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San Francisco ‘crime shadow’ report predicts the next commercial real estate collapses

A vacant retail space on Powell Street in Union Square. The neighborhood has one of the highest crime rates in San Francisco. | Source: Justin Katigbak/The Standard

A leading real estate analysis firm has connected a so-called San Francisco “crime shadow” with the city’s next possible commercial real estate collapses in a first-of-its-kind study. 

The Trepp study examines the impact of crime on business performance and predicted some corporate, retail and hotel buildings in San Francisco could be at risk of defaulting on loans due to their proximity to areas plagued with high violent and property crime rates. 

These properties include the Ritz-Carlton hotel in Lower Nob Hill and the Hyatt Regency hotel in SoMa, as well as the Financial District’s One Market Plaza office complex, a once-heralded corporate space that Google and Autodesk are currently leasing. Visa subleased the building earlier this year to move its headquarters just south of Oracle Park.

“One Market Plaza is a high-quality, trophy office asset that is ~96% leased and has seen more leasing activity since the onset of Covid than any other major office campus in San Francisco,” a spokesperson for the office complex said in a statement.

Trepp's "crime shadow" map shows business struggles overlaid on a crime heat map. The map indicates many defaults and closures are occurring in high-crime areas. | Source: Courtesy Trepp

The report, put together by Trepp, a firm that provides data analytics on banking and commercial real estate, identified San Francisco’s most financially dire properties and their proximity to high-crime neighborhoods in the city, such as Union Square and the Tenderloin District. The analysis firm solely measured violent and property crimes in their report.

Leasors who have defaulted or returned commercial buildings to their lenders, such as with the Westfield San Francisco Centre in SoMa and two Hilton hotel locations in Union Square, showed the same patterns of running businesses in an area deemed under a “crime shadow” while facing financial woes.

Trepp calculated the financial health of city properties by measuring its debt-service coverage ratio, or a firm’s available cash compared with its outstanding debts. The identified buildings all had a deficit or were facing a cash crunch, with loan payments coming due before 2026.

The property and violent crime data used in the Trepp report was taken from the San Francisco Police Department’s incident report. The department did not respond to requests for comment by publication time.

Trepp's heat map shows the prevalence of property and violent crime by location. The crime data is pulled from the San Francisco Police Department incident report. | Source: Courtesy Trepp

The report found that businesses tend to perform worse in areas with high crime: More than 65% of businesses in these neighborhoods stagnated or experienced losses. This relationship was most apparent for hotels, where “a small decline in crime may be accompanied by a huge improvement in lodging properties’ financial performance.”

However, the report also observed a mixed relationship between changes in crime rate and business performance. Crime rates in Union Square, the Tenderloin and the Mission District all decreased from 2018 to 2022, but the number of registered businesses in these neighborhoods also dropped during this period. 

The report suggests that the relationship between crime rates and business performance could be “bidirectional,” meaning a decline in commerce can also reduce the likelihood of crime, due to reduced foot traffic and storefront spaces.

About 35% of businesses also experienced relatively high growth in areas where crimes increased, the report found. 

Trepp added that the tight-knit geography of San Francisco makes it difficult to accurately measure how crime affects business from one neighborhood or community to the next.

Hyatt and Marriott, Ritz-Carlton’s parent company, did not respond to requests for comment by publication time.