China might not be the only country with property management woes. The US is now showing signs of having property woes as well.
In December and for months we reported on the collapsing property management business in China. This industry which was a quarter of China’s GDP was falling apart as companies could no longer pay their debt. Chinese company Evergrande with over $300 billion in debt was falling apart. It looked like Evergrande’s solvency was part of a bigger issue.
Now we have to look at the US property market, specifically the commercial property market. COVID showed that companies no longer had to maintain huge office buildings for their employees. People could work from home. This cost-saving was noticed and big inner cities will be the victims.
Zero Hedge reports:
The world’s largest owner of commercial real estate, Blackstone has turned over the keys of 1740 Broadway, a 26-story office tower a block from Carnegie Hall, to the special servicer on its $308M commercial mortgage-backed security, Commercial Observer reports.
Deutsche Bank originated the loan in 2015 as part of a single-asset, single-borrower CMBS deal and enlisted special servicer Green Loan Services to manage the financing deal. Blackstone has extensive Manhattan holdings, and the decision to hand the keys to Green Loan Service is “a one-off occurrence,” a source close to the deal told CO.
Blackstone bought the 621K SF tower from Vornado Realty Trust in 2014 for $605M. It has lost two major tenants in recent years, with law firm Davis + Gilbert leaving for Rudin’s 1675 Broadway in 2019 and L Brands electing not to renew its 418K SF lease, instead moving to 55 Water St. in 2020.
“This asset faces a unique set of challenges, and we are working diligently to find a solution that is in the best interests of all parties involved, including our investors and lender,” a Blackstone spokesperson said of the building.
“The vast majority of our office portfolio comprises differentiated office properties, such as life science office and office properties benefitting from content creation tailwinds, and we are confident those properties will continue to outperform. We continue to be big believers in New York and cities like it that are hubs for innovation and talent.”
Blackstone’s decision to cut its losses at 1740 Broadway echoes recent moves in Chicago, another office market suffering from macroeconomic shifts. Last week, two towers each spanning over 1M SF were on track to find themselves in the hand of lenders, according to CMBS tracking firm Trepp.
After crushing the job market for small business owners during COVID, now the big buildings are quickly becoming a thing of the past. It looks like China is not alone. However, the commercial property business in the US is much smaller than that in China as a percent of GDP.
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