Blackstone Group LP (BX) bought an $80 million junior loan on the Pacific Shores Center office complex in Redwood City, California, setting the stage for the buyout firm to take ownership should landlord Starwood Capital Group Inc. default, said two people with knowledge of the purchase.
Blackstone, the biggest office landlord in Northern California, paid about $70 million for the junior mezzanine loan on the eight-building complex south of San Francisco, or about 87.5 cents on the dollar, according to one of the people, who asked not to be identified because the information is private. The loan was sold by funds managed by a JPMorgan Chase & Co. (JPM) unit through broker Eastdil Secured LLC. The sale was completed July 27, the person said.
Peter Rose, a spokesman for New York-based Blackstone, declined to comment on the matter.
“We’re very happy with the performance of the asset and have been very active leasing the property,” Starwood Capital, based in Greenwich, Connecticut, said in an e-mailed statement. “Occupancy is currently 93 percent and we anticipate even stronger momentum in leasing activity and rents.” Starwood officials wouldn’t comment further.
The loan purchase was reported Aug. 10 by Real Estate Alert.
Starwood Capital bought Pacific Shores in December 2006, paying about $833 million near the height of the commercial property market in its first office acquisition in the San Francisco Bay Area. It immediately sold two of the buildings, 1400 and 1500 Seaport Blvd., to San Francisco-based Shorenstein Properties LLC.
The loan Blackstone bought is subordinate to $70.8 million of other mezzanine debt. The $150.8 million of total mezzanine financing will mature on Dec. 6, and a $331.8 million senior securitized mortgage will mature on Jan. 1, 2012, according to one of the people familiar with the terms and data compiled by Bloomberg. Mezzanine loans typically bridge the gap between the first mortgage and the buyer’s equity.
Pacific Shores Center was valued at $603.4 million in November 2006, Bloomberg data show. The decline in property values means the property is now valued at close to the debt on the complex of $482.6 million, making it harder for Starwood to refinance, said one of the people familiar with the situation. The complex faces lease expirations with three of its biggest tenants in 2012 and 2013, according to Bloomberg data.
Starwood Capital bought Pacific Shores from closely held Jay Paul Co., the San Francisco-based company that developed the property, and Walton Street Capital LLC.
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