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GEM Realty in trouble on SF office building with WeWork as tenant
Loan for $24M enters special servicing as co-working firm admits “doubt” about future
GEM Realty Capital’s loan on 222 Kearny Street, a two-building office complex in Downtown San Francisco partially leased to WeWork, has gone to special servicing.
The Chicago-based firm is late on its August payment for a $23.75 million commercial mortgage-backed securities loan originated by Goldman Sachs, according to Trepp. GEM Realty has another $23.75 million CMBS loan on the property, for which payments are current.
GEM Realty did not respond to a request for comment.
The move to special servicing — where a third-party company is tasked with resolving a default — comes after WeWork admitted there was “substantial doubt” about whether it can continue operations in light of a cash shortage.
WeWork is the complex’s second-largest tenant, taking about 18,000 square feet at the 148,000-square-foot property, according to Morningstar Credit Analytics.
Though the loan has not been affected by rising interest rates — it has a fixed rate of 3.3 percent — the property has suffered from increasing vacancy over the last three years.
In March 2020, the building was 100 percent occupied, according to Morningstar, with a net cash flow of about $6.1 million over a three-month period.
By March of this year, occupancy dropped to 73 percent and net cash flow was $686,000 over a three-month period.
Many buildings leased to WeWork have faced financial issues, as the firm has shrunk its footprint across the country in an effort to conserve cash. In New York, WeWork stopped paying rent on 315 West 36th Street, leading its owner to default on debt payments in June.