Kevin Truong

City officials have pitched students, soccer stadiums and safe streets as possible solutions to <a href="https://sfstandard.com/2023/04/05/downtown-san-francisco-vacancies-hit-record-high-as-city-nears-breaking-point/">a vacancy crisis</a> sweeping downtown San Francisco.

Downtown San Francisco vacancies hit record high as city nears breaking point

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City officials have pitched students, soccer stadiums and safe streets as possible solutions to <a href="https://sfstandard.com/2023/04/05/downtown-san-francisco-vacancies-hit-record-high-as-city-nears-breaking-point/">a vacancy crisis</a> sweeping downtown San Francisco.

But in the case of 1155 Market St.—which sits directly across from U.N. Plaza and near City Hall—the city itself is causing woes by planning to pull out of its lease in the building.

But in the case of 1155 Market St.—which sits directly across from U.N. Plaza and near City Hall—the city itself is causing woes by planning to pull out of its lease in the building.

The 11-story building, owned by the nonprofit LightHouse for the Blind and Visually Impaired, was initially leased to the City and County of San Francisco in 1999 as an office space for the San Francisco Public Utilities Commission.

The 11-story building, owned by the nonprofit LightHouse for the Blind and Visually Impaired, was initially leased to the City and County of San Francisco in 1999 as an office space for the San Francisco Public Utilities Commission.

Over the years, it has served as a space for a number of city departments including currently the Office of the Treasurer &amp; Tax Collector, the Mayor’s Office of Disability and the Department of the Environment.

Over the years, it has served as a space for a number of city departments including currently the Office of the Treasurer &amp; Tax Collector, the Mayor’s Office of Disability and the Department of the Environment.

Citing high rents against a rapidly declining real estate market, the Board of Supervisors rejected the option to approve a five-year lease renewal at the property last year.

Citing high rents against a rapidly declining real estate market, the Board of Supervisors rejected the option to approve a five-year lease renewal at the property last year.

Now the building, which also serves as the headquarters for LightHouse for the Blind, has been put into special servicing—a process to determine whether a property holder can pay its debt—because of concerns of a default on a $48 million mortgage scheduled to come due January 2025, according to real estate data company Trepp.

Now the building, which also serves as the headquarters for LightHouse for the Blind, has been put into special servicing—a process to determine whether a property holder can pay its debt—because of concerns of a default on a $48 million mortgage scheduled to come due January 2025, according to real estate data company Trepp.

“Losing the City as a tenant would create a great financial hardship for the Lighthouse for the Blind,” LightHouse CEO Sharon Giovinazzo said in an email to The Standard.

“Losing the City as a tenant would create a great financial hardship for the Lighthouse for the Blind,” LightHouse CEO Sharon Giovinazzo said in an email to The Standard.

Jeff Cretan, a spokesman for the mayor, said the city remains committed to keeping its footprint in downtown or the Market Street area. He positioned the lease rejection as part of a strategy to consolidate office space in fewer buildings and take advantage of the current downturn in the real estate market.

Jeff Cretan, a spokesman for the mayor, said the city remains committed to keeping its footprint in downtown or the Market Street area. He positioned the lease rejection as part of a strategy to consolidate office space in fewer buildings and take advantage of the current downturn in the real estate market.

&#8220;We are being responsible with tax payer funds and looking for the best opportunities to continue to have a strong presence our Downtown and Market Street area,&#8221; Cretan said. &#8220;The isn’t about quitting downtown — it’s about finding a new building.&#8221;

"We are being responsible with tax payer funds and looking for the best opportunities to continue to have a strong presence our Downtown and Market Street area," Cretan said. "The isn’t about quitting downtown — it’s about finding a new building."

&#8220;We are being responsible with tax payer funds and looking for the best opportunities to continue to have a strong presence our Downtown and Market Street area,&#8221; Cretan said. &#8220;The isn’t about quitting downtown — it’s about finding a new building.&#8221;

To work out a deal, the nonprofit said it has made several proposals to renew the lease at lower costs. The city has not responded to the latest proposal from LightHouse, which included an additional discount on rental costs, including two years of free rent, according to Giovinazzo.

