Bank OZK Offloads $265M Life Sciences Construction Loan
Bank OZK sold a $265M construction loan backing a largely empty life sciences campus in California, a rare departure in strategy for a lender that has been reluctant to sell distressed debt.
Strategic Value Partners, a private equity firm that focuses on special situations, acquired the loan backing Pacific Center, a recently completed 500K SF property developed by Chicago-based Sterling Bay. The loan was one of the largest on Bank OZK’s books, making the sale one of the largest whole-loan dispositions in the bank’s history.
The transaction, which included the reassignment of the construction deed of trust and related loan documents dated Dec. 18, was flagged in a note from AtriumData.ai, a banking market intelligence platform. An analyst for the firm wrote that the deal signaled a significant shift in strategy from the Arkansas-based lender.
“Historically, Bank OZK has been highly reluctant to sell large, single-asset whole loans, particularly those that sit near the top of its exposure stack,” the note says.
The debt was “a marquee construction loan in a core market, and its disposition suggests a more proactive posture toward managing downside risk rather than relying solely on time, extensions, or internal resolution.”
The loan has a face value of $265M, but it is unlikely SVP paid that much to acquire the debt package for the nonperforming life sciences project. Bank OZK and SVP didn’t respond to Bisnow’s request for comment. A representative for Sterling Bay declined to comment.
Pacific Center is in the Sorrento Mesa neighborhood of San Diego, a popular life sciences corridor. A joint venture between Sterling Bay and Harrison Street secured the loan in 2023 for the first phase of construction, two six-story buildings, an amenity center and structured parking garage.
The project was delivered in May, but the joint venture has struggled to find tenants as demand for life sciences space has disappeared at the same time that a wave of new development comes online. Multiple 37K SF suites at the property are listed as available for immediate occupancy on LoopNet.
The Sorrento Mesa neighborhood had more than 3M SF of life sciences space available for lease at the end of the third quarter, roughly 40% of the entire inventory of the market and more than any other neighborhood in San Diego, according to CBRE. The area’s 35% vacancy rate at the end of September was well above the 23% average across all of the city’s core markets.
Bank OZK has additional exposure to the neighborhood. It provided a $202M construction loan to Longfellow Real Estate Partners in 2022 to build Bioterra, a 316K SF life sciences property less than 5 miles from the Sterling Bay property. That development is vacant and also facing loan distress, Atrium founder Ryan Alfred said in an email to Bisnow.
“We view this transaction as an important signal for how Bank OZK may manage its balance sheet over the next 12–24 months,” the Atrium note says. “The willingness to exit a top-tier credit implies increased balance sheet fluidity, a greater acceptance of realized outcomes on large loans, and a shift away from the historically rigid hold strategy that has defined the bank’s construction lending franchise in prior cycles.”
The sale is at least the second time this cycle that Bank OZK has had a deal with Sterling Bay go bad. The bank provided a $128M mortgage to the developer in 2019 for land at the Lincoln Yards megaproject in Sterling Bay's home city but ended up taking back the property in March. The parcel sold for roughly $84M in October to JDL Development, another Chicago builder.
