Finance  ·  CMBS

Blackstone’s $325M Loan on Vegas Office Campus Hits Special Servicing

The property’s equity value was written off three years ago as office headwinds intensified


The $325 million commercial mortgage-backed securities (CMBS) loan on Blackstone’s Hughes Center in Las Vegas has entered special servicing, Commercial Observer has learned .

The nonrecourse loan is collateralized by the 1.5 million-square-foot campus, which comprises 10 office buildings and 110,000 square feet of retail across 68 acres. It was securitized in the COMM 2018-HCLV single-asset, single-borrower CMBS deal. 

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Sources said the loan transferred — to special servicer KeyBank — after Blackstone provided a hardship letter stating its inability to fund future monthly payments.    

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

Blackstone acquired the sprawling campus in September 2013 for $347 million, via its Blackstone Real Estate Partners VII (BREP VII) opportunistic fund, with Blackstone subsidiary Equity Office Properties managing the asset. It sits northwest of the University of Nevada campus on the Howard Hughes Parkway between Flamingo Road and Sands Avenue, and was previously owned by Crescent Real Estate Equities

The transaction marked Blackstone’s first big foray into the Las Vegas market at the time, with the firm significantly expanding its presence in and around Sin City since. 

A source familiar with the special servicing transfer, effective March 15, said the move has zero bearing on Blackstone’s broader conviction in Las Vegas, but rather is a direct reflection of the ongoing weakness in the U.S. traditional office sector. The source added that— despite Las Vegas’ strong job and population growth — the property, home to a mix of established and start-up tenants, faced occupancy issues given its suburban location and size. 

Blackstone still has roughly $20 billion of Las Vegas investments in its portfolio — almost entirely made up of rental housing, industrial, hospitality and net lease properties. The firm also made headlines with its big money-turnaround of The Cosmopolitan Las Vegas, netting $4.1 billion in profits from the casino-hotel’s sale last year — also via BREP VII. 

“There is a massive bifurcation in real estate performance and what you own matters, which is why U.S. traditional office represents only 2 percent of our portfolio today versus nearly 50 percent in 2007, and why our global portfolio is 80 percent concentrated in industrial, rental housing, hotels, lab office and data centers — sectors with exceptionally strong fundamentals,” the spokesperson continued. 

During Blackstone’s fourth-quarter earnings call last year, Jonathan Gray, president and chief operating officer, also spoke of the secular challenges around the U.S. office sector, and Blackstone’s continued diversification away from the asset class.

“We’ve written down the equity value of traditional U.S. office assets dramatically since 2018, and, fortunately, such assets represent only 2 percent of our global real estate portfolio, versus approximately 50 percent 15 years ago,” he said. 

 According to Blackstone’s fourth-quarter 2022 earnings release, as of Dec. 31 BREP VII  had $13.5 billion in committed capital, $31 billion in total investments and an IRR of 15 percent. 

Cathy Cunningham can be reached at