For years, downtown office buildings were a solid bet for the public employee pension funds. Recent sales in downtown Boston show that’s not the case, anymore. iStock illustration

A growing, multi-dimensional disaster.

That’s one way to describe the meltdown of office markets in Greater Boston and across the country thanks to the cementing of remote work habits across corporate America.

Boston and other cities face the loss of untold billions in tax revenue as companies jettison office space and the value of office downtown office towers crumbles.

But there’s one impact of the office market collapse that has not been given nearly enough attention by the media, especially our local news outlets.

TIAA and other organizations that invest the retirement savings of millions of teachers and other public employees have long been big buyers of office buildings, and now they’re exposed.

The sector for decades was a fairly safe bet, with its fortunes tied to the up and downs of a corporate America that has proven, over the long term, to be  full of winners.

But that has all changed over the past five years.

Big pension fund players, like the $312 billion California State Teachers’ Retirement System, and Oxford Properties, which manages $90 billion Ontario pension fund money, started offloading office buildings as early as 2022, according to a Wall Street Journal story at the time.

Now, TIAA and pension funds seem to be taking big hits as they scramble to sell what are now rapidly depreciating assets.

TIAA’s real estate arm, Nuveen, has spent several months attempting to unload the 99 High St. tower, which right now is not just figuratively but literally half empty.

Likewise, Nuveen recently sold its remaining 50 percent stake in 501 Boylston St. in the Back Bay and in the 33 Arch St. tower near Downtown Crossing for what were likely big losses.

The buyer, a Norwegian bank, paid just $248 a square foot for the remaining half of 33 Arch it didn’t already own – or less than half of what Nuveen paid more than a decade ago, the Boston Globe reported.

It’s not clear what Norges Bank paid for the other half of 501 Boylston, but the Norwegian bank noted cryptically that the building came with almost $195 million in debt.

A Nation-Wide Problem

Nuveen has also taken big losses in other markets.

The TIAA real estate arm sold the Xerox building in the Washington, D.C. suburb of Rosslyn for $25 million last year, a fraction of the $141 million in shelled out back in 2011, according to the Washington Business Journal.

In San Francisco, TIAA also had plans to unload 88 Kearney, a 234,000 square foot office building, for around $65 million – or what it bought it for a quarter century ago, the San Francisco Business Times reported in December.

Back in 2019, the building was worth more than $200 million.

Scott Van Voorhis

It’s not just TIAA whose books have been hit by the great office devaluation.

Closer to home, MassPRIM, which manages tens of billions in retirement funds for teachers and state employees here in Massachusetts, has taken a hit from the real estate market, as well.

The Pension Reserves Investment Trust (PRIT) Fund saw a more than 6 percent drop in returns on its real estate portfolio for its fiscal year ending in June 2024, according to a MassPRIM report.

None of this is good news, neither for Boston and other cities which have benefited from a steady stream of pension fund investment dollars over the years into their downtowns, nor for the public employees whose retirement savings will take a ding thanks to the office values slump.

Scott Van Voorhis is Banker & Tradesman’s columnist and publisher of the Contrarian Boston newsletter; opinions expressed are his own. He may be reached at sbvanvoorhis@hotmail.com.