In a sign that the office market is growing more unstable, real estate giant Blackstone has offloaded two 13-story buildings in Southern California at a 36 percent discount, the Real Deal reported. This comes after it transferred three commercial mortgage-backed security loans of around $900 million into special servicing. We spoke to a Blackstone representative a few weeks ago who explained that these losses, while unfortunate, were a part of the company’s overall strategy. “There is a massive bifurcation in real estate performance, and what you own matters, which is why our global portfolio is approximately 80 percent concentrated in industrial, rental housing, hotels, lab office, and data centers—sectors with exceptionally strong fundamentals,” the company spokesperson told us.
Divesting in office, even if it requires taking a loss, means that the company doesn’t see the sector bouncing back for some time. For now, they seem more interested in deploying that capital back to the other property types than holding an underperforming office tower. This same move might not be as easy for smaller landlords who might struggle to raise capital after this kind of bad press. This is just one more example of how in real estate, size matters.