To work out a deal, the nonprofit said it has made several proposals to renew the lease at lower costs. The city has not responded to the latest proposal from LightHouse, which included an additional discount on rental costs, including two years of free rent, according to Giovinazzo.

The city is still occupying the space at a holdover rent. Although it has not officially notified LightHouse that it intends to leave, signs are pointing in that direction.

The city is still occupying the space at a holdover rent. Although it has not officially notified LightHouse that it intends to leave, signs are pointing in that direction.

Giovinazzo said the city is likely to “abandon the building that literally sits in the shadows of City Hall.”

Giovinazzo said the city is likely to “abandon the building that literally sits in the shadows of City Hall.”

Initially, the city signed a five-year renewal to extend its tenancy in the property until Jan. 31, 2028. Annual rent for the roughly 103,000 square feet of office space would be around $6.68 million with a 3% increase each year for a total of $35.5 million in rent over five years.

Initially, the city signed a five-year renewal to extend its tenancy in the property until Jan. 31, 2028. Annual rent for the roughly 103,000 square feet of office space would be around $6.68 million with a 3% increase each year for a total of $35.5 million in rent over five years.

However, as city staffers noted in their analysis last year, the proposed costs were higher than appraised fair market rents, which have only continued a downward slide. LightHouse for the Blind purchased the building for $70.2 million in 2015, according to property records.

However, as city staffers noted in their analysis last year, the proposed costs were higher than appraised fair market rents, which have only continued a downward slide. LightHouse for the Blind purchased the building for $70.2 million in 2015, according to property records.

“I think it’s important for the City and County of San Francisco as a very active market participant to send a message that we can talk with our feet,” Supervisor Aaron Peskin said in a committee meeting last year. “I think we should just buckle up, reject it and be ready to put up the dollars to move somewhere else.”

“I think it’s important for the City and County of San Francisco as a very active market participant to send a message that we can talk with our feet,” Supervisor Aaron Peskin said in a committee meeting last year. “I think we should just buckle up, reject it and be ready to put up the dollars to move somewhere else.”

Adding to the challenge for the property owner is the hurdle of leasing a large section of space to tenants in the Mid-Market neighborhood because of the <a href="https://sfstandard.com/2022/10/24/as-twitter-goes-so-goes-a-revival-of-the-neighborhood-it-helped-transform/">well-publicized challenges</a> around street conditions and drug use in the area.

As Twitter goes, so goes a revival of the neighborhood it helped transform

Adding to the challenge for the property owner is the hurdle of leasing a large section of space to tenants in the Mid-Market neighborhood because of the <a href="https://sfstandard.com/2022/10/24/as-twitter-goes-so-goes-a-revival-of-the-neighborhood-it-helped-transform/">well-publicized challenges</a> around street conditions and drug use in the area.

The neighborhood is seeing nearly 40% of its office space available for lease or sublease, according to data from real estate firm Avison Young.

The neighborhood is seeing nearly 40% of its office space available for lease or sublease, according to data from real estate firm Avison Young.

The latest tenant likely to quit its downtown San Francisco lease? The city itself

Kevin V. Nguyen

A decade ago, the real estate firm owned by billionaire Ben Ashkenazy—perhaps best known for <a href="https://www.tmz.com/2016/02/22/drake-bat-mitzvah-hotline-bling/">hiring Drake to perform at his daughter’s bat mitzvah</a>—made a major move into San Francisco’s Union Square.&nbsp;

A decade ago, the real estate firm owned by billionaire Ben Ashkenazy—perhaps best known for <a href="https://www.tmz.com/2016/02/22/drake-bat-mitzvah-hotline-bling/">hiring Drake to perform at his daughter’s bat mitzvah</a>—made a major move into San Francisco’s Union Square.&nbsp;

His company purchased 1 Stockton St., which previously housed San Francisco’s Apple Store, for $42 million. The $3,000 per square foot price set a then-record for properties in the city’s premier shopping district.

His company purchased 1 Stockton St., which previously housed San Francisco’s Apple Store, for $42 million. The $3,000 per square foot price set a then-record for properties in the city’s premier shopping district.

