Real Estate

Blackstone Defaults on $195M Schwab HQ Loan Amid SF Office Crisis

Blackstone misses $195M loan payment for former Schwab HQ, highlighting San Francisco's office market crisis with a 36.6% vacancy rate.

By Tal Alexander

4/12, 18:35 EDT
Blackstone Inc.
Charles Schwab Corporation

Key Takeaway

  • Blackstone missed a $195M loan payment for the former Schwab HQ in SF, leading to special servicing and potential foreclosure steps.
  • Despite the default, Blackstone aims to retain the building, citing it as "procedural" for renegotiating loan terms.
  • San Francisco's office vacancy hits a record 36.6%, impacting property values and leading to increased lender foreclosures.

A Tumultuous Time for San Francisco's Office Market

Months after Charles Schwab announced its departure from the majority of its former headquarters in San Francisco, the building's owner, Blackstone, has encountered significant financial distress on its $195 million mortgage for the property. This development is a stark indicator of the broader challenges facing the San Francisco office market, which has been severely impacted by a shift to remote work and an unprecedented rise in office vacancy rates. The 17-story, 415,900-square-foot office building at 211 Main Street, once bustling with activity, stands as a testament to the city's changing commercial real estate landscape.

Blackstone's Financial Struggle

Blackstone's failure to pay off the balance of its $195 million debt by the maturity due date has led to the loan being sent to special servicing, a precursor to potential foreclosure proceedings. Despite this, Blackstone remains hopeful, viewing the transfer as a procedural step towards renegotiating the loan terms. The building, fully leased to Schwab until 2028, represents a significant investment gone awry, with Blackstone having purchased the property for $313 million in 2017. This situation underscores the volatility of the office real estate market in San Francisco, exacerbated by a record 36.6 percent vacancy rate and a market that has become increasingly unfavorable to landlords.

The Wider San Francisco Office Market Crisis

The challenges faced by Blackstone at 211 Main Street are reflective of a larger crisis within San Francisco's office market. With a vacancy rate that has soared to a record 36.6 percent, the city's office spaces are struggling to find tenants. This downturn is attributed to a broad shift towards remote work, particularly among tech companies, which have traditionally been major occupants of San Francisco's office buildings. Despite some signs of recovery, such as an increase in tenant requirements to 6.3 million square feet in the first quarter of the year, the market remains oversupplied, leading to decreased property values and increased financial strain on property owners.

Implications for Property Owners and the Market

The situation at 211 Main Street and the broader San Francisco office market offers a cautionary tale for property owners and investors. Blackstone's attempts to renegotiate loan terms and avoid foreclosure reflect the difficult decisions many landlords in the city are facing. The decline in office property values, coupled with the difficulty in selling such properties, as evidenced by Blackstone's unsuccessful attempt to sell the building in 2021, highlights the precarious position of commercial real estate in post-pandemic San Francisco. This environment may lead to more properties changing hands at significant discounts or being surrendered to lenders, as landlords struggle to navigate the new normal.

Management Quotes

  • Unidentified spokesperson for Blackstone Group:

    "This is a procedural step needed to effectuate a change to the term of the loan, which requires approval from the special servicer."