A buyer has been selected for 350 California St., a Downtown San Francisco office tower that has become a bellwether for the state of the city’s commercial real estate market. And as many observers had expected, the property is selling at a huge discount.
A bid from San Francisco-based real estate developer SKS has been chosen by property owners MUFG Americas, according to multiple sources with knowledge of the deal. Sources said that a Korean real estate investor is partnered with SKS on the purchase of the 286,000-square-foot building.
Pricing is said to be in the $200-$225 per square foot range, which translates to about $58 million to $65 million. That’s a roughly 75% haircut from the $250 million brokers were asking for the property when it went on sale in 2020.
According to a listing on LoopNet, the property is currently only 32% leased, with the majority of those leases expiring within the next 18 months.
SKS did not respond to a request for comment as of publication time. The San Francisco Business Times was the first to report the news.
Sources said that the deal has yet to close and the property is yet to complete contract negotiations and the due diligence process.
Real estate observers have been on the lookout for a major Downtown San Francisco office building to trade hands to provide a comparison for the rest of the market, which has been racked by record-high vacancy rates amid the transition to remote work for many of the city’s employers.
Other nearby office buildings that are currently on the market include 550 California St., now owned by Wells Fargo, and 60 Spear St., currently owned by New York City-based Clarion Partners.
In the oft-theorized “doom loop,” a decline in real estate values could lead to a hit in property taxes, which is San Francisco’s single largest source of revenue. But in the case of 350 California St., the city would be largely insulated from a drop in tax revenue.
The assessed value of the property is currently at $66.2 million, according to real estate data provider PropertyShark. That’s due in part to Prop. 13, which limits when properties can be reassessed and restricts annual appreciation to 2%.
But the same phenomenon may not hold true for other properties. According to real estate firm JLL, approximately 48% of office space have been resold or refinanced since 2015 at an average price per square foot of around $700. If the sale of 350 California St. is any indication, San Francisco’s coffers could be in a world of hurt.
Kevin Truong can be reached at firstname.lastname@example.org