San Francisco, CA

A New Era of San Francisco Commercial Real Estate Begins in 2024

Published

11 months ago

December 22, 2023

A New Era of San Francisco Commercial Real Estate Begins in 2024

Between significant tech layoffs and continuing economic headwinds, it was fitting that one of the last major commercial real estate moves of the year in San Francisco was an office building being listed for sale at a massive discount.

The 20-story office tower at 33 New Montgomery St. is being listed at $80 million, a 46% haircut from the $146 million it traded hands for in 2014.

That big drop in valuation—first reported by the San Francisco Chronicle— mirrors larger trends at office properties across San Francisco and the Bay Area, where high vacancy rates and the rising cost of lending have put many owners in a bind and spurred some to cut their losses and offload troubled properties.

An increasing number of those who made investments before the pandemic are now coming out on the losing end heading into 2024. It’s not all bad news. Investors did get a little reprieve heading into the holiday break, with the Federal Reserve signaling it was finally prepared to start lowering interest rates after the new year, thus making money easier to borrow.

But interest rates and office occupancy rates won’t flip overnight. What’s more likely is that 2024 will represent a turning-of-the-page moment in San Francisco, a real estate reset where past expectations are no longer palatable, and well-positioned players enter the game buying low.

An office building with brown and gray marble with 33 New Montgomery in letters. — The exterior of the office tower at 33 New Montgomery St. in San Francisco. | Source: Gina Castro/The Standard

End of an Era

Similar to 33 New Montgomery, a 210,000-square-foot office building at 600 Townsend West was listed for sale last month by real estate services firm JLL. The building has been owned by Japanese investor Toda Corp. for over 30 years, and the firm is seeking roughly $74 million for the property roughly a mile southwest of Oracle Park.

While Toda does not appear to be under significant pressure from lenders or facing a lack of cash flow because of low occupancy (JLL’s listing says it is 92% leased)—its price guidance of roughly $350 per square foot does fall in line with a neighboring building recently sold back to one of its original owners at a major discount.

A source with knowledge of the deal said the initial round of bids for the property topped out around $67 million.

Less than two blocks away from Toda Corp.’s property, a different story with a similar outcome is playing out at 410 Townsend St.

There, the building’s previous owner, Clarion Partners, fell behind on a roughly $40 million loan it took out in 2019, the same year it purchased the 76,000 square-foot office for $86 million. For a point of comparison to current market values, that works out to roughly $1,130 per square foot.

According to public records, Clarion handed the property back to its lender this month. Before its value plummeted, the building was home to the likes of TechCrunch, Eventbrite, Zendesk and Adobe. A recent online listing showed that three out of the four floors are available for lease.

A person walks in front of a dark green building with a row of city bikes. — The Mission Bay Office Property at 410 Townsend St. has been handed back to lenders, public records show. | Source: Gina Castro/The Standard

Vacancies have also crippled the owners of a historic 16-story building at 995 Market St., just down the street from San Francisco’s new Ikea. According to public records, Bridgeton Holdings has defaulted on a $45 million loan. The departure of WeWork in 2021 left the 90,000-square-foot building more than 80% vacant.

The Next Chapter

Rock-bottom pricing and increasing distress mean that property owners are finally starting to pull the trigger on deals, in a sign of activity likely to ramp up in the year ahead.

For example, at 55 New Montgomery St., the property’s lender actually purchased the building, which had similarly slipped into default in a foreclosure auction. CrossHarbor Capital Partners secured the 100,000-square-foot building for just $15 million, according to public records— a fraction of the $71.4 million loan it issued to the previous owners in 2018.

Falling property values have prompted other parties just last week to settle with lenders for a reduced price instead of the costly and time-consuming foreclosure process.

At the three-building North Park office complex at 560 Davis St., the property’s previous owner, Gaw Capital, swooped in and purchased the existing debt on the building for half-off. Additionally, the new owners saved on transfer tax because the property was handed over in a process known as a “deed in lieu of foreclosure,” according to public records.

