A loan in San Jose for an office building leased to eBay has entered special servicing, according to Chicago-based Morningstar.

The building was purchased in 2018 for $132.5 million Invested jointly by Southern California-based Ocean West Capital Partners and an affiliate of South Korea-based Hana Asset Management.

When the two investment firms bought eBay North First Commons, they took an $88 million loan from Germany-based Deutsche Bank. They have $51 million left on the loan, according to Morningstar.

The loan was transferred to Special Services in March before maturing in June.

While the 541,000-square-foot building remains fully leased to eBay, the company vacated the site in 2020 and relocated to its Willow Glen headquarters. The e-commerce company has been paying rent since its departure. David Putro, Morningstar’s head of CRE analysis, said it was “impossible to get refinanced for a dark building” as maturity loomed, turning to special services.

Ebay’s lease was extended until 2029, but the tenant has the option to terminate the lease in March 2026 by giving 12 months’ notice and paying a $12 million termination fee. Normally, companies can’t stop paying rent unless they go bankrupt or reject the lease through bankruptcy court, so eBay has “no choice” but to keep paying for years after they move out of the property. Putro said he believes eBay has been looking for subletting partners, illustrating a major red flag in the market.

“Our biggest concern is reflected in this loan: the large amount of sublease space,” he said. “There have been reports of Meta and LinkedIn putting a lot of sublease space on the market – often forcing landlords to offer lures to lure tenants, which often means lower effective rents.”

First North Commons is located at 2515, 2525, 2535 and 2545 North First Street in the Golden Triangle area of ​​San Jose. It’s located in the northern part of the city and has historically been known as a hotbed for tech companies. However, recent layoffs at technology companies have led to market weakness, which has a bigger impact.

“Silicon Valley has a lot of large investment-grade tenants who decide to downsize/move, but on long-term leases (typically 10 years),” said Sarah Helwig of Morningstar. “Tenants can try to sublease their space, but in this market, there’s not a lot of demand. I think the market will be a slow burn as leases roll over the next few years.”

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