San Francisco Offices Trading at 50% Discounts

Office buildings in San Francisco continue to trade for fire sale prices, the latest a Showplace Square property that Blackstone has unloaded for about half of its purchase price.

An affiliate of Blackstone sold the 83K SF office building at 650 7th Street to SoCal firm LBA Realty for $25.4M, which translates to about $305 per SF. Blackstone purchased the building seven years ago for $50.5M, almost twice the amount it was sold for last month, the San Francisco Business Times reported.

“We continue to actively manage our portfolio to deliver the best possible investment outcomes based on evolving market conditions. Fortunately, US traditional office represents less than 2% of our owned portfolio,” Blackstone said, in a statement provided to Globe St.

When 650 7th Street was acquired by Blackstone, the building was 100% leased to Salesforce. The property subsequently was subleased to Airbnb, a lease that expired in March 2023.

Blackstone continues to transition out of challenged assets like older office buildings, focusing on investing in higher-growth sectors.

“We aim to invest in sectors with strong fundamentals propelled by macro demand trends, which is why the majority of the real estate we own is in sectors like logistics, student housing and data centers,” a Blackstone spokesperson told Globe St.

The office vacancy rate ticked up to nearly 34% in the third quarter, a 26% increase over Q3 2022, while office availability, which includes all space for lease, vacant or not, reached 37.5%, according to preliminary data from CBRE reported by the Business Times. Negative net absorption in the third quarter totaled minus 2M SF, CBRE’s preliminary numbers show.

VTS, which tracks demand by measuring tenants touring properties and looking for space in key US markets, has reported a spike in the number of businesses who are touring available space and negotiation leases in San Francisco.

The volume of tenants in the market is up 10% year-over-year and 32% higher than the end of 2022; the volume of square footage being toured is up 49% since the end of 2022, according to VTS data.

Two other Financial District office properties have traded this year at between $260 and $200 per square foot-cliff dives from their pre-pandemic valuations.

When it was first listed in 2020, the asking price for 350 California Street in Downtown San Francisco was $250M. The tower was sold for about $60M. MUFG Americas 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.

60 Spear Street was pitched 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.