Blackstone Downgrades Two Silicon Valley Office Loans

Blackstone Mortgage Trust has downgraded two of its loans tied to office buildings in Silicon Valley.

The unit of New York-based investment firm Blackstone downgraded the loans linked to two undisclosed office buildings in the South Bay, the San Francisco Chronicle reported.

The downgrade came on the heels of rising interest rates and soaring office vacancies fueled by a shift to remote work by tech firms.

Blackstone Mortgage Trust declined to provide the building addresses, square footage or property values.

“We have one in San Jose, one in Silicon Valley. Both very nicely, recently renovated, very high-quality assets,” Blackstone Mortgage Trust CEO Katie Keenan said in an earnings call. “But as I think I mentioned in the Q&A, tech, which is 40 percent of the market in San Francisco, has just been really challenged in terms of office use. It’s by far the biggest driver of negative net absorption across the country.”

A company spokesperson told the Chronicle the assets represent less than 1 percent of its real estate portfolio.

A third office loan tied to a “small” Chicago deal was also downgraded, Keenan said.

Blackstone, which saw earnings fall 36 percent last spring during a stagnant commercial market, is familiar with troubled real estate.

This month, the company was in talks to sell North Park, a 293,900-square-foot office campus at 560-655 Davis Street in San Francisco’s Jackson Square it bought in 2018 for $245 million.

Hong Kong-based Gaw Capital Partners, which had sold Blackstone the three-building complex, wants to buy it back for $90 million — less than a $150 million loan on the property, according to the Chronicle.

Blackstone is also selling an 82,000-square-foot office building at 600 Townsend Street in South of Market to Irvine-based LBA Realty for $24 million, half of the $50.5 million it paid seven years ago.

The public company with more than $1 trillion in assets is in talks with a special servicer about giving up its 346-room Club Quarters San Francisco hotel after defaulting three years ago on a $274 million loan.

Blackstone President Jonathan Gray said in an earnings call that the company’s QTS data center real estate holdings were boosted by the artificial intelligence revolution. The company has also bought into student housing.

— Dana Bartholomew