Debt Backed by Walnut Creek Office Building Listed

Another East Bay office property is drifting toward a distressed reset as landlords grapple with elevated vacancy and falling building values.

The loan tied to 500 Ygnacio Valley Road, a Class A office tower at the corner of Ygnacio Valley Road and Main Street in Walnut Creek, is being marketed for sale by JLL, the San Francisco Business Times reported. The $26.6 million debt, originated by lender Principal Real Estate Investors, is secured by the four-story, 105,000-square-foot office building, a source familiar with the matter told the Business Times.

Los Angeles-based Broadshore Capital Partners acquired the building in 2016 for $36 million, according to property records cited by the Business Times. Iowa-based Principal Real Estate Investors originated a $28 million refinancing loan secured by the property in 2021. That loan is slated to mature in July with an unpaid principal balance of $26.6 million. The loan listing opens the door for an investor to potentially take control of the property through a deed-in-lieu of foreclosure.

The situation reflects mounting pressure across the I-680 corridor, where office owners are increasingly competing for a shrinking tenant pool. A source familiar with the market told the Business Times that the 500 Ygnacio Valley Road property faces stiff competition from nearby buildings already trading at major markdowns.

Just across the street, the roughly 500,000-square-foot Ygnacio Center sold last year for about $210 per square foot, roughly half of what its prior ownership paid. Hall Equities Group, which acquired the Ygnacio Center property last year for $111 million, has been pursuing an amenity-heavy leasing strategy that includes activating the courtyard with food trucks and adding ground-floor retail in an effort to lure tenants back to the office.

Another Walnut Creek office building, 3003 Oak Road, traded last year for $22.5 million, or roughly $107 per square foot, representing roughly one-third of its previous sale price. Those deals are becoming new benchmarks for East Bay office valuations as distressed sales reset expectations.

Vacancy across the I-680 corridor hit 22.4 percent in the first quarter, according to CBRE data cited by the Business Times. Downtown Walnut Creek posted a 22.6 percent vacancy rate, while Ygnacio Valley came in at 12.2 percent. For comparison, vacancy at the 500 Ygnacio Valley Road building was 30 percent as of October, according to the Business Times.

— Chris Malone Méndez