A Silicon Valley office complex co-owned by Goldman Sachs Group Inc. may face foreclosure by a KKR & Co. real estate trust that loaned $200 million to the property.
(Bloomberg) — A Silicon Valley office complex co-owned by Goldman Sachs Group Inc. may face foreclosure by a KKR & Co. real estate trust that loaned $200 million to the property.
The debt on 350-380 Ellis St. in Mountain View, California, was elevated to the highest category of risk in the second quarter by KKR Real Estate Finance Trust, according to a presentation.
“At this time, we are considering next steps for the asset, which may include taking ownership as we work with the sponsor on a transition plan,” Patrick Mattson, president of the KKR trust, said during a call with investors Tuesday.
Office values have plunged as borrowing costs rose and space demand weakened with the rise of remote work. Delinquencies and defaults have increased and landlords such as Brookfield Asset Management Ltd. and Blackstone Inc. have stopped payments on money-losing properties.
Goldman cited a hit to its real estate investments as a key driver of $1.15 billion in write-downs in the second quarter. The bank’s real estate portfolio includes about $800 million in office investments, according to a quarterly presentation.
Goldman Sachs Asset Management bought the five-building Mountain View complex in July 2021 with TMG Partners, a San Francisco-based real estate firm. The 446,000-square-foot (41,400-square-meter) property underwent a $22 million lobby renovation in 2018.
The KKR loan’s floating rate is currently about 8.5%, up from about 3.5% when the building sold.
Spokespeople for Goldman and TMG declined to comment.
Office properties represented 26% of the KKR trust’s $7.9 billion loan portfolio, but accounted for seven of the eight loans of highest concern in the second quarter. About 17% of the trust’s loans were in the highest two risk categories, up from 13% in the first quarter.
Silicon Valley’s office-vacancy rate in the second quarter was 19.4%, compared with 20.6% for the US on average, according to Jones Lang LaSalle Inc. Still, office use in the tech-intensive San Jose metro area is at about 40% of pre-pandemic levels, the lowest rate among 10 regions measured by security firm Kastle Systems.
The Mountain View property “is a recently renovated, very high quality, Class A office campus, but is located in a more-challenged leasing market,” Mattson said on the call with investors.
(Updates with TMG declining to comment in 8th paragraph.)
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