Ex-Schwab HQ to extend mortgage deadline
A $195 million mortgage for Charles Schwab’s former downtown San Francisco headquarters building was the latest office loan to be sent into special servicing after its due date passed this week — but its landlord said it received approval to extend the deadline tied to the 17-story office tower.
The involvement of a special servicer — an entity that acts on behalf of a building’s lender — can spell trouble for real estate owners who fall behind on payments or other obligations dictated by their loan agreements. The transfer to special servicing can be a first step in foreclosure proceedings, but Blackstone Group said there is no risk of foreclosure and the extension has been agreed to.
“This is a procedural step needed to effectuate a change to the term of the loan, which requires approval from the special servicer,” a representative of Blackstone Group said, adding that the 417,000-square-foot property at 211 Main St. is “100% leased to a high-quality, creditworthy tenant through 2028.”
That tenant is Charles Schwab, which remains tied to the building per its lease agreement
with Blackstone despite having moved its headquarters to the Dallas area in 2019. The financial services company has been steadily shrinking its footprint in San Francisco in recent years, and has largely moved out of 211 Main, where it now occupies just six floors.
The rest has been listed as available for sublease. If a subtenant is not found, Charles Schwab remains legally on the hook to pay rent through the remainder of the lease term, which ends in April 2028.
While Blackstone has now managed to work out a deal with its lender that will allow it to remain in possession of the building, it has previously attempted to sell 211 Main in 2021 for roughly $400 million, but was unable to secure a buyer. A sales brochure published at the time indicated that rents in the building were roughly 25% below market rate.
It is unclear how much time Blackstone has been granted to pay off its debt, and whether the landlord will be required to make a payment in exchange for the extension.
The company did not disclose whether it is still planning to ultimately sell the property in order to recoup some of its equity.
Blackstone acquired the property in 2017 from thenowner CIM Group for approximately $313 million, or $750 a square foot. The purchase was made shortly after Charles Schwab inked a lease renewal for the entire building.
Earlier this year, Blackstone also secured an extension for a massive $975 million loan for nearby One Market Plaza, one of San Francisco’s largest office buildings, that was set to mature in February. Blackstone co-owns that property with Paramount Group.
A wave of commercial real estate debt maturities has swept the San Francisco market over the past year, and in some cases has resulted in owners with troubled loans losing once highly valuable properties to their lenders. It’s added to the struggles that landlords are already facing in the wake of the pandemic and as a result of remote work, which has caused office vacancy in the city to skyrocket and rental rates to soften. More than one-third of San Francisco’s offices sat vacant in the first quarter of the year.
The owners of San Francisco’s largest mall, until recently known as the Westfield San Francisco Centre, surrendered the massive downtown property last year to their lenders. The owners of large downtown hotels, like Hilton’s Parc 55 and the Hilton Union Square, as well as residential landlords have also been parted with properties over the past year.
While Blackstone is attempting to hash out a deal to keep its leased office tower at 211 Main, it recently sold off another office property in its portfolio — the three-building North Park office campus at the waterfront — that saw its value drop below the outstanding balance on the $150 million loan that Blackstone used to purchase it due to rising vacancy.
At the start of the pandemic, Blackstone defaulted on a $245 million mortgage for its Club Quarters hotel in downtown, and indicated last year that it plans to surrender the 346room property to its lender.