Yale Study Finds DOGE Lease Cancellations Are Already Causing Real Estate 'Shocks'

While the shock-and-awe cuts to the federal government's real estate footprint spurred on by the Trump administration's Department of Government Efficiency have subsided, their impacts are just being realized, a new study found.

Government-leased buildings had long been seen as a safe option for investors because agencies rarely exercise their early termination options. But the shift in government policy is already upsetting the CMBS market and may generate larger private sector losses than the tax savings it set out to create, according to a study by researchers at the Yale School of Management.

“The DOGE lease terminations function not just as cost-cutting measures, but as systemic shocks with the potential to undermine CRE stability through both direct and indirect channels,” the study says. “In this setting, the DOGE intervention served as a wake-up call, revealing the latent exposure of CMBS structures to federal lease terminations.”

In February, as the DOGE cuts were beginning in earnest, Barclays warned that the agency’s promise to cut the government’s real estate footprint risked default across $12B of CMBS loans.

Lease terminations are already creating broader uncertainty in the CMBS market, according to the study from Yale assistant professor of finance Cameron LaPoint and Soon Hyeok Choi, assistant professor of real estate finance at Rochester Institute of Technology’s Saunders College of Business.

“There’s always the risk that whoever’s in power in the government can make a change and wipe out those contracts,” LaPoint said in a statement. “But that additional risk just hadn’t really been embedded in commercial mortgage-backed securities prices.”‌

DOGE’s push to vacate 10M SF of leases hasn't gone to plan. By early March, it announced that it had identified 748 leases for termination, forecasting potential savings of $660M and resulting in chaos for brokers and landlords alike.

But as of July 30, the federal government had only terminated 384 leases spanning 4.8M SF and rescinded 484 lease cancellations totaling 6.2M SF, according to JLL data. 

LaPoint and Choi’s study found that tail risks from exposure to early termination options could wipe out $565M in value from the office market in Washington, D.C., alone. That would cut the city's tax revenue by more than $50M, the researchers estimated.

“Previously ignored contractual clauses — like the ETO — can become salient sources of credit and pricing risk once activated,” they wrote.

In a median scenario, value destruction over five years would lead to a combined total shortfall of $575M between properties where the government exited its leases early, where DOGE has notified owners of termination but not yet executed, or where properties are leased to agencies besides the General Services Administration. 

The fallout could spill further into the future. Approximately half of the federal government’s 7,535 leases are up for renewal within the next five years, adding more uncertainty for landlords and investors as they wait to hear if the government will exercise its early termination options. 

The study also found that properties close to GSA-leased buildings will likely find themselves subject to greater risk and investor scrutiny.

First-loss CMBS bond tranches backed by leases where landlords have received DOGE notifications could see 4% declines in prices, with the spillover negatively affecting bond prices, delinquency rates and rental cash flows to nearby properties leased to private tenants, LaPoint and Choi found. This is despite a negligible impact on foot traffic.

“This is consistent with our story that it’s the shock to real estate debt markets and not the reallocation of the federal workforce that matters for the performance of surrounding properties,” LaPoint said.