Government Lease Terminations Expose New CRE Debt Risk

• Bureaucrash: DOGE has shattered the myth of “safe” federal leases, sending shockwaves through D.C. commercial real estate and debt markets.

• Decoding Real Estate Podcast: How retail landlords are using new data tools to transform leasing strategies, marketing efforts, and customer insights.

• Visa versus: Visa has stopped participating in the open banking system, making it harder for PropTech companies hoping to share client data.

• Office-to-residential conversion: Webinar on data-driven metrics and insights for profitable office-to-residential conversions. Sign up

Editor’s Pick

Government Lease Terminations Expose New CRE Debt Risk

This spring, Elon Musk’s Department of Government Efficiency (DOGE) rattled the commercial real estate market with the largest wave of federal lease terminations in U.S. history. Agencies from the IRS to the Department of Education abruptly vacated offices, leaving landlords facing sudden income losses. Long considered among the safest tenants in commercial real estate, federal leases had underpinned investor confidence with their average 14-year terms and reliable payments. That assumption was upended as DOGE exercised early termination options that had rarely been invoked before, injecting uncertainty into what had been treated as near risk-free investments.

A study co-authored by Yale SOM’s Cameron LaPoint, Assistant Professor of Finance, shows that the cancellations drove up the cost of commercial mortgage-backed securities (CMBS) as investors priced in more risk, and could reverberate through the broader economy. LaPoint and Rochester Institute of Technology’s Soon Hyeok Choi found that landlords in the Washington, D.C., area saw net operating income fall by roughly 5% in just a few months, driving down property values. Junk-rated CMBS tied to leases listed for termination dropped about 4% more than securities linked to government properties not yet targeted, evidence that investors were rapidly recalibrating how they valued federal lease-backed debt.

The study also identified a spillover effect, with nearby properties suffering financial declines despite not being directly tied to canceled leases. Using their model, LaPoint and Choi estimated that DOGE’s actions could erase up to $575 million in value from the D.C. commercial office market over the next five years, along with $50 million in lost property tax revenue. That loss far outweighs the government’s projected savings from the cancellations, which in March 2025 totaled just $76 million in the D.C. metro. For property owners already grappling with hybrid work and elevated vacancy rates, the federal retreat magnified the pressure on balance sheets.

For the wider CRE industry, the findings highlight a new risk factor that cannot be ignored: political decisions can rapidly destabilize even the most secure-seeming revenue streams. If government leases—long viewed as bulletproof collateral—can be terminated en masse, investors and lenders will need to bake political volatility into pricing models alongside traditional credit and market risk. The repricing of government-backed debt may also spill into broader credit markets, particularly for regional banks already exposed to struggling office assets. For landlords and cities, the message is clear: diversify tenant bases and reduce reliance on federal occupancy as an anchor of downtown economies. What happens in Washington won’t stay in Washington—it could reshape risk assumptions across the entire commercial property landscape.

Decoding Real Estate Podcast with Aislelabs

Overheard

Open Banking Retreat Clouds PropTech's Data Sharing Future

Visa has quietly shuttered its U.S. open-banking unit, a crucial signaling point in the broader debate over who controls financial data. The move comes amid rising tensions: major banks like JPMorgan and PNC are weighing steep fees for fintech access, and the Consumer Financial Protection Bureau has begun rewriting regulations around data-sharing in the wake of mounting resistance. In contrast, Visa plans to continue its open-banking focus in Europe and Latin America, regions where regulations require banks to share data with licensed third parties.

For real estate tech firms Visa’s retreat represents a setback. It threatens the ease of integration that underpins many user experiences. If developers can’t access tenant bank account data for rent automation or residents’ payment verification, features such as automated reconciliation, credit scoring, or personalized service tiers could become costly or even impossible. That would slow growth, push up development costs, and force users back toward clunky manual workflows.

The regulatory ground is shifting. The CFPB’s revived rulemaking process could revive U.S. open banking, but on terms that protect consumers and keep data flowing. If the new regulations restore free consumer access to financial data, PropTech innovators have something to work with. The key will be design flexibility: companies need to build modular systems that can tap into open banking if rules evolve, or fall back gracefully if access remains closed. In the near term, that means leaning into partnerships with banks, prioritizing data portability in software architecture, and advocating for policy clarity that keeps real estate innovation moving forward.

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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