Blackstone stopped payments on a $325 million loan on its Hughes Center office campus in Las Vegas, as investors recalibrate their bets amid rising nationwide office vacancies and corporate space pullbacks. 

Public filings showed that the loan collateralized by the 1.5 million-square-foot, 19-building office campus, mostly including buildings at 3770-3993 Howard Hughes Parkway with others on intersecting streets, was placed in special servicing this month after Blackstone wrote off much of its equity value in 2020, citing an inability to fund future monthly payments amid market conditions created by the pandemic among other factors.

“This 2013 investment was substantially written down beginning three years ago due to the headwinds facing U.S. traditional office,” a Blackstone spokesperson said in an email to CoStar News Thursday. “Fortunately, U.S. traditional office represents only about 2% of our global real estate portfolio today.”

Among the world’s largest investment firms, New York-based Blackstone has been trimming its office portfolio for the past several years in favor of faster-growing property categories including multifamily, industrial and biotech. The email said Blackstone’s global portfolio is now about 80% concentrated in industrial properties, rental housing, hotels, biotech laboratories and data centers, "sectors with exceptionally strong fundamentals.”
 
“There is a massive bifurcation in real estate performance, and what you own matters,” the Blackstone spokesperson said, noting the current office component of the company’s total real estate holdings is far below the nearly 50% mark as of 2007.

Blackstone’s CMBS loan on the Hughes Center buildings, which also include retail components, was placed under special servicing with KeyBank National Association effective March 2, CoStar and public data shows.

Las Vegas’ office vacancy rate hit 10.2% as of March 16, a 15-year low for the region and below its historical average of 13.7%, according to CoStar Market Analytics data. The rate also beats the current national average of 12.9%.

Las Vegas office rents rose 5% during the past year, versus the national average of 1%, as the region recorded positive absorption — or more space being filled than vacated – in five of the past six quarters.

The situation regarding Hughes Center is more tied to its specific location rather than weakness in the broader Las Vegas office market, said Michael Petrivelli, director of market analytics for CoStar Group in Nevada and Utah.

“We have witnessed a steady migration of office tenants moving from the Vegas Strip area, where Hughes Center is located, to southwestern Las Vegas, where new, high-end product is being built,” Petrivelli said.

"Southwest Las Vegas serves as a halfway point for many white-collar professionals who live in the suburbs of Summerlin and Henderson," Petrivelli said, adding the southwestern area also has easy access to Interstate 215, which connects those suburbs. “On the other hand, the Strip area is often congested with traffic, construction and major events, which has reduced its appeal to many suburban commuters.”

Blackstone did not elaborate on conditions in Las Vegas. Hughes Center was acquired by a specific $13 billion global opportunistic fund.

The property’s equity value was “substantially written down three years ago,” the company said previously.

The Blackstone email said the decision to walk away from the Hughes Center loan “has no bearing on our conviction in Las Vegas,” where it still has about $20 billion in non-office investments. “This decision simply reflects the weakness in U.S. traditional office,” the company said.

Cities nationwide are seeing rising office vacancies, as companies downsize footprints and place existing leased space back on the market for subleasing with many employees still working from home or commuting to offices for just part of the week.

Traffic analytics firm Placer.ai reported this week that office attendance in 11 U.S. cities that it tracks monthly is now averaging about 60% of pre-pandemic levels.

A similar weekly tracking of 10 major cities by security technology firm Kastle Systems showed attendance averaging 50.1% of pre-pandemic levels for the week ended March 8, nearly three years after the pandemic first spurred millions of office workers into remote and hybrid work situations, with many now spending just part of their workweek in offices.

“The staying power of this pattern, which despite some fluctuations has remained relatively constant since the second half of 2022, appears to signal the entrenchment of a new hybrid normal,” the Placer.ai report said.