Blackstone Stops Making Payments on $325M Las Vegas Office Loan

Blackstone has stopped making debt payments on its Hughes Center office campus, a 1.5M SF complex spread over 19 buildings at 3770-3993 Howard Hughes Parkway.

Public records show the loan, backed by the huge office campus, was placed into special servicing earlier this month. Blackstone cited an inability to fund future monthly payments and said it had begun writing off the equity value of the loan in 2020, CoStar reported.

Blackstone’s CMBS loan on the Hughes Center buildings, which include retail as well as office properties, was placed under special servicing with Keybank National Association effective March 2. The loan originated in 2013, when Blackstone acquired the Hughes Center for $13B.

“This 2013 investment was substantially written down beginning three years ago due to the headwinds facing US traditional office. Fortunately, US traditional office represents only less than 2% of our global real estate portfolio today,” a Blackstone spokesperson told GlobeSt.

“There is a massive bifurcation in real estate performance, and what you own matters, which is why US traditional office represents only less than 2% of our portfolio today versus nearly 50% in 2007, and why our global portfolio is concentrated in industrial, rental housing, hotels, lab office and data centers—sectors with exceptionally strong fundamentals,” the Blackstone spokesperson said.

According to CoStar data, the Las Vegas office vacancy rate hit 10.2% in mid-March, a 15-year low for the region and below the current national average of 12.9%. Office rents rose 5% in Sin City in 2022, and the market in the city has recorded positive absorption for five of the past six quarters.

However, as in other major urban US office markets, office tenants are migrating from older buildings downtown—in this case, the Vegas Strip, where the Hughes Center is located—to newer Class A products in southwestern Las Vegas.

The Las Vegas office market ended 2022 with 589K SF of positive absorption, with completions last year totaling 460K SF, according to CBRE’s latest market report.

Recent deliveries of Narrative, a four-story, 100K SF Class A building; Evora, a 42-acre mixed use project with about 80K SF of office space; and a project completed by the company that originally built the Hughes Center: the Howard Hughes Corporation’s 1700 Pavilion, a 10-story, 267K SF Class A office building that has tenant improvements underway and is slated for occupancy by the end of this month.

Other projects currently under construction include Phase 2 of Matter Real Estate’s UnCommons, encompassing two buildings and a total of 182K SF; Parkway Crossing II, a 22K SF office building within the West submarket; and Summerlin South, another Howard Hughes Corp. Class A office campus consisting of two three-story buildings totaling 147K SF.

“New development and construction activity remains somewhat truncated in contrast to historical averages, thereby prompting robust pre-leasing efforts for planned and under construction projects,” CBRE reported.

“Much of the preleasing endeavors and condensed lease-out timing have been driven by dwindling inventory levels due to land prices, escalating costs of construction and challenges in financing new office projects,” the report said.