SAN JOSE — A downtown San Jose office building whose principal owner is a firm headed by WeWork’s co-founder and former CEO has fallen behind on its mortgage payments, sources say.
The group that owns the San Jose office building near St. James Park has missed at least one monthly loan payment, according to information provided by financial services and research firm Morningstar and a source from the ownership group.
The building is at 152 North Third Street, totaling 130,700 square feet, according to a real estate brochure. The property’s owner is a group controlled by Nazare Capital Management, whose principal executive and founder is Adam Neumann, the co-founder of WeWork, a firm that pioneered the concept of shared office spaces.
The financial difficulties that face the building are a reminder of the struggles that now confront downtown San Jose.
At the end of June, downtown San Jose’s office vacancy rate was 29.9%, which was an all-time high, according to Cushman & Wakefield, a commercial real estate firm.
The mortgage for the 152 North Third Street office building now has landed in a status set aside for loans with missed payments.
“The loan was recently transferred to the special servicer due to the borrower’s failure to make its monthly debt service payments,” according to information regarding the loan that was collected by Morningstar and sent to this news organization by David Putro, a Morningstar senior vice president and head of the firm’s commercial real estate analytics group.
A source with an ownership stake in the building confirmed the Neumann-headed group had fallen behind on its loan payments.
The missed payment occurred in May, according to Morningstar.
“The issues with St. James Park, the homeless issues, the poor environment in this neighborhood, those have all hurt 152 North Third Street,” said Bob Staedler, principal executive with Silicon Valley Synergy, a land-use consultancy.
Neumann’s group bought the 152 North Third building in 2018, paying $44 million for it at that time, documents filed with the Santa Clara County Recorder’s Office show.
In 2021, the building owners obtained $45 million in financing from an affiliate of Rialto Capital Management, according to the county real estate records. New York City-based Rialto Capital has provided funding for other properties around the country owned by the Neumann-owned Nazare Capital company.
About 61,400 square feet of the 152 North Third building have been converted to co-working spaces, according to the CBRE brochure. That’s about 47% of the entire building.
The building has undergone a full upgrade. The additions include a new lobby that was completed in late 2022 as well as a new fitness center.
With office vacancies at sky-high levels in downtown San Jose as well as throughout Silicon Valley, other smaller buildings in the city’s urban core might also have to combat financial challenges along the lines of 152 North Third.
“You’re going to see some smaller office buildings like 152 North Third start to face that kind of problem,” Staedler said.