'Like Managing An ER': Property Management In The Era Of Distressed Office Buildings

The office market has long been defined by the haves and have nots: those that can offer what tenants want, and those that can't.

The dynamic has only further solidified in the post-pandemic years, with tenants time and again opting for higher-quality space with hospitality-like experiences, resulting in even greater demand for new trophy and renovated Class-A buildings. 

Meanwhile, the glut of older and less desirable office buildings characterized as Class-B, Class-C and commodity Class-A are increasingly being weighed down by financial hardship, with owners unable to invest money to improve their performance.

But these buildings still have some tenants, and someone has to manage them. 

“I look at managing a distressed asset like managing an ER,” CBRE Managing Director Kelly Enright said onstage at Bisnow’s DMV Property Management Summit on Wednesday. “You gotta triage, and you don't know what's coming in.” 

Speaking at The Westin Washington, D.C. City Center, executives who are on the ground managing D.C.-area office buildings — dealing with day-to-day tenant concerns, maintenance issues and rent collection — described the constant battle they face to keep distressed assets on life support. 

Property managers of buildings that are in financial distress must hold together often deteriorating properties with very few resources while the controlling entities shift under their feet. 

“Similar to an ER, you've got to work with what you have, the knowledge that's in front of you. You've got to make quick decisions. You've got to stretch a dollar,” Enright said. “We talked about some of these buildings where the rent goes straight to the lender. Sometimes, the rent’s not coming in.” 

The vast majority of office space in the D.C. region, like most markets in the country, is commodity office space — and the owners of these buildings are struggling. 

Out of D.C.’s 122M SF of office space, just 14M SF is trophy and 16.5M SF is what the brokerage calls Class A+ — buildings achieving the top 25% of taking rents — according to CBRE’s fourth-quarter report. 

“The other 80%, 85% of the market, your commodity A, Class-B, it can be really hard,” Stream Realty Partners Managing Director Joe Reilly said. 

These properties are battling a variety of symptoms. For some of them, lenders are in control, with banks or other debt partners receiving the building’s cash flow and serving as the decision-makers for leasing and investment.

Some are in receivership, with their expenditures and income subject to court approval. And some, even if owners are still in the drivers’ seat, have lost so much of their value that the investors are unwilling or unable to put any money back into them. 

When the entity controlling the asset is unwilling to put up the cash needed to secure new leases or renewals, the industry calls it a “zombie building.”

As of mid-2025, out of D.C.’s 80 large blocks of office space on the market — those over 50K SF — more than 30 weren’t actually able to sign new lease deals, according to CBRE, adding up to 5.6M SF of zombie space. 

“It doesn't mean they were bad owners or a bad leasing team or bad property management team. It’s about macroeconomic things that implicated the value of this property to take it below where anybody ever would have guessed,” Reilly said. “So the property enters this zombie mode where they can’t do deals.” 

As difficult as it is for the owners, the property managers are on the ground wading through these chaotic environments day by day. 

“It's really hard on property managers. Your fees get compressed. Your staff gets cut. Your budgets are spare,” Reilly said. “You're not even collecting the rent. It might be going straight to the lender, so you're having to do funding requests just to pay basic stuff. It is hard.” 

Enright said that during a few 80-degree days this past summer, the air conditioning didn’t come on in a couple of the buildings they were managing in receivership. 

“Luckily, then it got cold, so now we could diagnose it and figure out what's happening, but these are the things that happen in distressed properties,” she said. 

But even with so few resources, it’s on the backs of property managers to diagnose problems and find solutions while building trust back up with tenants and navigating complex court-directed processes and financing structures. 

“So there's a lot of different parties, you've got to be good at communicating with them and making fast decisions,” Enright said. “But it's the difference between an ER and running a hotel.” 

And just like an ER, sometimes it’s about choosing the lesser of two evils: If a tenant can pay half of their rent in a distressed building where the budget is already tight, maybe that’s the best-case scenario until your shift is over.

“In some cases, 50% of rent is better than no rent,” Enright said.