EVERYTHING IS GOING SWIMMINGLY: The brutal reality of plunging office values is here.

Across the country, deals are starting to pick up, revealing just how far real estate prices have fallen. That’s spurring widespread concern about losses that can ripple across the global financial system – as underscored by the recent turmoil unleashed by New York Community Bancorp, Japan’s Aozora Bank and Germany’s Deutsche Pfandbriefbank as they took steps to brace for bad loans.

In Manhattan, brokers have started to market debt backed by a Blackstone-owned office building at a roughly 50 per cent discount. A prime office tower in Los Angeles sold in December for about 45 per cent less than its purchase price a decade ago. Around the same time, the Federal Deposit Insurance took a 40 per cent discount on about US$15 billion in loans it sold backed by New York City apartment buildings.

It’s a turning point for the market as the Federal Reserve ends the fastest pace of interest-rate hikes in a generation – providing more clarity to real estate investors on where borrowing costs stand. Some property owners will have little choice but to sell as their debt come due: More than US$1 trillion in commercial real estate loans are set to mature by the end of next year, according to data firm Trepp.

A commenter over at VodkaPundit told me a while back that nobody knows the true value of any piece of commercial real estate until it’s been three times. It can be a painful discovery.