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The owners of Field Office, a 290,375-square-foot office complex near the Willamette River, have defaulted on their $73.8 million loan after being unable to find enough tenants, becoming the latest office owners to throw in the towel in Portland’s struggling office market.
Field Office is owned by New York investment bank Goldman Sachs and Lincoln Property Co., a Dallas-based real estate firm with operations in Portland. The pair bought Field Office from local developer Project^ and National Real Estate Advisors, an investment firm based in Washington, D.C., for $118 million in April 2019, according to public records.
In lieu of a foreclosure, the lender on the property hired real estate services company CBRE to sell the loan, according to an email obtained by WW that describes the sale.
“CBRE’s National Loan & Portfolio Sale Advisors have been retained as the exclusive advisor for the sale of a $73.8 million nonperforming senior loan secured by a Class ‘A,’ recently constructed office campus in Portland, Oregon,” the email says. “The lender is in the process of finalizing a deed-in-lieu of foreclosure with the borrower affording investors the potential for an expedited path to title.”
A person familiar with the loan confirmed that the property in question was Field Office.
Bids for the loan are due Aug. 15, the email says.
An executive at Lincoln Property declined to comment on the sale, as did a representative for Goldman Sachs. An executive at CBRE didn’t respond to an email seeking comment.
Field Office is a complex of two six-story buildings on Northwest Front Avenue just north of the Fremont Bridge. Geared toward technology firms with young workers, it has a rooftop deck, a gym, parking for 200 bicycles, and electric scooter charging stations. The property’s market value is $62,700,490, according to property records, about $11 million less than the loan amount.
Field Office is located in a Prosper Portland “enterprise zone,” making certain businesses eligible for five-year tax abatements through the city’s development agency.
Like many cities, Portland has struggled to attract new office tenants since the pandemic, when companies let their employees work from home. A hybrid home-office model has persisted since then, slashing demand for office space. As of June 2023, the national office vacancy rate stood at 19.2%, up 6.6 percentage points from the first quarter of 2020, according to real estate firm Cushman & Wakefield, which pegged Portland’s rate at 19.9%.
Vacancy in Portland’s downtown core is much higher, according to Colliers, another firm that does real estate research. In the central business district it stood at 26% in the first quarter of 2023, Colliers says.
“Capital markets activity has reached a near standstill with a quarterly sales volume of $9.8 million in Q1 2023, representing an 82% year-on-year decline,” Colliers said in its first-quarter report on Portland.
Cellphone data gathered by the University of Toronto shows that Portland’s downtown core has been slower than many cities’ in returning to pre-pandemic levels of activity. From March to May of 2023, the number of unique cellphone numbers detected in downtown Portland stood at 37% of the number detected in March to May of 2019, the university says, making it the third-weakest recovery after that of Cleveland and San Francisco.
Owners of Portland office buildings and hotels say people have been unwilling to return to downtown because riots that plagued the city during the pandemic, and public drug use since then, have scared people off.
In February, the real estate firm that owns Portland’s Commonwealth Building, one of the first glass-box towers ever built, said it had defaulted on its $47.4 million mortgage and may lose the building to foreclosure. KBS Growth & Income REIT said in a regulatory filing earlier this month that the building is worth less than what remains of the loan because of poor business conditions in downtown Portland.
“Given the depressed office rental rates and the continued social unrest and increased crime in downtown Portland where the property is located, the company does not anticipate any near-term recovery in value,” KBS chief financial officer Jeffrey K. Waldvogel said in a regulatory filing Feb. 16. “The company may relinquish ownership of the property to the lender in a foreclosure transaction.”
Jackson Tower, a landmark building that overlooks Pioneer Square, defaulted on a loan from JPMorgan Chase earlier this year as well. Jackson Tower Partners LLC, the owner of the 12-story beaux arts office building in the 800 block of Southwest Broadway, borrowed $11.5 million from JPMorgan Chase in 2018, and missed a loan payment on Nov. 1, 2022, according to a complaint filed in Multnomah County Circuit Court on April 5.
Cayla Wardenburg, executive vice president at Jones Lang LaSalle, says there are more defaults coming because many loans like the one on Field Office are going to fall due soon, all over the country.
“We have a record number of loans coming up nationally in the next two years, so we will see more of these in the near future,” Wardenburg said in an email.