The former Bank of America headquarters building at 555 California in San Francisco’s Financial District, co-owned by the Trump Organization and Vornado Realty Trust, has been in the news recently after heavy winds that accompanied major storms sent windows crashing to the ground.
But now, the property’s owners are dealing with a different type of storm.
According to a report from The Real Deal, the owners have requested an extension on their loan at the building about a month after the property was placed on a special servicing watchlist, indicating that loan holders are keeping a close eye on the office complex.
Vornado owns 70% of the 1.35 million square foot complex, which includes two adjacent properties, while the Trump Organization owns the remainder.
While the loan extension request isn’t itself unusual, it is taking place in a difficult macroeconomic environment exemplified by rising interest rates and financing issues due to lower demand for office leases.
Nowhere is this more apparent than San Francisco, where office vacancies recently rose to 29.5%, according to preliminary data from CBRE.
The Real Deal reported the owners are on time with the $1.2 billion mortgage debt secured by the 55-story building, but that monthly debt payments have increased by 38% since the loan was made in 2021 owing to rising interest rates.
Manus Clancy, senior managing director at commercial real estate data company Trepp, said in an interview last month that based on Trepp’s data, the $1.2 billion loan for the office complex was initially made in 2021 with a maturity date set in 2023. The loan holders have a series of five 12-month extension options, which pushes out their maturity date to 2028.
Clancey said that in 2021, the owners likely purchased an interest rate cap, which is essentially an insurance measure that guards the property owner from sharp interest rate hikes. But that only lasted for the first two years of the loan, Clancy said.
The question is whether the owners will be able to get an extension on that interest rate cap or need to purchase another one at a higher price.
The 52-story 555 California is one of the city’s premier office buildings and the fourth largest building in the city. And while the building is nearly fully leased, many of the leases are set to expire in the next few years.
Kevin Truong can be reached at email@example.com