Office Properties Income Trust: $2.4B Office REIT Chapter 11

Office Properties Income Trust (OPI), a Maryland real estate investment trust owning 124 office properties comprising 17.2 million rentable square feet across 30 states, filed for chapter 11 bankruptcy on October 30, 2025 in the Northern District of Texas. The filing represents the first office REIT to file for Chapter 11 bankruptcy and serves as a stark illustration of the permanent damage remote work has inflicted on the commercial office sector. With approximately $2.42 billion in funded debt and over $1.1 billion maturing within 24 months, OPI faced a refinancing wall it could not scale in an environment where lenders have largely abandoned the office asset class.

The restructuring proceeds under a pre-negotiated framework supported by approximately 80% of the company's September 2029 secured noteholders. This Restructuring Support Agreement targets roughly $1 billion in deleveraging through a combination of debt-for-equity conversion and secured debt takebacks. Unlike distressed retailers or manufacturers, OPI has no employees—it is externally managed by The RMR Group LLC, which has operated the REIT since 2009. This management structure, and the terms of RMR's continued involvement post-emergence, has become a significant element of the restructuring negotiations.

Case Snapshot

The Remote Work Transformation and Its Consequences

OPI's bankruptcy is fundamentally a story about the permanent transformation of how and where Americans work. The COVID-19 pandemic accelerated remote and hybrid work adoption at a pace that would have taken decades under normal circumstances, and what initially appeared to be a temporary disruption has solidified into a structural change that has devastated office landlords across the country. Researchers estimate approximately $500 billion in office property value destruction from the remote work shift—far worse than initially anticipated. Office attendance has stabilized at approximately 50% of pre-pandemic levels, representing a new equilibrium where corporate tenants have right-sized their footprints, often reducing space by 30-50% as leases expire. National office vacancy rates have reached historic highs, with sublease availability continuing to climb as the "flight to quality" phenomenon creates a bifurcated market where premium Class A properties maintain occupancy while Class B and C buildings struggle with persistent vacancies.

OPI's financial performance reflects these market dynamics with brutal clarity. The company reported a net loss of $136.1 million in 2024, and by Q2 2025, OPI reported a net loss of $41.2 million compared to net income of $76.2 million in the same quarter of 2024, while normalized FFO collapsed from $33.2 million to just $9.4 million. The company's stock, which traded above $40 per share in 2022, had fallen over 95% by the time of the bankruptcy filing—effectively wiping out equity value years before the formal insolvency filing. With assets substantially encumbered to prepetition secured lenders and lender reluctance to extend any additional office exposure, traditional refinancing options were foreclosed.

Perhaps more than any other factor, OPI's debt maturity schedule drove the bankruptcy timing. With over $1.1 billion in debt maturing within 24 months of the filing date, the company faced an impossible refinancing challenge: credit markets had effectively closed for office-focused REITs, property valuations had declined substantially, higher interest rates meant any refinancing would carry substantially higher debt service, and lender appetite for office exposure had evaporated. The company explored various alternatives before filing, but could not construct a capital structure that would satisfy all stakeholders. Interest expense had risen 37% year-over-year to approximately $53 million per quarter, further straining already limited liquidity.

Pre-Petition Capital Structure

OPI entered bankruptcy with approximately $2.42 billion in company-wide funded debt—a complex structure spanning multiple secured tranches with different collateral packages, interest rates, and maturities.

Secured Debt Overview

The secured facilities reveal the REIT's prior restructuring efforts. The 9.000% coupon on the September 2029 Notes and March 2029 Notes reflects the premium OPI had to pay to extend maturities and secure additional time—interest rates far above pre-pandemic levels that themselves contributed to the company's unsustainable debt burden.

The collateral allocation across 90 properties (with some overlap between facilities) meant that virtually every significant asset in OPI's portfolio was pledged to one or more secured lenders. This encumbrance left the company with limited flexibility to raise incremental financing or selectively dispose of assets outside of a comprehensive restructuring.

Unsecured and Other Obligations

The unsecured notes, totaling nearly $500 million, represent the claims most severely impaired by the restructuring. These holders face substantial dilution through conversion to equity, with limited prospects for meaningful cash recovery.

The non-debtor CMBS debt relates to seven properties financed through securitized lending structures. These property-level financings remain outside the bankruptcy estate, though the company must continue servicing these obligations to avoid foreclosure on the underlying assets.

