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Blackstone Inc. began talks with its lenders about options on a maturing $309.8 million senior loan on a 1.3 million-square-foot office complex in Chicago’s largely desirable River North neighborhood.
Blackstone
BX,
remains current as of its last May 9 payment on the Class-A office complex at 350 North Orleans Street, which competes with high-premium addresses in its location just north of the central business center known as the Loop. But the debt has transferred to special servicing, according to credit-rating firm KBRA.
Transferring a loan to special servicing signals the kickstart of discussions between a borrower and a lender when loans in bond deals look at risk of defaulting. The loan comes due in July.
Blackstone, one of the world’s largest investors in commercial real estate, has long been a favored borrower for Wall Street, often receiving the lowest rates available and ample access to debt.
But more borrowers with maturing debt this year have been seeking debt extensions, loan modifications or simply handing back properties to lenders as an era of cheap and abundant credit ends.
Related: Debt on trophy office buildings is starting to buckle as loans come due
“‘The property is experiencing the well known headwinds facing U.S. traditional office buildings lacking first-class modern amenities and this location in the [Chicago] River North submarket has been particularly challenging.’”
In a sign of the times for beleaguered office buildings as more workers take advantage of work-from-home or home/office hybrid arrangements with employers, Blackstone wrote down its investment in the Chicago property to zero last year. That means it no longer has an economic value, which can occur when the debt on a building exceeds the value of the property.
“The property is experiencing the well known headwinds facing U.S. traditional office buildings lacking first-class modern amenities and this location in the River North submarket has been particularly challenging, which is why we effectively wrote this investment down to zero last year,” Blackstone said in a statement.
The building’s occupancy was last pegged at 75.4% in December, but down from 92.1% when the floating-rate loan was originated five years ago by Goldman Sachs
GS,
according to KBRA. Nationally, office buildings sit roughly half-empty three years since the pandemic shutdowns of 2020.
The borrower is a Blackstone affiliate, the Blackstone Real Estate Partners VIII fund, which reported a 16% return for the fund through the first quarter of 2023. Globally, Blackstone manages $585 billion in real estate.
“What you own matters, and U.S. traditional office represents less than 2% of our global portfolio today vs. more than 60% in 2007, Blackstone said about its exposure to the office sector. “We intentionally pivoted toward sectors like logistics and data centers, which are benefitting from exceptionally strong macro-tailwinds and supply/demand fundamentals.”
A Blackstone spokesperson said the transfer didn’t signal the borrower was handing back the keys to its lender. Meanwhile, the original $310 million loan is nonrecourse, meaning the lender can’t pursue any other of Blackstone collateral to repay the debt.
Stocks closed mostly higher on Monday, with the Dow Jones Industrial Average
DJIA,
140 points lower, the S&P 500 index
SPX,
clinching its second-highest close of 2023 and the Nasdaq Composite Index
COMP,
scoring its highest finish since August, according to Dow Jones Market Data. Blackstone Inc. shares were up 2.3% Monday, but are down some 21% over the past year.
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