Now, 1 Stockton St. sits conspicuously vacant on a prominent corner after San Francisco’s flagship T-Mobile store closed last May. According to information from real estate data company Trepp, a $66 million loan tied to the building has gone delinquent.

Now, 1 Stockton St. sits conspicuously vacant on a prominent corner after San Francisco’s flagship T-Mobile store closed last May. According to information from real estate data company Trepp, a $66 million loan tied to the building has gone delinquent.

Also in 2013, in partnership with General Growth Properties, Ashkenazy purchased One Union Square for $95.8 million. A $50 million loan connected to that building— which has housed luxury brands like Bulgari, Moncler and Lacoste, as well as a now-defunct WeWork location—is now in special servicing after the borrowers defaulted on the debt.

Also in 2013, in partnership with General Growth Properties, Ashkenazy purchased One Union Square for $95.8 million. A $50 million loan connected to that building— which has housed luxury brands like Bulgari, Moncler and Lacoste, as well as a now-defunct WeWork location—is now in special servicing after the borrowers defaulted on the debt.

A pedestrian walks an empty storefront at 1 Stockton St. in downtown San Francisco on Thursday, Jan. 11, 2024. The building used to be a T-Mobile store which closed down last year. The owners are now defaulting on loan.

<figure class="wp-block-image size-large"><img height="1668" width="2500" src="https://content.sfstandard.com/wp-content/uploads/2024/01/20240111_mortgagescomingdueinsf-25.jpg?w=2500" alt="person walks in front of a building" class="wp-image-239082"/><figcaption class="wp-element-caption">A pedestrian walks past an empty storefront at 1 Stockton St. in Downtown San Francisco on Thursday. The building used to be a T-Mobile store; it closed last year.</figcaption></figure>

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<figure class="wp-block-image size-large"><img src="https://content.sfstandard.com/wp-content/uploads/2024/01/20240111_mortgagescomingdueinsf-25.jpg?w=2500" alt="person walks in front of a building" class="wp-image-239082"/><figcaption class="wp-element-caption">A pedestrian walks past an empty storefront at 1 Stockton St. in Downtown San Francisco on Thursday. The building used to be a T-Mobile store; it closed last year.</figcaption></figure>

Ashkenazy Acquisition Corporation did not respond to a request for comment on the properties.&nbsp; But both are examples of a wave of distress cresting in San Francisco’s commercial real estate market. While the real estate market reset is <a href="https://sfstandard.com/2023/12/22/downtown-san-francisco-commecial-real-estate-new-era-2024/">firmly underway</a> in San Francisco, billions of dollars worth of commercial debt are still coming due this year as building owners struggle to refinance loans that were taken out before the pandemic.&nbsp;

The next era of San Francisco commercial real estate will begin in 2024

Ashkenazy Acquisition Corporation did not respond to a request for comment on the properties.&nbsp; But both are examples of a wave of distress cresting in San Francisco’s commercial real estate market. While the real estate market reset is <a href="https://sfstandard.com/2023/12/22/downtown-san-francisco-commecial-real-estate-new-era-2024/">firmly underway</a> in San Francisco, billions of dollars worth of commercial debt are still coming due this year as building owners struggle to refinance loans that were taken out before the pandemic.&nbsp;

There is currently <a href="https://www.ft.com/content/4ed9e5b0-f3de-422a-9a07-a328ebf2340c">$3.5 billion in commercial mortgage-backed security debt</a> in San Francisco that is coming due by the end of this year, according to Securities and Exchange Commission filings gathered by Bloomberg. Importantly, this is just a fraction of the larger commercial mortgage market, as much of the debt is directly held on bank balance sheets.

There is currently <a href="https://www.ft.com/content/4ed9e5b0-f3de-422a-9a07-a328ebf2340c">$3.5 billion in commercial mortgage-backed security debt</a> in San Francisco that is coming due by the end of this year, according to Securities and Exchange Commission filings gathered by Bloomberg. Importantly, this is just a fraction of the larger commercial mortgage market, as much of the debt is directly held on bank balance sheets.

