L.A. Firm Scoops Up San Francisco Office at 80% Discount

Los Angeles-based BH Properties has been busy acquiring properties in the Bay Area in the past year, including a university campus in Oakland Hills and a retail complex at Fisherman’s Wharf.

The firm has now grabbed its first San Francisco office asset at a huge discount. BH is acquiring a 117K SF downtown office building at 989 Market Street that was the headquarters of software company Zendesk.

The price for the half-empty building is $13.5M, which is about $115 per SF, nearly 80% less than the $61.3M that owner ABS Real Estate Investment paid for the six-story property a decade ago, the San Francisco Chronicle reported.

BH Properties’ buying spree in the Bay Area began in June of last year when it bought Holy Name University’s 60-acre former Oakland campus for $65M. Two months later, BH Properties also paid $65M to buy a 322K SF mixed-use shopping center known as Anchorage Square at Fisherman’s Wharf in San Francisco.

The firm opened a regional office in San Francisco in February, telling the San Francisco Business Times that it had long eyed the Bay Area market but had refrained from entering it during the pre-pandemic peak.

Zendesk moved into the Mid-Market office building in 2011. The software firm recently inked a deal to sublease 40K SF from Meta at 181 Fremont Street. It is not clear whether the company intends to maintain an office footprint at 989 Market, the Business Times reported.

The building at 989 Market, which was acquired by ABS for about $523 per SF in 2014, was listed for sale this spring. According to marketing materials from JLL, the building was 52% leased with a weighted average lease term of 1.4 years.

Office values have plunged in downtown San Francisco, which has been plagued by skyrocketing vacancy rates as tech firms embraced remote work and downsized their office footprints.

In April, lenders bid $6.56M to foreclose on 995 Market Street, a 16-story tower next door to the building BH Properties just acquired. The bid valued 995 Market at about $72 per SF, a drop of nearly 90% from the $62M former building owner Bridgeton paid to acquire the property in 2016.

San Francisco’s office market closed Q2 2024 with an overall vacancy rate of 36.8% and negative net absorption of 290,343 SF, according to CBRE’s market report. The market-wide availability rate held steady at 39.1%.