The fire sale of office buildings with high vacancy and plunging values in downtown San Francisco keeps spreading, and its epicenter is a two-block stretch of California Street.
San Francisco-based Tidewater Capital and Goldman Sachs have listed 351 California Street for sale, tapping JLL to market the 16-story building. The partners paid $108M to acquire the 140K SF property in 2019, which translates into roughly $771 per SF.
An asking price has not been disclosed, but with 351 California currently 53% leased with a weighted average lease term of three years, the building is likely to be priced at the going rate in the neighborhood: the upper $200 per SF range, the San Francisco Business Times reported.
That range has been set by three other office properties along the two blocks of California Street between Montgomery and Battery Streets in the downtown financial district that were bought during the past 12 months at steep discounts.
In August 2023, SKS Partners and Swig Co. acquired 350 California for $61.5M, about $205 per SF; Redco acquired 300 California in May of this year for $28.5M, which translates to $240 per SF; and LBA Realty bought 255 California for $55M, about $300 per SF.
Another California Street building a few blocks away may be poised to go on the market. A court-appointed receiver managing 600 California has signaled that it may seek to sell the property.
Last year, Tidewater handed the keys back to its lender for 1440 Broadway, an 83K SF office building in downtown Oakland. However, last fall the firm disclosed it had raised more than $200M for a discretionary fund with plans to reinvest in Bay Area real estate, including offices.
San Francisco's 89M SF office market is still struggling with historically high vacancy and availability rates, which at the end of the second quarter measured 36.8% and 39.1%, respectively, according to CBRE. The availability rate measures all space offered for lease, including offices that currently are occupied.
San Francisco also has the worst pace of workers returning to the office among 11 major U.S. cities, with visits down 49.2% from pre-pandemic levels in 2019, according to Placer.ai data cited in a recent report from Wells Fargo Economics.
The boom in generative AI continues to drive office leasing in San Francisco, but it is not expected to put the city's office sector completely back on its feet anytime soon.
AI companies in San Francisco, as there are now more than 100 startups with up to 50 employees in the city—were responsible for 28% of the office leasing in 2023, a pace that has continued in the first half of 2024. While AI startups are expanding, tech giants that embraced remote work have been right-sizing their office footprints in San Francisco.