Blackstone Looks to Rid Itself of L.A.'s Playa District Office Complex

Blackstone noted that it has completely written down the value of Playa District, the Los Angeles office campus the company bought in 2016 as “part of a broader portfolio, the remainder of which was sold prior to the pandemic,” according to an emailed statement from Blackstone.

“Given the challenges facing the property, we began writing this property down over three years ago and completely wrote it off earlier this year,” the statement continued. “We aim to invest in sectors with strong fundamentals propelled by macro demand trends, which is why the majority of the real estate we own is in sectors like logistics, student housing and data centers and why less than 2% of our owned portfolio is traditional U.S. office.”

The purchase was bought as part of the Blackstone Real Estate Partners VIII (BREP VIII) fund. A September 30, 2023 earnings release said as of that time, BREP VIII had seen a total IRR of 15%.

According to Bloomberg, the property, once known as the Howard Hughes Center, was at one time valued at $583 million. Now, it’s collateral for $482 million in loans on buildings that are 70% leased.

There were a number of questions GlobeSt.com had asked of Blackstone that the company didn’t answer, such as whether the potential of a valuation collapse and run-up in interest rates clear when the portfolio was acquired and if there were other properties or property types that Blackstone has been writing down over time.

There’s been a pattern of large CRE investors taking steps to remove bad properties from their holdings. Blackstone acquired its River North Point property in Chicago in 2015. The property had a $309.8 million non-recourse, first lien floating rate loan with an initial two-year term and five one-year extensions, according to KBRA. The loan went into special servicing on May 11, 2023, before a maturity default took place on July 9, 2023.

“On May 2, 2023, KBRA downgraded the ratings of six classes of certificates and affirmed its other outstanding rating,” the rating agency said. “The downgrades were primarily driven by the weak performance of the underlying property stemming largely from a decrease in occupancy. In addition, KBRA expressed concerns regarding the loan’s upcoming July 2023 maturity, as an extension of the loan would require a new rate cap agreement which could require a meaningful outlay by the borrower.”

Blackstone’s overall U.S. office strategy has changed over the last 16 years.

“What you own matters, and US traditional office represents less than 2% of our global portfolio today versus more than 60% in 2007,” Blackstone said in a statement sent to GlobeSt.com in May 2023. “We intentionally pivoted toward sectors like logistics and data centers, which are benefitting from exceptionally strong macro-tailwinds and supply/demand fundamentals.” While defaults are still rare, they are increasing. Experts expect to see more of them as loans mature. Brookfield defaulted on two Los Angeles office towers in February and a $161.4 million office portfolio mostly situated in Washington, D.C.

Columbia Property Trust, acquired by Pacific Investment Management for $3.9B in 2021, defaulted on $1.7 billion loan on a portfolio of offices back in February. “We, like most office owners, are addressing the unique and unprecedented challenges currently facing our asset class and customer base,” a spokesperson for Columbia had said in a statement. “We have engaged with our lenders on a restructuring of our loan on seven properties within our larger national portfolio.”