Big office building avoids loan default

Mountain View property shows hope in market

>> The lender for a big Mountain View office building has rescinded a default notice against the property, in a rare positive sign for a struggling office sector in the Bay Area.

The office building is located at 590 East Middlefield Road at the corner of Logue Avenue, according to documents on file with the Santa Clara County Recorder's Office. SHP Middlefield, a Sand Hill Property affiliate, owns the building and obtained the loan.

Deutsche Bank AG New York Branch has now canceled the loan default on the property, documents filed on March 13 with county officials show.

The Sand Hill Property affiliate paid $80 million in 2018 to buy the building and its parking lot, county records show.

In 2018, Deutsche Bank issued the loan, which totaled $48.75 million, according to the public property records.

Sand Hill Property was in discussions with Deutsche Bank for some time before the lender's rescission of the loan default, according to Peter Pau, principal executive and co-founder of Palo Alto-based Sand Hill Property.

The structure totals 99,600 square feet and is considered a Class A office building, a marketing brochure states.

The building is empty and hasn't had a tenant for at least 18 months.

The office property's plight is increasingly common. Vacancies for Bay Area office buildings have surged.

San Francisco, in particular, has been gripped by an economic “doom loop” spawned by a retail exodus, crime woes, office and hotel foreclosures, and skyhigh vacancy rates that have soared to record levels.

Numerous office properties in the region and around the nation face a squeeze on their mortgages as the building owners grapple with rising vacancies and skyrocketing interest rates, which make loan payments tougher.

“These days, values and loans are upside down,” Pau said in a September 2023

interview regarding the 590 East Middlefield office building.

Sand Hill Property has had more success finding tenants for projects such as its tech campus in Palo Alto.

The veteran real estate firm also owns and is the prime mover behind major development efforts at Cupertino's long-closed Vallco Mall and southwest San Jose's El Paseo de Saratoga complex.

Sand Hill Property, in both instances, is eyeing the creation of gamechanging mixed-use villages at the retail centers.

In the case of the 590 East Middlefield property, Sand Hill Property can now focus on landing one or more tenants for the office building.