The 2026 Commercial Reset
Why Selling Class B Assets Now Is the Strategic Play
Mendy Lipsker
President & Founder
Me***@*********ty.com
Executive Summary
For New York City commercial owners, the “wait and see” stalemate of 2024 and 2025 has officially broken. As we enter Q2 2026, the market has bifurcated, creating a dangerous valuation gap between Class A “trophy” assets and aging Class B/C inventory. With Local Law 97 fines now active and a surge in office-to-residential conversion capital entering the market, 2026 represents a critical liquidity window for owners of older commercial stock to exit before compliance costs erode equity further.
The “Flight to Quality” Is Permanent
Data from late 2025 confirms a structural shift in tenant demand. Tenants are increasingly willing to pay premiums for modern, energy-efficient spaces, leaving older stock with rising vacancies. This is not a temporary cycle; it is a permanent repricing of obsolescence. According to major market reports, the spread between Class A and Class B rents has never been wider.
Regulatory Insight: ESG Compliance
Tenants are demanding ESG-compliant buildings to meet their own corporate mandates. For more on the standards driving this shift, review the NYC Sustainable Buildings requirements:
https://www.nyc.gov/site/sustainablebuildings/ll97/local-law-97.pageThe “Conversion Premium” Window
The silver lining for 2026 is the explosion of “Conversion Capital.” Developers are aggressively hunting for floor plates suitable for residential retrofit. In 2025 alone, conversion starts surged to 4.1 million square feet. Developers are currently paying a premium for “vacant possession” or buildings that are candidates for the 467-m tax incentive.
However, this capital is finite. As the pipeline fills up, demand for raw conversion sites will soften. For details on the specific incentives driving this wave, visit the NYC Housing Preservation & Development (HPD) tax incentive page:
https://www.nyc.gov/site/hpd/services-and-information/tax-incentives-421-a.page
The Regulatory “Carbon Cliff”
The most urgent catalyst for selling is the active enforcement of Local Law 97. Fines are currently assessed at $268 per metric ton of CO2 over the limit. For a 75,000 sq ft Class B building, fines can easily exceed $50,000 annually, compounding as limits tighten in 2030.
Retrofitting these assets often requires millions in HVAC and façade work—capital that is challenging to finance even as rates stabilize. Owners must calculate their building’s emissions exposure immediately. You can check your building’s status via the NYC Department of Buildings (DOB):
Strategic Recommendation
Holding a Class B asset in 2026 requires a developer’s mindset and a deep balance sheet. If you are not prepared to execute a full gut-renovation, the smartest play is to sell into the current wave of development demand. At Mendy Realty, we specialize in identifying the “hidden zoning value” that makes these exits profitable.
