Embarcadero Capital Partners, the owner of a recently renovated office complex called Horizon Sunnyvale, defaulted on its $63.5M loan on the property, making it the latest Bay Area office building to suffer this fate.

Embarcadero took out the loan in 2019 from LoanCore Capital REIT, according to the Silicon Valley Business Journal. The loan was used to fund renovations of the 181K SF building at 1230 Oakmead Parkway in Sunnyvale, California.

After purchasing the property during the height of the tech boom in 2016, Embarcadero launched lofty improvement plans, but the pandemic's impact on office markets across the country, and specifically in tech-heavy markets, made leasing a challenge, the Business Journal reported.

Defaults and foreclosures are increasingly common for office owners as they navigate depressed demand and rising interest rates. But in the Bay Area, Silicon Valley has generally continued to perform better than its northern counterpart, downtown San Francisco.

Office stats in the two markets vary widely, according to Q3 CBRE data, which shows a 34% vacancy rate for San Francisco and 18.9% in Silicon Valley. Just 350K SF of office space is under construction in San Francisco, while developers are working on 3M SF in Silicon Valley.

Palo Alto, Mountain View and Sunnyvale posted an office vacancy rate of 23%, 20%, and 14% respectively, according to a Q3 report by CBRE, much lower than the downtown S.F. average.

“Those markets specifically are pretty sought after considering their location and their labor force,” Nicole So, research manager at Colliers, told Bisnow in October. “We have a large concentration of tech tenants in those markets, and while they have been giving back some space, those companies are occupying a large base.”

The concentration of tech talent has to do with a lot of the big-name tech giants such as Apple and Google, which are based in Silicon Valley towns. Additionally, prominent research universities provide a continuous pipeline of talent.

“The biggest tech companies started as a VC-backed company at some point,” Derek Daniels, regional research director at Colliers, told Bisnow. “When you look at some of the founders of the biggest users of space, how many of them came from Stanford or Cal. I think the numbers speak for themselves that companies are absolutely incubating and growing here in the Bay Area.”

Office defaults are more common in San Francisco.

In August, loans tied to three properties, 222 Kearny St., 995 Market St. and 1045 Bryant St., went into special servicing, indicating a default has occurred or is on the horizon. Earlier this month, Canyon Catalyst Funds, a partnership between Canyon Partners’ real estate arm and the California Public Employees’ Retirement System, defaulted on a $42M loan backed by the office building at 1128 Market St.