Blackstone is in talks with lenders after Los Angeles office write-down

BLACKSTONE is in conversations with lenders about the future of a Los Angeles office complex once valued at US$583 million, after having written down its entire stake in the property, according to a source with knowledge of the matter.

The private equity giant acquired Playa District in 2016 as part of a portfolio purchase from a real estate investment trust sponsored by Hines. The property, once known as Howard Hughes Center, backs US$482 million of loans, according to Real Estate Alert, which reported that the buildings are 70 per cent leased.

“Given the challenges facing the property, we began writing this property down over three years ago and completely wrote it off earlier this year,” Jillian Kary, a Blackstone spokesperson, said.

US office values have been declining as the cost of borrowing increases and demand weakens amid the post-pandemic acceptance of remote work. Landlords including Blackstone and Brookfield Asset Management have stopped making payments on some money-losing buildings.

Less than 2 per cent of Blackstone’s owned portfolio is traditional US offices, according to Kary. “The majority of the real estate we own is in sectors such as logistics, student housing and data centres,” she said.

The US$16.6 billion fund that owns Playa District, Blackstone Real Estate Partners VIII, had a 15 per cent internal rate of return as at Sep 30, Blackstone reported. BLOOMBERG