San Francisco fire sale: downtown high rise selling at a 73% discount

A high-rise office building in San Francisco’s financial district is reportedly being sold for significantly lower than what it had been valued at a few years ago, potentially providing a signal for the city’s office market. 

The San Francisco Business Times first reported last week that unnamed sources said the 350 California Street high-rise is being purchased for a per-square-foot price that equates to a value in the $60 million to $67.5 million range. The outlet identified SKS Real Estate Partners as the buyer of the Mitsubishi UFJ Financial Group-owned property. 

According to the San Francisco Business Times, the $67.5 million figure marks a 73% decrease from 2020, when the high-rise belonged to Union Bank who listed it for approximately $250 million. An investor from South Korea is reportedly also involved on the buyer’s side. 

COMMERCIAL REAL ESTATE INDUSTRY ON EDGE AS DOWNTOWN EMPTY OFFICE SPACE GOES UNUSED

FOX Business sent an inquiry to SKS Real Estate Partners about the reported purchase. Mitsubishi UFJ Financial Group Americas declined to comment.

With the reported transaction of 350 California Street, participants in San Francisco’s office space market could potentially have a new gauge in terms of pricing. On the seller’s side in the deal, CBRE’s Kyle Kovac and Mike Taquino provided representation.

Derek Daniels, research director for San Francisco at Colliers International, told FOX Business on Tuesday that the 350 California Street sale will be a "great data point for our market right now."

"It will give other market participants a great data point to look to for other potential sales that might be happening," he continued. "It’s a jolt of positivity for the San Francisco market that an institutional, local owner is willing to make a significant investment."

SAN FRANCISCO'S ‘DOOM LOOP’ THREATENS TO GUT DOWNTOWN ECONOMY AS EMPLOYEES WORK FROM HOME

Daniels said the buyer was "going to have to put a lot of capital into the property to get it to the point where it can be leased again, but it is in the north financial district and California Street’s a great address, great street to be on." The Real Deal, which also covered the sale, reported 350 California Street’s vacancy rate was around 75%.

The reported fire sale of the high-rise comes as San Francisco’s office market has continued to deal with high vacancy rates stemming from factors including the COVID-19 pandemic and tech companies located in the city letting their employees work remotely. 

Daniels described the market as "very challenged right now." He noted San Francisco saw a "massive spike in subleases" early in the pandemic, adding that tech "was easily able to go remote and a lot of firms kind of went that route right away."

Colliers International, where he works, said in its latest office market report for the city that the overall vacancy rate came in at 23% for the first quarter. That proportion was notably higher than the 5.3% in the same three-month period in 2020. Availability has also hit a record high.

GET FOX BUSINESS ON THE GO BY CLICKING HERE

Meanwhile, CBRE reported San Francisco’s office market having a vacancy rate of 29.4% for the quarter. In the prior quarter, it was 27.6%, according to the real estate company.

Ticker	Security	Last	Change	Change %
CBRE	CBRE GROUP INC.	139.99	-0.72	-0.51%

Daniels expressed optimism about return-to-office recovery in the long-term.

"The sentiment in the industry is that with announced layoffs, I think the pendulum is going to swing back in management’s favor to get folks back in the office," he said. 

He also pointed to recent growth in the artificial intelligence sector.