For a brief moment, the Federal Reserve of San Francisco thought it had an “Italian Job” situation on its hands. The bank’s seismic detectors picked up activity perceived as a potential threat, perhaps someone trying to drill into the underground vaults.
Thankfully, it wasn’t a heist. Rather, it was the next-door neighbors doing some very loud construction work.
Last month, Presidio Bay Ventures broke ground on its long-awaited renovation of 88 Spear St., an 11-story office tower in the South Financial District. When the San Francisco-based real estate firm acquired the 56-year-old property in 2023, it was more than 70% empty, with few prospects of attracting tenants.
But a new owner buying at the bottom of the market meant new possibilities. Presidio Bay Ventures channeled its savings toward upgrades and investments for an extreme makeover: office edition.
When 88 Spear opens next fall, it will be topped by two new floors, a luxury spa underground, and a new open-floor-plan lobby complete with gathering space and a new Arsicault Bakery.
By turning the drab Class B office building into a white-glove resort destination, Presidio Bay is betting that it can attract some of the poshest tenants in town, eventually tripling or even quadrupling its investment. The company paid roughly $41 million for the property, which had previously traded in 2014 for $107 million.
“We have no new supply [of office space], while demand has been building up,” Cyrus Sanandaji, managing principal of Presidio Bay Ventures, said during a recent tour of the construction site. “We believe in the flight to experience. The next thing is how to tailor and curate to those end customers. ”
The building’s last tenant vacated in June, so contractors have so far only been able to clear asbestos and knock down lower-floor walls. Next, they will drill a hole big enough for a water tank for the basement-level spa, which will have a sauna and two pools. Then — like the cherry on top — a crane will add the newly planned rooftop event space and restaurant with a 360-degree view.
“When every building has the same amenities, nothing differentiates one from the other,” Sanandaji said. “What you have then is just a commodity. And there’s already plenty of that.”
If he sounds like a true believer, it’s because the strategy has worked before. In 2020, Presidio Bay took over the construction and leasing of the 6.4-acre Springline mixed-use development in Menlo Park. In just three years, it managed to complete construction and lease the entire 760,000-square-foot complex to residents, restaurants, and office tenants.
Sanandaji said a luxury office product like 88 Spear is well-suited for professional services tenants — such as law firms, financial advisories, and venture capital shops — rather than tech startups.
“A resort concept isn’t going to resonate with the hardcore 996 tech community,” he said. “They want larger-scale space and stuff like 3D printers, VR labs, or sleep pods.”
The stats for top-tier spaces are much more encouraging than the broader office market where more than 35% of commercial buildings in San Francisco are empty. According to Cushman & Wakefield, the vacancy rate for the city’s best 15 office buildings — those with waterfront views or new finishes — is 17.5%.
Even though 88 Spear isn’t slated to open until next November, the work to find tenants has already started, as evidenced by Ariscault agreeing to open a bakery there. Each floor of the building is approximately 17,000 square feet and ideal for a single tenant, said Conor Famulener of CBRE, who is in charge of leasing the building’s office space. He noted that there will be room for a larger anchor tenant, with floors three through six connected by a staircase.
“We’re not going to pigeonhole ourselves in terms of tenants, but it’s true that the professional services are usually more willing to do long-term deals that justify the high spend,” Famulener said. “We have lofty expectations for the rents we want to hit, so it has to be a group that’s excited about what’s going on there.”
In what was a novelty for Sanandaji, the process wasn’t gummed up in entitlements. It took less than a year to obtain approvals from the Planning Department after acquiring 88 Spear. He said it’s the first time in his career he’s seen City Hall so aligned with the business community on new development.
“Three years ago, San Francisco was redlined,” he said. “Now, investors are looking around the country for the best place to get a return, and they’re finding it here, where there are sales to be had and the market is about to run up.”