Unlike residential home loans, owners of commercial mortgages pay mostly only interest until near the end of the loan term, when a large payment, usually equal to the original loan amount, comes due.&nbsp;

Unlike residential home loans, owners of commercial mortgages pay mostly only interest until near the end of the loan term, when a large payment, usually equal to the original loan amount, comes due.&nbsp;

<h2 class="wp-block-heading" id="h-getting-to-acceptance">Getting to ‘Acceptance’</h2>

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<h2 class="wp-block-heading" id="h-getting-to-acceptance">Getting to ‘Acceptance’</h2>

While the looming mortgage debt fallout is not expected to be as bad for the overall economy as it was during the Great Recession, experts say the risk of these debts not being settled in time could lead to some developers getting wiped out, more forced sales of buildings and potentially billions in losses for investors.&nbsp;

While the looming mortgage debt fallout is not expected to be as bad for the overall economy as it was during the Great Recession, experts say the risk of these debts not being settled in time could lead to some developers getting wiped out, more forced sales of buildings and potentially billions in losses for investors.&nbsp;

“We’re definitely more in the acceptance phase of it now,” said Kurt Altvater, who heads West Coast commercial mortgage sales at CBRE real estate company. “Things are being informed by actual sales comps—which as painful as that is—is what is needed to move forward.”

“We’re definitely more in the acceptance phase of it now,” said Kurt Altvater, who heads West Coast commercial mortgage sales at CBRE real estate company. “Things are being informed by actual sales comps—which as painful as that is—is what is needed to move forward.”

The buildings that have been trading are being priced as mass reductions, some up to 50% of previous purchase prices. Some owners are willing to walk away entirely from their properties, handing the keys back to their lenders.&nbsp;

The buildings that have been trading are being priced as mass reductions, some up to 50% of previous purchase prices. Some owners are willing to walk away entirely from their properties, handing the keys back to their lenders.&nbsp;

In other cases, like the recent change of ownership at <a href="https://www.bizjournals.com/sanfrancisco/news/2024/01/10/strada-201-spear-kbs.html">201 Spear St.</a> and <a href="https://www.google.com/search?q=Brookfield%E2%80%99s+Veritas+kevin+nguyen&amp;sca_esv=597880846&amp;rlz=1C5GCEM_en&amp;ei=TaGhZe3KG9_9kPIPi56wyAI&amp;ved=0ahUKEwitpaC82NiDAxXfPkQIHQsPDCkQ4dUDCBA&amp;uact=5&amp;oq=Brookfield%E2%80%99s+Veritas+kevin+nguyen&amp;gs_lp=Egxnd3Mtd2l6LXNlcnAiI0Jyb29rZmllbGTigJlzIFZlcml0YXMga2V2aW4gbmd1eWVuMggQABiABBiiBDIIEAAYgAQYogQyCBAAGIAEGKIESJEXUABYAHAAeAGQAQCYAXOgAdcBqgEDMC4yuAEDyAEA-AEB4gMEGAAgQQ&amp;sclient=gws-wiz-serp">Brookfield’s takeover of some 2,100 residential units</a> from Veritas, well-capitalized firms can purchase existing debt at a discount.&nbsp;

In other cases, like the recent change of ownership at <a href="https://www.bizjournals.com/sanfrancisco/news/2024/01/10/strada-201-spear-kbs.html">201 Spear St.</a> and <a href="https://www.google.com/search?q=Brookfield%E2%80%99s+Veritas+kevin+nguyen&amp;sca_esv=597880846&amp;rlz=1C5GCEM_en&amp;ei=TaGhZe3KG9_9kPIPi56wyAI&amp;ved=0ahUKEwitpaC82NiDAxXfPkQIHQsPDCkQ4dUDCBA&amp;uact=5&amp;oq=Brookfield%E2%80%99s+Veritas+kevin+nguyen&amp;gs_lp=Egxnd3Mtd2l6LXNlcnAiI0Jyb29rZmllbGTigJlzIFZlcml0YXMga2V2aW4gbmd1eWVuMggQABiABBiiBDIIEAAYgAQYogQyCBAAGIAEGKIESJEXUABYAHAAeAGQAQCYAXOgAdcBqgEDMC4yuAEDyAEA-AEB4gMEGAAgQQ&amp;sclient=gws-wiz-serp">Brookfield’s takeover of some 2,100 residential units</a> from Veritas, well-capitalized firms can purchase existing debt at a discount.&nbsp;

