Fire Sale of San Francisco Office Buildings Continues

We’re not prepared to call it a “doom cycle” yet, but that’s the term some analysts are beginning to attach to downtown San Francisco, where a fire sale of office towers has begun to accelerate in the hollowed-out city center.

Two more downtown office properties have been listed this month with pricing that reflects collapsing office valuations in San Francisco.

CBRE Investment Management is shopping a 138K SF office building at 123 Townsend Street which is 73% leased to PayPal. The property, which is being marketed by Newmark, is expected to get offers around $90 million, well below the $140M CBRE Investment paid for it in July 2020, according to a Green Street report.

NYC-based Clarion Partners is marketing a 157K SF building at 60 Spear Street that is 37% occupied and is valued at $55 million, about half the $107M Clarion paid for the building in 2014, when it was 80% occupied. JLL is marketing the building for Clarion.

When it was first listed in 2020, the asking price for 350 California Street in Downtown San Francisco was $250M. In a sign of the times in the beleaguered city, the office tower was sold this month for about $60M.

MUFG Americas has sold the 286K SF tower at 350 California Street to San Francisco-based developer SKS in a deal estimated at $200 to $225 per SF. A Korean real estate investor is partnering on the deal, according to a report in the San Francisco Business Times.

The 22-story Financial District building is nearly empty. Union Bank, the anchor tenant at 350 California Street, has vacated the building. In 2021, bidding on the building never exceeded $180M and the owners took it off the market.

Bids for the 355K SF building at 550 California Street came in around $39M, Green Street reported. The original whisper price was $160M when Wells Fargo, which is vacating the 13-story property, first put it up for sale last summer. After Wells Fargo assigned Eastdil Secured to relaunch the listing in January, the whisper price was slashed to $53 million.

For 123 Townsend Street, known as the Townsend Building, CBRE Investment also is offering seller financing. Newmark’s marketing materials note that a purchase at such a low basis could allow a buyer to offer competitive rents to fill vacant space. It also touts the stable cash flow provided by PayPal, which still has six years left on its lease and has invested more than $11Mn into its space since 2018.

JLL is pitching 60 Spear Street as a value-added play, highlighting the building’s location in the Financial District, a block from the Embarcadero BART Station and San Francisco Ferry Terminal. The property was renovated in 2013.

Nearly a third of the offices in San Francisco are empty, a vacancy rate that approached 30% in the first quarter of 2023.