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PIMCO's $3.9 Billion Office Acquisition Leads to $1.7 Billion Loan Default and $700 Million Haircut

PIMCO's $1.7 billion office loan tied to a 5.5 million sf portfolio across four U.S. cities defaulted in February 2023. The lenders, Goldman Sachs, Citigroup, and Deutsche Bank, slashed interest rates on the date and given other concessions in a recently approved loan modification. The collateral's appraisal value nosedived from $2.3 billion to $1.6 billion, a staggering 30% loss in just 2.5 years.


PIMCO has recently encountered significant financial challenges with a $1.7 billion loan tied to a 5.5 million square feet (511k sm) portfolio of seven buildings across four U.S. cities. The loan defaulted, and loan payments fell behind in February 2023, activating loan covenants requiring special servicing.


To address the situation, its lenders, including Goldman Sachs, Citigroup, and Deutsche Bank, negotiated a loan modification that extended the loan maturity to July 2025, providing a six-month extension option. Interest rates on the $485 million in subordinate A-notes were reduced to near-zero, and the interest rate on the $160 million B-notes was cut to 0 percent. Additionally, payments on the $125 million mezzanine debt were deferred.


 

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A contentious issue in the negotiation of modification terms was that the value of the collateral had plunged a staggering 30% from $2.3 billion to $1.6 billion in just 2.5 years. The lenders could soon find themselves taking over the properties, with a $700 million haircut already on the books, and managing them in this challenging office market.


The properties are in San Francisco (2), Manhattan (3), Boston (1), and Jersey City (1), all office markets under severe strain for non-prime buildings.


PIMCO acquired Columbia Property Trust in 2021, which holds the assets in question. The deal was valued at $3.9 billion, including debt assumptions, and represented a 27% premium over where their NYSE shares (CXP) traded prior to being delisted.


PIMCO walked away from 20 hotels it owned with $240 million in debt in 2023, and in the same year closed a $3 billion real estate debt fund to capitalize on the market distress in existing commercial real estate loans. The fund is called the Pimco Commercial Real Estate Debt Fund II.

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