Fed Chair Jerome Powell said Tuesday the commercial real estate sector will remain under stress for some time.

"It is a risk that has been with us and will be with us for some time, probably for years," Powell told the Senate Banking Committee. "And banks need to be honestly assessing what their risk is."

Many real estate assets purchased before the Covid-19 pandemic with loans from banks and other financial institutions are now worth less than the loans.

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As a result, many commercial real estate owners are selling their properties in distress, bringing about a new era of opportunity for real estate investors.

Take the Continental Center in New York City, for example. The 41-story skyscraper, located at 180 Maiden Lane in Manhattan's Financial District, sold to 99c, a real estate firm owned by Canadian biotech investor Carlo Bellini, for just $297 million.

The same building was purchased in 2015 for $470 million. Clarion Partners and MHP took out a $248 million loan from BlackRock Inc ( BLK ) and refinanced the debt in 2020 with a $372 million loan led by ING Groep NV ( ING ) .

Clarion and MHP reportedly invested $175 million in renovations, putting their entire investment north of $645 million. They reportedly sold the property quickly to avoid foreclosure.

Clarion didn't reply to a request for comments.

"Manhattan’s office meltdown has gone from concerning to apocalyptic with little end in sight…" Triple Net Investor, an influencer, wrote on X.

For office buildings, the average sale prices per square foot dropped 66% between June 2023 and late May.

The Continental Center, built in 1983, is currently only occupied at 68%, dropping from 71% in January. This is almost three times the average vacancy rate for commercial real estate in New York City, which in March was 12.8% according to the comptroller's office.

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Why Is Commercial Real Estate Such A Mess?

"The seismic, pandemic-driven shift toward remote work has substantially pushed down demand for office space, approximately doubling the vacancy rate," writes a comptroller report.

New York's commercial real estate vacancy rate was a mere 6.4% in early 2020 — before the pandemic unfolded.

Pandemic disruptions were followed by decades-high interest rates which had a slashing effect on REITs.

The trend isn’t exclusive to New York.

Earlier this year, the U.S. vacancy rate for commercial real estate reached its highest levels since 1979, at about 20%. By May, the rate had dropped to 17.8% as per a CommercialEdge report.

A recent report by real estate firm Colliers found last month that there was a 70% pick-up in leasing activity in New York City as compared to last year. While this metric brings optimism for real estate investors, CommercialEdge argues that the remote and hybrid work trends are here to stay, and vacancies will likely remain flat across the country.

ETFs following the real estate sector haven’t performed well as of late. Vanguard Real Estate Index Fund ETF , the biggest one by assets under management, was up 0.2% on Wednesday, having lost 3.8% in the past six months.

Schwab US REIT ETF ( SCHH ) shows a similar trajectory, up 0.3% on Wednesday at the time of this writing and down 2.7% since in the past six months.

Residential real estate continues to struggle from high interest rates, with the affordability of buying a home reaching its lowest level in 17 years last week.

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Manhattan Skyline, including the Continental Center on the left, by Szilas on Wikimedia Commons.