Blackstone Inc. has begun discussions with its lenders about options on a $309.8 million senior loan maturing on a 1.3 million-square-foot office complex in Chicago’s coveted River North neighborhood.
it remains in effect as of its last May 9 payment at the Class A office complex at 350 North Orleans Street, which competes with high-quality addresses in its location just north of the central shopping center known as the Loop. But the debt was transferred to a special service, according to credit rating firm KBRA.
The transfer of a loan to a special service signals the start of discussions between a borrower and a lender when loans in bond agreements appear to be at risk of default. The loan matures in July.
Blackstone, one of the world’s largest investors in commercial real estate, has long been a favorite borrower on Wall Street, often receiving the lowest rates available and ample access to debt.
But more borrowers with debt coming due this year have been seeking debt extensions, loan modifications or simply returning properties to lenders as an era of cheap and plentiful credit ends.
Related: Debt on trophy office buildings is starting to ease as loans come due
“‘The property is experiencing the well-known headwinds faced by traditional US office buildings that lack world class modern conveniences and this location in the [Chicago] The River North submarket has been particularly challenging.’”
In a sign of the times for beleaguered office buildings as more workers take advantage of hybrid work-from-home or home/office arrangements with employers, Blackstone zeroed out its investment in the Chicago property last year. That means it no longer has economic value, which can happen when a building’s debt exceeds the property’s value.
“The property is experiencing the well-known headwinds faced by traditional US office buildings lacking world-class modern conveniences and this location in the River North submarket has been particularly challenging, which is why we reduced this investment to zero last year,” Blackstone said. in a sentence.
The building’s occupancy was last pegged at 75.4% in December, but down from 92.1% when Goldman Sachs GS originated the variable-rate loan five years ago.
according to KBRA. Nationwide, office buildings remain nearly half empty three years since the 2020 pandemic closures.
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 the traditional US office represents less than 2% of our global portfolio today versus more than 60% in 2007, Blackstone said of his exposure to the office sector. “We are intentionally targeting sectors like logistics and data centers, which are benefiting from exceptional macro tailwinds and supply/demand fundamentals.”
A Blackstone spokesman said the transfer did not indicate the borrower was returning the keys to his lender. Meanwhile, the original $310 million loan is non-recourse, meaning the lender cannot seek any other collateral from Blackstone to repay the debt.
Related: Lose the trophy? A $45 billion mortgage bill is due for some of America’s iconic commercial properties.
Stocks were mixed on Monday, with the Dow Jones DJIA Industrial Average,
about 70 points below, in the last control, the S&P 500 SPX index,
rose 0.3% and the Nasdaq COMP Composite Index,
it was 0.7% higher, according to FactSet. Shares of Blackstone Inc. rose 2.4% in Monday’s action but are down 21% over the past year.