Distressed owners trying to hold onto their properties are in the midst of some tough conversations with their lenders. The biggest hitch this time around, though, is that <a href="https://sfstandard.com/2023/12/18/san-francisco-office-real-estate-vacancy-salesforce-tower/">office vacancies</a> and <a href="https://sfstandard.com/2024/01/06/2023-san-francisco-bay-area-home-prices-recap/">interest rates are abnormally high</a>, which means the appetite to continue operating those properties has significantly decreased.&nbsp;

More than a third of San Francisco&#8217;s office space is currently vacant

San Francisco home prices have fallen to pre-pandemic levels. Will they drop further in 2024?

Distressed owners trying to hold onto their properties are in the midst of some tough conversations with their lenders. The biggest hitch this time around, though, is that <a href="https://sfstandard.com/2023/12/18/san-francisco-office-real-estate-vacancy-salesforce-tower/">office vacancies</a> and <a href="https://sfstandard.com/2024/01/06/2023-san-francisco-bay-area-home-prices-recap/">interest rates are abnormally high</a>, which means the appetite to continue operating those properties has significantly decreased.&nbsp;

Altvater, who spent years as a banker specializing in commercial real estate loans, also provides advisory services to financial institutions. When navigating these conversations, he said there are two main things to watch for.&nbsp;

Altvater, who spent years as a banker specializing in commercial real estate loans, also provides advisory services to financial institutions. When navigating these conversations, he said there are two main things to watch for.&nbsp;

“It’s going to center on the borrower’s cash flow and the debt service based on where the interest rates are,” Altvater said. Essentially, as long as the borrower’s property is generating enough money to cover the interest payments, then it will generally be an easier conversation.&nbsp;

“It’s going to center on the borrower’s cash flow and the debt service based on where the interest rates are,” Altvater said. Essentially, as long as the borrower’s property is generating enough money to cover the interest payments, then it will generally be an easier conversation.&nbsp;

However, if cash flow doesn’t cover those payments, that will require the lender or investor to cover the remainder out of pocket, in addition to reducing the outstanding loan amount, Altvater explained.&nbsp;

However, if cash flow doesn’t cover those payments, that will require the lender or investor to cover the remainder out of pocket, in addition to reducing the outstanding loan amount, Altvater explained.&nbsp;

One Market Street is seen on Wednesday, April 3, 2019 in San Francisco, Calif. (Photo By Lea Suzuki/The San Francisco Chronicle via Getty Images)

<figure class="wp-block-image size-large is-resized"><img height="1667" width="2500" src="https://content.sfstandard.com/wp-content/uploads/2024/01/gettyimages-1322367535.jpg?w=2500" alt="people walk in front of a building and a bus" class="wp-image-239288" style="width:670px;height:auto"/><figcaption class="wp-element-caption">The 1.6 million-square-foot office complex known as One Market Plaza offers sweeping views of San Francisco&#8217;s waterfront. Its prime location played a major role in its owner&#8217;s ability to get an extension on its mortgage.</figcaption></figure>

<figure class="wp-block-image size-large is-resized"><img src="https://content.sfstandard.com/wp-content/uploads/2024/01/gettyimages-1322367535.jpg?w=2500" alt="people walk in front of a building and a bus" class="wp-image-239288" style="width:670px;height:auto"/><figcaption class="wp-element-caption">The 1.6 million-square-foot office complex known as One Market Plaza offers sweeping views of San Francisco's waterfront. Its prime location played a major role in its owner's ability to get an extension on its mortgage.</figcaption></figure>

<figure class="wp-block-image size-large is-resized"><img src="https://content.sfstandard.com/wp-content/uploads/2024/01/gettyimages-1322367535.jpg?w=2500" alt="people walk in front of a building and a bus" class="wp-image-239288" style="width:670px;height:auto"/><figcaption class="wp-element-caption">The 1.6 million-square-foot office complex known as One Market Plaza offers sweeping views of San Francisco&#8217;s waterfront. Its prime location played a major role in its owner&#8217;s ability to get an extension on its mortgage.</figcaption></figure>

