Blackstone Inc. began talks with its lenders about options on a maturing $309.8 million senior loan on a 1.3 million-square-foot office complex in Chicago’s largely desirable River North neighborhood.
Transferring a loan to special servicing signals the kickstart of discussions between a borrower and a lender when loans in bond deals look at risk of defaulting. The loan comes due in July.
Blackstone, one of the world’s largest investors in commercial real estate, has long been a favored borrower for Wall Street, often receiving the lowest rates available and ample access to debt.
But more borrowers with maturing debt this year have been seeking debt extensions, loan modifications or simply handing back properties to lenders as an era of cheap and abundant credit ends.
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“‘The property is experiencing the well known headwinds facing U.S. traditional office buildings lacking first-class modern amenities and this location in the [Chicago] River North submarket has been particularly challenging.’”
In a sign of the times for beleaguered office buildings as more workers take advantage of work-from-home or home/office hybrid arrangements with employers, Blackstone wrote down its investment in the Chicago property to zero last year. That means it no longer has an economic value, which can occur when the debt on a building exceeds the value of the property.
“The property is experiencing the well known headwinds facing U.S. traditional office buildings lacking first-class modern amenities and this location in the River North submarket has been particularly challenging, which is why we effectively wrote this investment down to zero last year,” Blackstone said in a statement.
The building’s occupancy was last pegged at 75.4% in December, but down from 92.1% when the floating-rate loan was originated five years ago by Goldman Sachs GS,
The borrower is a Blackstone affiliate, the Blackstone Real Estate Partners VIII fund, which reported a 16% return for the fund through the first quarter of 2023. Globally, Blackstone manages $585 billion in real estate.
“What you own matters, and U.S. traditional office represents less than 2% of our global portfolio today vs. more than 60% in 2007, Blackstone said about its exposure to the office sector. “We intentionally pivoted toward sectors like logistics and data centers, which are benefitting from exceptionally strong macro-tailwinds and supply/demand fundamentals.”
A Blackstone spokesperson said the transfer didn’t signal the borrower was handing back the keys to its lender. Meanwhile, the original $310 million loan is nonrecourse, meaning the lender can’t pursue any other of Blackstone collateral to repay the debt.
Related: Losing the trophy? A $45 billion mortgage bill is coming due for some of America’s signature commercial properties
Stocks closed mostly higher on Monday, with the Dow Jones Industrial Average DJIA,