Starwood Gives Back Keys for Three Oakland Office Towers

Starwood Capital has given back the keys on three downtown Oakland office towers, acquired for nearly $500M in 2019, after defaulting on a $365M loan backed by the buildings.

Starwood has surrendered the three buildings, located at 1901 Harrison, 2100 Franklin and 2101 Webster streets, to Deutsche Bank, which provided the loan for the 2019 deals, according to a report in the San Francisco Chronicle.

Miami Beach-based Starwood bought the towers nearly five years ago in two deals encompassing about $494M from Los Angeles-based CIM Group.

The 20-story, 475K SF tower at 2101 Webster and a nine-story, 215K SF building at 2100 Franklin, which make up the Oakland Center 21 complex, were acquired for $347M. The 272K SF tower at 1900 Harrison was purchased for $147M.

The 2019 deal also included a parking garage at 2353 Webster Street, which was acquired for about $18M.

Deutsche Bank has assumed control of the office towers, the Chronicle reported. The report did not indicate whether Starwood also is surrendering the parking garage.

The office vacancy rate in downtown Oakland hit a record 36% in the first quarter of 2024, up from 34.1% in the fourth quarter, with net absorption of negative 17,930 SF, according to the latest market report from JLL.

A surge in leasing activity in the first quarter in downtown Oakland offered a glimmer of hope that the office market may have bottomed and will improve in coming months.

Leasing activity notched 140K SF in downtown Oakland in the first quarter, more than double the amount of activity in Q4 2023, with tenants seeking average leases of 9K SF, JLL reported.

On the gloomier side, downtown Oakland can’t count on any “spillover” from the San Francisco office market—a traditional driver of office demand in the East Bay.

The office vacancy rate hit 36.6% in San Francisco during the first quarter of 2024, up from 35.6% in the fourth quarter of 2023. Total availability, which includes occupied space, ticked up to 38.7% from the 38.5% recorded at the end of 2023, according to preliminary data from CBRE.

On the brighter side, CBRE reported that tenant requirements jumped to 6.3M SF in Q1 2024, rising from 4.2M SF in the fourth quarter and nearly double the 3.4M SF notched in the Q1 2023, according to a report in the San Francisco Business Times.

Tenant requirements in San Francisco, driven by the boom in GenAI, are approaching levels not seen since the pre-pandemic peak of San Francisco’s office market, the first quarter of 2020, when requirements hit 6.8M SF.