A BlackRock fund forfeited a Shanghai office complex to Standard Chartered (2888) after it didn’t make a loan payment for the property, according to people familiar with the matter.

A fund unit of the New York-based asset manager opted not to make a payment for a syndicated loan led by Standard Chartered due at the end of September, said the people, who asked not to be identified because the information is private.

BlackRock’s fund took out the loan of about 780 million yuan (HK$832 million) for two towers it bought in 2018 at Waterfront Place in China’s financial hub, the people added.

It’s the latest sign that China’s yearslong property downturn has swept up even the world’s largest financial institutions. The development came as BlackRock failed to sell the property even after offering a 30 percent discount to its purchase price, according to the people.

The lenders already rolled over the loan for one year when it matured in 2023, and declined to extend it for a second time, the people said.

The US investment firm bought the properties from PGIM Real Estate for 1.2 billion yuan in 2018, Mingtiandi reported at the time. The property is under a fund managed by BlackRock’s real estate team and occupies a total office space of 27,805 square meters in Chang Feng, a business district.

BlackRock didn’t respond to a request for comment. A Standard Chartered spokesperson declined to comment.

China’s biggest cities are seeing a growing array of gleaming skyscrapers that are barely half-full, triggering rent cuts and a slump in value as the world’s second-largest economy slows. Institutional investors are offloading distressed commercial real estate from Shanghai to Hong Kong amid weak demand and as part of a global trend to reduce exposure to everything from offices to shopping malls.

Prime office values have tumbled about 30% from their pre-Covid high in some of the nation’s major cities including Shanghai last year, according to Colliers International Group Inc. Price pressure will likely linger in the near future, according to Cushman & Wakefield.

BlackRock invested in commercial real estate projects in China about a decade ago when it sought more exposure to offices and malls in first-tier and second-tier cities. In 2017, it purchased an office tower in the city center for 1.37 billion yuan, Mingtiandi reported at the time.

Yet China’s property crisis since 2021 has caught many investors off guard including global banks such as HSBC (0005) and Standard Chartered, which have set aside hundreds of millions of dollars of provisions against commercial real estate portfolios on the mainland.

The distress is now spilling over to Hong Kong, where average prices of office buildings, shopping malls and other properties have fallen more than 40 percent from their highs in 2018, eroding the value of the collateral backing many bank loans. Defaults are also rising as more property owners and developers run into cash flow difficulties.

Bloomberg

REUTERS

BlackRock fund forfeits China towers to Standard Chartered after missing loan