One recent positive example of a successful negotiation between a lender and a property owner was in the case of One Market Plaza.&nbsp;

One recent positive example of a successful negotiation between a lender and a property owner was in the case of One Market Plaza.&nbsp;

The 1.6-million-square-foot office complex, considered a trophy property in a prime location by real estate brokers, received an extension on its $975 million loan set to mature next month.&nbsp;

The 1.6-million-square-foot office complex, considered a trophy property in a prime location by real estate brokers, received an extension on its $975 million loan set to mature next month.&nbsp;

Although the property was on real estate industry watchlists, it also had points in its favor, including a low vacancy rate and top-tier tenants like Google, Autodesk and Visa.

Although the property was on real estate industry watchlists, it also had points in its favor, including a low vacancy rate and top-tier tenants like Google, Autodesk and Visa.

<h2 class="wp-block-heading" id="h-a-year-of-restructuring-nbsp">A Year of Restructuring&nbsp;</h2>

Once a borrower misses or stops making payments, their loan goes into default, which can be the start of a painful foreclosure process that would see the property handed back to the lender, who can then put it up for auction if they do not want to hold onto it.&nbsp;

Once a borrower misses or stops making payments, their loan goes into default, which can be the start of a painful foreclosure process that would see the property handed back to the lender, who can then put it up for auction if they do not want to hold onto it.&nbsp;

A notable example is Brookfield Properties and Westfield America&#8217;s decision to <a href="https://sfstandard.com/2024/01/05/brookfield-ballast-residential-landlord-in-sf-apartment-veritas/">give up the San Francisco Centre mall</a>. Shortly after, the courts appointed Trident Pacific Real Estate Group <a href="https://sfstandard.com/2023/10/10/downtown-san-francisco-centre-receiver/">to manage the property</a> after the lenders, Wilmington Trust and Wells Fargo, sued Westfield for violating loan terms.&nbsp;

This real estate company dumped its downtown San Francisco mall. Now it&#8217;s gobbling up apartments

New development could lead to sale of struggling downtown San Francisco mall

A notable example is Brookfield Properties and Westfield America's decision to <a href="https://sfstandard.com/2024/01/05/brookfield-ballast-residential-landlord-in-sf-apartment-veritas/">give up the San Francisco Centre mall</a>. Shortly after, the courts appointed Trident Pacific Real Estate Group <a href="https://sfstandard.com/2023/10/10/downtown-san-francisco-centre-receiver/">to manage the property</a> after the lenders, Wilmington Trust and Wells Fargo, sued Westfield for violating loan terms.&nbsp;

A notable example is Brookfield Properties and Westfield America&#8217;s decision to <a href="https://sfstandard.com/2024/01/05/brookfield-ballast-residential-landlord-in-sf-apartment-veritas/">give up the San Francisco Centre mall</a>. Shortly after, the courts appointed Trident Pacific Real Estate Group <a href="https://sfstandard.com/2023/10/10/downtown-san-francisco-centre-receiver/">to manage the property</a> after the lenders, Wilmington Trust and Wells Fargo, sued Westfield for violating loan terms.&nbsp;

More recently, the Kivelstadt Group, headed by the husband-and-wife pair behind Sonoma’s Kivelstadt Cellars, has reportedly missed more than three months of payments on a $19.6 million loan tied to a Downtown office building they own at 140 Second St., just south of Salesforce Tower.&nbsp;

More recently, the Kivelstadt Group, headed by the husband-and-wife pair behind Sonoma’s Kivelstadt Cellars, has reportedly missed more than three months of payments on a $19.6 million loan tied to a Downtown office building they own at 140 Second St., just south of Salesforce Tower.&nbsp;

The Kivelstadt Group purchased the then-fully leased building for $28.3 million in 2014. By the end of September 2023, the building’s occupancy reportedly dropped to 32%, <a href="https://www.bizjournals.com/sanfrancisco/news/2024/01/10/140-second-loan-deliquency-tkg-kivelstadt-group.html" target="_blank" rel="noreferrer noopener">the San Francisco Business Times</a> reported.

