The 1 million square foot office building just blocks from City Hall at 18th & Market streets in Philadelphia, saw its appraisal value crushed 25% from $282.1 million in 2021 to $211.3 million this year, according to a new report from Bisnow.

Citing Morningstar, the report notes that Shorenstein Properties’ office space, about 80% occupied, has been in special servicing for a year, with another property at 1700 Market St. added earlier this year.

A Kroll Bond Rating Agency report reveals Philadelphia’s office market had a 52% stress rate in Q1, the fourth-highest in the nation.

David Putro, a senior vice president at Morningstar, told Bisnow: “We’re seeing New York, Chicago and San Francisco’s offices with 70% drops from the original appraisal over time to the reappraisal. So, it’s not the end of the world.”

Mike Brotschol, a managing director at KBRA Analytics, however, said: “We have concern with the future performance of roughly 52% of the $4.77B in Philadelphia office CMBS.” 

Bisnow continued, writing that Chicago leads in CMBS office stress at 75%, followed by Denver at 65% and Houston at 57%. The stress rate reflects loans in default or at high risk of default.

Philadelphia’s 1818 Market isn’t the only troubled office property on the city’s main business corridor. Others face challenges, with varying prospects for recovery, according to the report. 

1515 Market St. and 1500 Market St. have fallen to 73% occupancy and into receivership, respectively. 1515 Market St. is on a loan watchlist as Temple University, which occupies a quarter of the space, decides on renewal.

Putro concluded: “In those spaces, financial services, professional services like those, tend to be the ones that are really evaluating their space needs. So it’s not a particular tenant, but it’s sort of just the evolution of what is ‘back to work’ as a whole.”

Speaking about 2400 Market St, which remains 99% occupied, Putro added: “That building’s 2023 net cash flow was off by about 2% from the time [its loan was] underwritten. I think most office owners at this moment would love to have a building that’s only 2% down over three years.”