Paramount, Blackstone Pay Down SF Office Tower Loan by $125M

Paramount and Blackstone have paid down $125 million on a loan balance of $975 million for One Market Plaza, according to a Paramount press release.

The principal payment enabled a three-year extension on the debt for the 1.6 million-square-foot downtown San Francisco property, which is made up of the 42-story Spear Tower, the 27-story Steuart Tower and a six-story annex and retail space.

“We are happy to announce the successful completion of this loan modification in a challenging capital markets environment,” Wilbur Paes, Paramount COO, CFO and treasurer, said in a statement. “This transaction is not only a testament to the quality of the asset, but also a testament to the quality of the sponsorship and its commitment to the asset.”

The New York-based REIT did not respond to a request for further comment.

The loan was scheduled to mature this month. The new maturity date is February 2027 at a fixed rate of 4.08 percent, with an option to extend for an additional year, according to the press release.

In addition to the pay down, servicer commentary indicated the extension would require further capital to “support the future cash needs of the property,” according to a Morningstar report, which means that it’s likely Paramount and Blackstone added funds beyond the $125 million to increase reserves.

Morningstar analyst David Putro said that generally the best outcomes on specially serviced loans come when there is cooperation between servicer and borrower, as there appears to have been in this case. But One Market is also “a bit unique” in that the 2022 net cash flow was above underwritten levels and occupancy remains over 90 percent, he said. The glitch is that the building faces some “near-term tenant rollover risk,” and major tenant Visa is looking to sublet 190,000 square feet in the complex as it moves to its new headquarters in Mission Rock.

“Swapping a very significant loan paydown (and funding reserves to help mitigate the tenant risk) with a maturity extension makes a lot of sense for both parties,” Putro said via email. “I’m not sure the math works if a property is 45 percent occupied and treading water from a net cash flow perspective.”

The modified terms of the One Market Plaza debt fall in line with what loan analysts have seen since the middle of last year, according to Stephen Buschbom of Trepp. Special servicers often require additional capital to pay down loans or fund reserves in order to consider an extension. It is too early to say whether modification trends will slow the office delinquency trajectory as the rate is still on the rise, Buschbom said via email.

Many borrowers decide the cash infusion doesn’t make sense, which has led to a slew of stories about borrowers walking away from their high-profile Downtown San Francisco properties, from the Westfield mall to several large hotels.

“If a borrower doesn’t believe the future cash flow will support the injection or there is a large amount of uncertainty with respect to the future cash flows, then the borrower and special servicer will often be unable to reach mutually agreeable modification terms,” Buschbom said.

In the case of One Market, when news but not details of the extension first came out last month, a Paramount and Blackstone spokesperson said “our continued belief in the strength of this trophy asset is illustrated by our decision to invest additional capital in it.”