Hearst Suspends Plans for Condo Tower in San Francisco

Hearst, the NYC-based media company and owner of the San Francisco Chronicle, has suspended its plans to build a condo skyscraper in San Francisco’s South of Market neighborhood.

The 400-unit residential tower was supposed to be the second phase of a $1B development known as 5M. The first phase of the development, located between Fifth, Mission and Howards streets, was jointly developed by Hearst with Brookfield Properties.

The condo tower was going to be a solo project for Hearst. The media company cited poor market conditions and high construction costs as factors in its decision to pause the project at 110 Fifth Street, the San Francisco Business Times reported.

A Hearst spokesperson told the Business Times the project “doesn’t pencil because of market conditions and construction costs.”

Hearst’s Chronicle building at 901 Mission Street is adjacent to the 5M project site. Hearst sold a portion of the 4-acre 5M property to Forest City Realty Trust; the same parcel was acquired by Brookfield in 2018.

Brookfield completed the first phase of the 5M project last spring, when it finished The George, a 302-unit apartment campus and a 25-story, 648M SF office tower at 415 Natoma Street.

Brookfield renovated two historic buildings on the site, the Dempster and Camille buildings.

Dan Snider, chief of staff at the San Francisco Planning Department, told the Business Times that the decision to pause the condo tower is symptomatic of the general malaise in San Francisco, which is struggling with an empty downtown.

The office tower Brookfield built at 415 Natoma was the only office tower built in the city in 2021; it has only one tenant, Thumbtack, which occupies 20K SF of the largely empty 700K SF building.

Retail outlets have begun an exodus from San Francisco’s hollowed-out city center, where the office vacancy rate is nearly 30% and the market is full of sublease listings.

Earlier this month, Nordstrom became the latest retailer to close its stores in downtown San Francisco, which is suffering from a dearth of office workers and an increase in crime.

Nordstrom will vacate more than 300K SF at the Westfield San Francisco Centre on Market Street and it will close a nearby Nordstrom Rack outlet.

“The dynamics of the downtown San Francisco market have changed dramatically over the past several years, impacting customer foot traffic to our stores and our ability to operate successfully,” Jamie Nordstrom, chief stores officer, said in a letter to employees.

Since the beginning of the year, retailers including Office Depot and Anthropologie have announced they are closing their Market Street stores. A Whole Foods store in the neighborhood said it would vacate the space because of safety concerns.

“The planned closure of Nordstrom underscores the deteriorating situation in downtown San Francisco,” Unibail-Rodamco-Westfield, the mall owner, said in a statement.

“A growing number of retailers and businesses are leaving the area due to the unsafe conditions for customers, retailers, and employees, coupled with the fact that these significant issues are preventing an economic recovery of the area,” the statement said.