Restructuring Support Agreement

RSA Framework

OPI's chapter 11 filing was pre-negotiated rather than free-fall. The company entered bankruptcy with a Restructuring Support Agreement signed on the petition date by holders of approximately 80% of the September 2029 Notes—the company's largest and most influential creditor constituency. This support level provides substantial certainty around plan confirmation, though it does not eliminate the potential for inter-creditor disputes over valuation and allocation.

RSA Timeline and Milestones

The RSA contemplates a roughly six-month bankruptcy process—an aggressive but achievable timeline for a pre-negotiated case with substantial creditor support. The milestones create pressure on all parties to resolve disputes quickly or risk losing the certainty that the RSA provides.

Deleveraging Target

The restructuring targets approximately $1 billion in deleveraging—reducing OPI's funded debt from roughly $2.42 billion to approximately $1.4 billion. This level of debt reduction, achieved primarily through debt-for-equity conversion, would bring the company's leverage to sustainable levels relative to current property values and cash flows.

Creditor Treatment Under the RSA

The RSA establishes a detailed framework for treating each creditor class:

Secured Creditor Treatment

The September 2029 Noteholders—who are also providing the DIP financing—emerge with substantial value: $420 million in new secured notes (representing a significant haircut from the $610 million principal amount) plus $98 million in equity plus additional equity for any deficiency claim. This treatment reflects their leverage as DIP providers and the valuation constraints that limit available consideration.

The March 2027 Notes treatment contemplates delivery of their collateral (35 properties) or equivalent value—effectively a secured credit bid at appraised value. Any deficiency claim (the amount by which the debt exceeds collateral value) converts to equity.

Unsecured and Other Treatment

Unsecured noteholders receive no cash—only equity in the reorganized company. The Equity Rights Offering provides an opportunity to acquire additional shares at a discount, allowing willing creditors to increase their ownership stake in the reorganized entity.

Existing equity holders—OPI's common shareholders—receive nothing. Their investment has been entirely extinguished, consistent with the reality that the company's enterprise value is less than its debt. Major institutional investors like Vanguard saw their holdings decline by over 88% in value during the year preceding the filing.

DIP Financing

DIP Facility Terms

The September 2029 Noteholders' role as DIP lenders creates significant alignment between the financing parties and the plan sponsors. By providing the DIP facility, these creditors gain additional control over the restructuring process and incremental claims that enhance their recovery.

DIP Fee Structure

The fee structure has generated objections from other creditor constituencies. The 10% Anchor Capital Commitment Fee paid to the SteerCo (the steering committee of September 2029 Noteholders) effectively compensates these creditors for organizing and committing to the DIP—a fee that other noteholders do not share. This differential treatment within the noteholder class has been challenged.

The equity payment option for fees provides flexibility but also creates valuation complexity. Fees paid in equity at a 37% discount to plan equity value provide significant upside to the DIP lenders if the reorganized company performs well.

Collateral Structure

The DIP facility is secured by:

• First-priority liens on unencumbered assets
• Junior liens on certain encumbered assets

Notably, the DIP liens exclude Credit Facility collateral, preserving the Credit Facility lenders' priority position on their 19 pledged properties.

RMR Group Management Structure

The External Management Model

OPI presents the unusual situation of a bankruptcy debtor with no employees. The RMR Group LLC has externally managed OPI since 2009, providing all business management and property-level services. Every OPI employee is technically employed by RMR, not the REIT itself.

This structure creates both governance considerations and essential operational dependencies. OPI cannot operate without RMR—there is no internal team to step in if the management relationship terminates. This dependency gives RMR significant leverage in negotiating its post-emergence role.

Prepetition Management Fee Structure

The prepetition fee structure generated approximately $2.2 million monthly in management fees—over $26 million annually. The long-dated management agreement through 2035 created a significant claim if rejected and substantial ongoing expense if assumed.

Post-Restructuring Management Terms

The RSA contemplates amended management terms for RMR post-emergence:

The reduction in business management fees from approximately $13.2 million annually to $14 million annually for two years represents only a modest adjustment. However, the shift to percentage-based property management fees (3% of gross rents) aligns RMR's compensation more closely with property performance.

The 2% equity stake provides RMR with upside participation in any post-emergence value creation—aligning the manager's interests with shareholders while also creating a meaningful claim on reorganized equity.

