warning over the summer of restructuring or bankruptcy if the debt can't be paid. 

Vacancy is rising in the REIT's mostly Class-B portfolio as it fails to meet today's demand from tenants for quality space. The associated cash flow troubles compound a more worrying issue for the company's management: limited refinancing for the wave of debt maturities coming due. 

“There's maturities in early ‘26, and as of now, they just don't have sufficient liquidity for it. And we're not quite sure where that capital will come from,” said Alan Zigman, an associate director at S&P Global Ratings who covers OPI. 

The firm has tried for more than a year to address its balance sheet shortcomings, but alarm bells keep ringing. A deadline to improve its share price or be removed from the Nasdaq Stock Market passed on Sept. 22, but the company is still listed on the index.

Nasdaq declined to comment, citing a policy against commenting on individual companies.

The looming debt maturities first led OPI’s management to flag the company's ability to continue as a going concern in October 2024. They also contributed to S&P Global giving OPI a credit rating of CCC-. The junk rating signaled that S&P believed in May that OPI would face default or distress within six months. 

OPI had $90M in cash on hand at the end of June, a decrease from $275M at the beginning of the year, and expected to draw down roughly another $50M to cover operations in 2025, Chief Operating Officer Yael Duffy said on the firm's second-quarter earnings call on July 31. 

The REIT, which is managed by Massachusetts-based The RMR Group, has $277M in debt set to mature in 2026 and nearly $800M maturing in 2027. OPI has been unable to refinance the debt and has instead been exploring everything from asset sales to bankruptcy to pay it down. 

“If we are unable to obtain sufficient funds, our Board of Trustees may consider a reorganization in a bankruptcy court,” OPI said in a filing with the Securities and Exchange Commission on June 30.

OPI owns 17M SF of rentable office space, mostly Class-B properties with a median size of 100K SF and a concentration around Washington, D.C.

The U.S. government is OPI’s largest tenant, occupying 17% of its leased space at the end of June. Its second-largest tenant, Google parent company Alphabet, fills 2.8% of OPI’s portfolio. 

Exposure to federal tenants was once a mark of stability for office landlords but has become a liability as President Donald Trump’s administration moves to cut the size of the federal bureaucracy and the office space it occupies. 

OPI listed a vacant 183K SF glass-clad office building in the heart of Washington, D.C., for sale in February, hoping to attract a hotel investor. The property at 20 Massachusetts Ave. NW includes an attached 274-key Royal Sonesta hotel, the Washington Business Journal reported. OPI would use sale proceeds to pay down debt obligations.

The REIT has been hammered on the public market. Its share price peaked around $30 in 2021 and has been sliding since, falling below $1 per share in December. Shares were trading for around 34 cents apiece this month. 

Castellano, the new restructuring officer, is also managing partner of turnaround consulting firm AlixPartners, which was already working with OPI to address its liquidity problem. 

Christopher Ranjitkar, director of investor relations at OPI and vice president at The RMR Group, and AlixPartners didn’t respond to Bisnow’s multiple requests for comment. 

OPI’s funds from operations were $5.6M in the second quarter, a steep decline from its $259M FFO during the same period a year earlier. Occupancy in the REIT’s portfolio has been declining for several quarters and slipped to 85% at the end of June.

The REIT has been trying to work through its debt for more than a year. It announced an at-the-market equity offering program in April 2024 and a private exchange agreement in November, but neither raised significant capital.  

Limited interest in the debt exchange meant that just $21M out of more than $335M in eligible debt was converted. The equity offering is authorized for issuance up to $100M. It raised $1.1M in the first half of 2025, according to SEC filings.

As a managed REIT, OPI doesn’t have its own executives or staff and instead pays a fee to Massachusetts-based RMR to run its day-to-day operations. The RMR Group is itself a publicly traded company that has lost roughly 20% of its value this year. 

The RMR Group pushed to merge OPI with its healthcare REIT, Diversified Healthcare Trust, in 2023 to create a new combined entity called Diversified Properties Trust.

The RMR Group’s executives said at the time that the move was meant to hedge OPI’s exposure to the weakening office market, but the deal fell apart after a major DHC shareholder opposed it and a proxy advisory firm described it as a “take-under,” as opposed to a takeover, because of the discounted sale price OPI was set to pay for DHC.

Asset sales could fund debt payments, but investor demand for anything but top-quality office buildings has been limited. OPI found buyers for four of its properties in the first half of the year, raising a combined $29M, according to its quarterly filings. 

But the company is running out of time and options. Without a major intervention, the REIT is expected to run out of money next year. Modest improvements in debt service costs from interest rate cuts are unlikely to give OPI enough headroom to refinance its debt at an affordable rate. 

“I would assume they've explored selling more assets,” Zigman said. “There's just not a huge appetite from buyers.”