Then, there is the interesting case of 115 Sansome St., where the Vanbarton Group won a competitive bid on a building it already owned. The owners reportedly closed an all-cash deal for around $35 million, which is less than the $54 million loan it took from Bank of America in 2016, according to public records.

In doing so, Vanbarton paid off its debt at a price more reflective of the building’s current value.

A sign reading space avaliable on Market Street — A sign hangs from the window of an empty retail space on Market Street in San Francisco on May 3. | Source: Justin Katigbak for The Standard

Local buyers and prospective tenants see the writing on the wall—and to some it spells opportunity.

“Right now, we know we have the best value in town,” said Roger Fields, principal of Peninsula Land & Capital.

In September, Fields purchased his first building in San Francisco, an entirely vacant office tower at 550 California St. At $40.5 million, the property went for less than half the price the previous owner paid 18 years ago.

Fields, alongside a handful of other opportunistic investors, have acquired various buildings in the city at heavily discounted prices over the past year. Since these buyers are not encumbered with the same debt of the previous owners, landlords like Fields can offer lower rents or invest the dollars they saved back into upgrading their properties.

The 13-story building that he bought was once owned and fully occupied by Wells Fargo. Fields wasted no time listing the floors for lease after closing on the purchase.

As of December, he said that his firm is already finalizing a lease with a new tenant, but declined to name them, although he noted the building lends itself to a broad variety of uses.

“To pay that price for a building in great shape, in a location like that, is just unheard of,” Fields said.

But that advantage still runs up against the reality of hybrid office work being here to stay. According to Raise Commercial Real Estate, which brokered the 476,000 square-feet OpenAI lease in October, office leasing activity fell by 33% in 2023 compared to the year prior.

Yet Fields is undeterred.

He said based on conversations with prospective tenants, he believes the work-from-home pendulum will swing back the other way.

“San Francisco has its problems, but it is too beautiful and valuable for those not to be solved eventually,” Fields said. “The Financial District is often lumped in with the other areas of the city with severe issues when it really shouldn’t.”

Questions, comments or concerns about this article may be sent to info@sfstandard.com

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San Francisco, CA

San Francisco D.A. announces conviction in 2015 quadruple murder

Published

3 hours ago

November 23, 2024

Press Room

San Francisco D.A. announces conviction in 2015 quadruple murder

article

SAN FRANCISCO – Nearly 10 years after a quadruple murder, drive-by shooting shocked the San Francisco Hayes Valley neighborhood, District Attorney Brooke Jenkins on Friday announced the conviction of the San Francisco man responsible.

The D.A.’s office issued a news release that said Lee Farley, 36, was found guilty by a jury on four counts of first-degree murder with special circumstances when he opened fire on an occupied vehicle on the night of January 9, 2015.

According to evidence and testimony, four men were ambushed from behind on Laguna Street just south of Page Steet at around 10 p.m.

The jury found that Farley committed this act as a participant of a criminal street gang and that he was a felon in possession of a firearm.

Police arrested Farley in the summer of 2016. He was already serving time at a federal prison in Atwater on unrelated weapons charges when he was taken into custody.

The slayings of Manuel O’Neal, David Saucier II, Harith Atchan and Yalani Chinyamurindi left the victims’ families in turmoil as they waited for justice.

“I would like to thank the jury for their service in this trial,” said District Attorney Jenkins. “I would also like to thank the mothers and families of the murdered men for their patience, faith and trust in my office to get justice for their families. Our strong legal team fought hard, understanding that while nothing we do can bring back their loved ones, that hopefully this verdict brings them some comfort.”

The D.A. thanked her team and the San Francisco Police Department’s homicide unit for their work on this case.

Farley’s sentencing will be scheduled after a bench trial on priors. That date is set for Dec. 16, 2024.

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San Francisco, CA

San Francisco Giants Seen as Top Trade Partner for Chicago Cubs Superstar

Published

12 hours ago

November 22, 2024

Press Room

San Francisco Giants Seen as Top Trade Partner for Chicago Cubs Superstar

The San Francisco Giants are expected to swing big this offseason as they look to get themselves back into playoff contention.

A pitch to superstar slugger Juan Soto is considered to be that first big swing, although they are not expected to end up landing him.

