Rialto loses San Mateo office building to TPG through deed-in-lieu

Rialto Capital Management has handed back the keys for an office building in San Mateo to its lender TPG RE Finance Trust, after falling behind on a $60 million loan on the property in November, The Real Deal has learned. 

The New York-based investment firm signed a deed-in-lieu on 2121 South El Camino Real in San Mateo, handing over the title to TPG, according to property records filed with San Mateo County and Trepp data. 

TPG acquired the property “pursuant to a negotiated deed-in-lieu of foreclosure,” the firm said in an annual report with the U.S. Securities and Exchange Commission last month. 

After Rialto became delinquent on the loan last year, the loan went into special servicing, according to Trepp. As of February, the loan was marked as REO, or real-estate owned, meaning it was owned by the lender, with a value of $20 million, TPG said in its filing.

Rialto Capital bought the 130,000-square-foot office property from Bahrain’s Investcorp for $77.3 million in 2019, according to property records, using the $60 million loan from TPG. 

TPG then securitized the loan into a commercial loan obligation, a pool of floating-rate loans that are packaged into securities, which are sold to investors, Trepp data shows. 

The loan on the property, known as Tower Plaza, had an interest rate of Libor plus 2.6 percent, according to SEC filings from TPG RE Finance Trust, meaning Rialto’s interest rate went from under 3 percent in 2021 to 8 percent at the end of last year. It was set to expire in December. 

Tower Plaza is about half empty, according to listings on LoopNet. 

TPG has taken over a number of properties across the country in recent months through deeds-in-lieu, an alternative to foreclosure. By signing a deed-in-lieu, borrowers are relieved of unpaid debt obligations but are required to hand over title to the collateralized property.

In the Southern California city of Orange, TPG recently took over 1 City Boulevard West, a 350,000-square-foot property, after borrowers Walton Street Capital and Greenlaw Partners defaulted on $64 million in debt. 

In Chicago, TPG seized a 263-unit apartment complex in the suburb of Arlington Heights through a UCC foreclosure.