Vista Investment Group has defaulted on a $23.8 million loan tied to a 99,400-square-foot office building in north San Jose, with the lender moving to seize the property.
East West Bank, based in Pasadena, has filed a lawsuit seeking a judicial foreclosure of the two-story building at 3100 North First Street, the San Francisco Business Times reported.
The Santa Monica-based investor led by Philip and Jonathan Barach bought the property in 2015 and refinanced it three years later with a $25 million loan from East West Bank.
It then failed to repay $23.8 million when the loan matured in October, triggering a default.
A nonjudicial foreclosure could lead to an auction of the property by the lender.
The 21-year-old building had been leased to San Jose-based Broadcom through 2019. Nio, a Chinese electric vehicle manufacturer, signaled its intention to occupy the building as early as 2018, according to the Business Times.
The building has been vacant since Nov. 1, according to CBRE, which is listing the property for lease.
Vista and other office landlords across the Bay Area have tried to cut their losses after falling demand for cubicles during a shift to remote work, with a simultaneous uptick in interest rates has hampered refinancing. This has led to widespread mortgage defaults and discounted building sales in the office sector.
Office properties are expected to lead a decline in performance of commercial mortgage-backed securities next year, according to the Business Times.
The commercial mortgage-backed securities office delinquency rate rose 0.64 percent in November to 3.48 percent, the largest increase since June 2020, according to Fitch.
“Office CRE in larger central business districts, particularly older vintage product, is highly vulnerable as the structural shift to hybrid working has reset valuations, making refinancing more challenging,” the credit rating agency told its clients.
North San Jose, which contains 15.3 million square feet of offices, had a 21.6 percent availability rate in the quarter ending in September, according to CBRE.
Vista, founded in 2008, has acquired more than 2,500 apartments and 2 million square feet of offices in California, the Pacific Northwest, Colorado and Texas, according to its website.
— Dana Bartholomew
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