Inter-Creditor Disputes and Litigation

OPI v. UMB Bank Adversary Proceeding

OPI filed an adversary proceeding against UMB Bank, National Association (trustee for the March 2027 Notes) on November 2, 2025. The dispute centers on original issue discount (OID) treatment for the March 2027 Notes.

The OID issue relates to whether the notes were issued at a discount from face value in a manner that requires the discount to be treated as interest (deductible for tax purposes) rather than principal. The resolution affects both the secured claim amount and the unsecured deficiency claim.

The court ordered mediation to attempt resolution of this dispute. However, mediation terminated on December 22, 2025 without resolution, leaving the matter for judicial determination.

2027 Ad Hoc Group Objections

The 2027 Notes Ad Hoc Group—representing holders of the $418 million March 2027 Notes—has filed objections to multiple aspects of the case:

• DIP Financing Terms: Challenging the fee structure and the preferential treatment of September 2029 Noteholders
• Adequate Protection: Disputing whether their collateral is adequately protected during the bankruptcy
• Valuation: Contesting the property valuations that determine their secured claim recovery

Individual noteholders have also filed objections citing concerns about value transfer to the September 2029 group at their expense.

Key Creditor Constituencies

September 2029 Ad Hoc Group

This group represents the largest creditor constituency and serves as both DIP lender and plan sponsor. Their holdings of approximately 80% of the $610 million September 2029 Notes gives them effective control over the restructuring outcome. The combination of DIP lender status, RSA support commitment, and majority position makes them the most influential voice in the case.

March 2027 Ad Hoc Group

Representing holders of the $418 million March 2027 Notes, this group has positioned itself as the primary objector to the proposed restructuring framework. Their objections focus on:

• The allocation of value between secured creditor classes
• The fees and other benefits flowing to September 2029 Noteholders as DIP lenders
• Property valuations affecting their secured claim recovery

Other Constituencies

The unsecured creditors' committee represents the interests of general unsecured creditors—primarily the holders of approximately $491 million in unsecured notes. Their recovery depends entirely on the equity value available after satisfying secured claims.

Property Portfolio and Dispositions

Portfolio Composition

OPI's 124 office properties span 30 states, totaling 17.2 million rentable square feet. The portfolio includes a mix of:

• Single-tenant properties leased on long-term triple-net leases
• Multi-tenant office buildings with shorter-term leases
• Suburban office parks and urban office buildings

The U.S. government is OPI's largest tenant, accounting for 17.1% of annualized rental income. Government tenants typically provide stable, reliable rental income on long-term leases—a significant credit positive for the reorganized company.

Approved Property Sale

Early in the bankruptcy, OPI moved to sell a vacant office building in Tempe, Arizona:

The Tempe sale illustrates the challenges OPI faces across its portfolio. A property vacant for over two years, unable to attract tenants, generating ongoing carrying costs without offsetting revenue. Disposing of such properties—even at distressed prices—improves the portfolio's overall performance and reduces cash drain.

Industry Context: Office REIT Distress

Sector-Wide Challenges

OPI's bankruptcy, while significant, represents just one manifestation of broader distress across the commercial office sector. The fundamental challenge—permanent reduction in office utilization due to remote work—affects all office landlords regardless of property quality or geographic location.

Key sector dynamics include:

• Persistently High Vacancy: National office vacancy rates remain at historic highs with sublease availability continuing to climb
• Negative Rent Growth: Effective rents declining in most markets as landlords compete for increasingly scarce tenants
• Flight to Quality: Tenants concentrating in the best buildings, leaving secondary properties struggling
• Refinancing Challenges: Lenders unwilling to extend or refinance office loans regardless of borrower quality
• Conversion Pressure: Increasing interest in converting obsolete office buildings to residential use, though often economically unfeasible

Comparable Situations

OPI is among the largest office REITs to file for bankruptcy, but it is not alone. Several other office-focused companies have faced similar challenges:

• Asset sales at steep discounts to pre-pandemic values
• Debt restructurings and exchange offers
• CMBS loan defaults and special servicing
• Strategic alternatives processes that fail to produce attractive bids

The sector's challenges are structural rather than cyclical. Unlike prior real estate downturns where demand eventually recovered, the remote work shift represents a permanent reduction in required office space. Companies have adjusted their space utilization and are unlikely to revert to pre-pandemic footprints. Capital Economics predicts office values are unlikely to recover to pre-pandemic peaks even by 2040—a 17-year horizon that underscores the structural nature of this decline.

