Half Off: Another San Francisco Office Trades For 50% Discount
An office building at 201 Spear St. in San Francisco's Mission District will reportedly sell for less than half of what it traded for 10 years ago. Strada Investment Group is on deck to purchase the building for $60M, the San Francisco Chronicle reported.
The purchase price for the 300K SF building works out to $200 per SF, a far cry from sales prices commonly seen in downtown San Francisco in the heady days leading up to the pandemic.
Investors keen on getting a toehold in San Francisco for a bargain have become more common as existing property owners seek to cut their losses amid falling rents and rising interest rates.
The onetime home of companies like Google and WeWork, 201 Spear St. last sold to a KBS Realty Advisors fund in 2005. KBS paid $121M for the 13-story building, which was at one point 97% leased and one of the top-performing properties in the fund's portfolio, according to the Chronicle.
But things took a turn after the pandemic set in, with occupancy at 201 Spear St. falling to 65%. Google vacated its space in March. WeWork, which leases about 31% of the office space in the building, filed for Chapter 11 bankruptcy earlier this month, raising questions about its real estate footprint.
The KBS fund was exploring offloading the property even before WeWork filed for bankruptcy, the Chronicle reported. In a filing with the Securities and Exchange Commission in August, KBS said it was considering giving the asset back to the lender because of the dropping occupancy and valuation, as well as the looming debt maturity.
“In both favorable and unfavorable commercial real estate climates, real estate advisors are tasked with operating in the best interest of our investors, so we are considering all of our options at this time,” KBS CEO Marc Deluca said at the time.
Thirty-four percent of San Francisco office space is vacant, according to a Q3 report by CBRE. The average asking rate also fell by 2.6% quarter-over-quarter to $71.70 per SF. However, CBRE pointed to a recent bump in tenant interest that could contribute to better performance in 2024.
“Looking ahead the market-wide vacancy is expected to increase further into 2024, but the sharp increase in tenant demand in the last three quarters indicate that leasing activity will rebound in 2024,” the report says.