Assuming the Giants end up missing on Soto, there are plenty of other fallback options that they could consider.

Pete Alonso and Anthony Santander are two other free agents that the Giants have been connected to. However, there is also a potential trade target that has been linked to San Francisco.

Looking at the needs the Giants have, they could use more starting pitching, especially if Blake Snell ends up leaving town in free agency. But San Francisco could also use more offensive firepower. They need a big bat to plug into their lineup.

With that in mind, Chicago Cubs star outfielder and first baseman Cody Bellinger has come up as a potential option.

Zach Pressnell of Newsweek has named the Giants as one of the top potential trade suitors for Bellinger if the Cubs end up trading him. Reports have come out that Chicago would like to trade their star this offseason. With new leadership in San Francisco, after the hiring of Bustery Posey as president of baseball operations, there is a chance the former All-Star catcher would listen on a deal for the slugger.

“San Francisco has to chase the Los Angeles Dodgers and the San Diego Padres in its own division before it can worry about coming home with the World Series title,” Pressnell wrote. “A move for Bellinger would push the Giants in the right direction without breaking the bank.”

Bellinger would certainly be an intriguing option for San Francisco. He’s set to make $27.5 million in 2025 and then will have another choice to make before the 2026 season, as his current deal has another option year. There is a chance that he could opt into another year of his deal at $25 million.

During the 2024 MLB season, Bellinger produced lower numbers than expected. However, he dealt with some injury issues and the Cubs as a whole played under expectations.

He played in 130 total games, hitting 18 home runs to go along with 78 RBI. Bellinger also recorded a slash line of .266/.325/.426.

Just one year previously in 2023, Bellinger had a much stronger season. He hit .307/.356/.525 to go along with 26 home runs and 97 RBI. He was also named the National League Comeback Player of the Year award winner.

All of that being said, the former National League MVP would be an excellent addition for the Giants. Depending on what Chicago is asking for in return, San Francisco should strongly consider making a push to acquire him.

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San Francisco, CA

San Francisco Giants Named Potential Landing Spot for All-Star Slugger

Published

20 hours ago

November 22, 2024

Press Room

San Francisco Giants Named Potential Landing Spot for All-Star Slugger

The San Francisco Giants are heading into free agency hoping to finally make a splash after missing out in recent years.

It was another mediocre season for the Giants in 2024, as they finished just under .500 and hovered around that record for most of the year. Besides a couple of outlier years, San Francisco has struggled for most of the decade.

Now, former catcher Buster Posey has taken over as president of baseball operations, and hopes to change the trajectory of the franchise.

Over the past few winters, the Giants have consistently missed out on the top free agents. The hope is that Posey will bring some credibility to San Francisco and help convince free agents to come.

Heading into the offseason, one of the most glaring needs for the Giants is to improve the offense. Recently, Zachary D. Rymer of Bleacher Report spoke about San Francisco as a good landing spot for Baltimore Orioles slugger, Anthony Santander.

While the Giants play in one of the most pitcher-friendly parks in the league, their lack of power has really held the team back. San Francisco has not had a home run hitter since Barry Bonds, who was the last Giants player to hit 30 home runs for the team — back in 2024.

The Giants have swung and missed on top free agents like Giancarlo Stanton, Bryce Harper, Aaron Judge and Shohei Ohtani in recent years. An agreement with infielder Carlos Correa went up in smoke after his physical revealed a concerning injury and nixed that deal.

Santander is in the superstar category. But, last year with the Orioles was able to total 44 home runs and 102 RBIs.

That type of offensive production is exactly what San Francisco needs in the middle of the order, as he would pair nice with Matt Chapman and Heliot Ramos in the lineup. Also, he would provide the Giants with a switch hitter to help diversify their lineup.

In the spacious outfield of San Francisco, Santander might be a tad exposed defensively, but he could slide into the designated hitter slot a majority of the time. Santander usually played right field in Baltimore.

While the Giants want to bring in some good talent, they are also trying to build sustainable success for the future.

Adding a player the caliber of Santander would fix one problems in the lineup for San Francisco, but more work would still need to be done.

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