Valuation Implications

Property valuations have declined substantially across the office sector, directly impacting OPI and its creditors:

• Cap rates have expanded (meaning values have declined for a given income stream)
• Vacancy assumptions have increased, reducing projected income
• Tenant improvement and leasing costs have risen as landlords compete for deals
• Lender financing availability has contracted, reducing the buyer pool

These valuation challenges affect every aspect of OPI's restructuring—from secured claim treatment to unsecured creditor recoveries to the reorganized company's capital structure viability.

Key Timeline

Key Issues to Watch

OID Litigation Resolution

The original issue discount dispute between OPI and the March 2027 Notes trustee could significantly impact creditor recoveries. If OPI prevails, the March 2027 Noteholders' secured claim would be reduced, with the difference becoming an unsecured deficiency claim receiving only equity. Resolution will likely require judicial determination following the failed mediation.

Inter-Creditor Value Allocation

The fundamental tension between the September 2029 group (DIP lenders and plan sponsors) and the March 2027 group (objectors) concerns how enterprise value is allocated. The September 2029 group's DIP fees, priority position, and majority control give them advantages that the March 2027 group contests as preferential.

Government Tenant Lease Renewals

The U.S. government's status as OPI's largest tenant (17.1% of revenue) makes federal lease renewals critical to the reorganized company's success. Government leases typically provide stable income, but renewal decisions depend on agency space needs in the new hybrid work environment.

RMR Relationship Terms

The amended management agreement terms will determine RMR's ongoing role and compensation. The 2% equity stake and performance incentives align RMR with post-emergence value creation, but critics question whether the base fee reductions are sufficient given the company's reduced scale.

Emergence Valuation

The reorganized company's equity will be allocated based on an enterprise valuation that determines each creditor class's recovery. This valuation remains contested, with implications for secured claim coverage, unsecured creditor distributions, and the viability of the equity rights offering.

FAQs

Why did Office Properties Income Trust file for bankruptcy? Remote work permanently reduced demand for office space, creating a debt maturity wall that OPI could not refinance. With over $1.1 billion maturing within 24 months and lenders unwilling to extend office exposure, bankruptcy became necessary to restructure the $2.42 billion debt load.

How much debt does OPI have? Approximately $2.42 billion in company-wide funded debt, including $1.75 billion in secured notes across multiple tranches, a $425 million credit facility, and $491 million in unsecured notes.

What happens to OPI's office properties? The 124 properties remain operational during bankruptcy. Some dispositions may occur, but the portfolio is expected to remain largely intact as the reorganized company. Property values have declined, but the U.S. government tenancy (17.1% of revenue) provides stability.

Who manages OPI? The RMR Group LLC has externally managed OPI since 2009. OPI has no direct employees—all operations are conducted through RMR's personnel. RMR will continue managing the company post-emergence under amended terms.

What is the restructuring plan? The RSA with approximately 80% noteholder support targets roughly $1 billion in deleveraging through debt-for-equity conversion. September 2029 Noteholders receive new secured notes plus equity; unsecured noteholders receive equity only; existing equity is cancelled.

Who is providing DIP financing? The September 2029 Ad Hoc Group is providing up to $125 million in DIP financing, with $10 million drawn at interim approval and $115 million available at final approval.

What happens to existing stockholders? Existing OPI common equity is cancelled with no distribution. Shareholders' investments have been entirely extinguished, reflecting that the company's enterprise value is less than its debt.

Who is OPI's largest tenant? The U.S. government accounts for 17.1% of OPI's annualized rental income. Federal tenancy provides relatively stable cash flows, though government space needs have also declined post-pandemic.

What are the inter-creditor disputes about? The March 2027 Noteholders dispute the DIP fee structure, valuation allocations, and adequate protection terms. They argue that the September 2029 group is receiving preferential treatment as DIP lenders and plan sponsors.

What is the expected timeline for emergence? The RSA targets plan confirmation within 175 days and emergence within 185 days of the October 30, 2025 petition date, implying an effective date in late April 2026.

For more expert analysis of commercial real estate restructurings and chapter 11 developments, visit the ElevenFlo bankruptcy blog.