The Kivelstadt Group purchased the then-fully leased building for $28.3 million in 2014. By the end of September 2023, the building’s occupancy reportedly dropped to 32%, <a href="https://www.bizjournals.com/sanfrancisco/news/2024/01/10/140-second-loan-deliquency-tkg-kivelstadt-group.html" target="_blank" rel="noreferrer noopener">the San Francisco Business Times</a> reported.

Altvater said most commercial property owners usually reach a tipping point when the property’s net operating income does not cover the mortgage bill. He added that even though property owners generally have liability limited to a specific property, it can be a bad look for future credit decisions if they just skip out on agreed-upon deals.&nbsp;

Altvater said most commercial property owners usually reach a tipping point when the property’s net operating income does not cover the mortgage bill. He added that even though property owners generally have liability limited to a specific property, it can be a bad look for future credit decisions if they just skip out on agreed-upon deals.&nbsp;

San Francisco has the fourth-highest number of commercial loans—18—up for refinancing this year among major U.S. cities, according to Bloomberg data. Only Manhattan, Houston and Los Angeles have more. Nearby Sunnyvale, home to some of Silicon Valley’s biggest companies, ranks fifth, with an estimated 10 loans coming due.&nbsp;

San Francisco has the fourth-highest number of commercial loans—18—up for refinancing this year among major U.S. cities, according to Bloomberg data. Only Manhattan, Houston and Los Angeles have more. Nearby Sunnyvale, home to some of Silicon Valley’s biggest companies, ranks fifth, with an estimated 10 loans coming due.&nbsp;

“All of real estate has got a problem of refinancing risk,” said Ken Rosen, chairman of the Center for Real Estate and Urban Economics at the University of California Berkeley. “The business of 2024 will be one of restructuring.”&nbsp;

“All of real estate has got a problem of refinancing risk,” said Ken Rosen, chairman of the Center for Real Estate and Urban Economics at the University of California Berkeley. “The business of 2024 will be one of restructuring.”&nbsp;

San Francisco commercial property owners have billions in debt coming due. What’s next?

<a href="https://youtu.be/jjt9Qx9MBPk?si=0sm5uw_XI5S5j9KU&amp;t=23">Stop trying to make “Emporium” happen</a>! A few months after the temporary stewards of San Francisco’s struggling downtown mall attempted to <a href="https://sfstandard.com/2024/02/29/san-francisco-centre-mall-rebrand-emporium/">rename</a> the place, the San Francisco Centre is again the San Francisco Centre this week, they announced.

Mostly vacant downtown San Francisco mall gets a retro rebrand

<a href="https://youtu.be/jjt9Qx9MBPk?si=0sm5uw_XI5S5j9KU&amp;t=23">Stop trying to make “Emporium” happen</a>! A few months after the temporary stewards of San Francisco’s struggling downtown mall attempted to <a href="https://sfstandard.com/2024/02/29/san-francisco-centre-mall-rebrand-emporium/">rename</a> the place, the San Francisco Centre is again the San Francisco Centre this week, they announced.

It’s been just over a year since the mall’s previous owners, Unibail-Rodamco-Westfield and Brookfield Properties, <a href="https://sfstandard.com/2023/10/10/downtown-san-francisco-centre-receiver/">defaulted on a $558 million loan</a> and chose to abandon the 800,000 square foot property. Now, it’s headed to a public auction on the steps of the Memorial Court on Van Ness Avenue on Nov. 14.

It’s been just over a year since the mall’s previous owners, Unibail-Rodamco-Westfield and Brookfield Properties, <a href="https://sfstandard.com/2023/10/10/downtown-san-francisco-centre-receiver/">defaulted on a $558 million loan</a> and chose to abandon the 800,000 square foot property. Now, it’s headed to a public auction on the steps of the Memorial Court on Van Ness Avenue on Nov. 14.

Technically, the property will change hands that day to the highest bidder. And it’s true that anyone could go up and put in a winning offer for the mall. But don’t expect a dramatic tussle between real estate interests looking to buy a slice of San Francisco, says Joel Zeldin, an attorney at law firm Shartsis Friese specializing in sophisticated business litigation.

Technically, the property will change hands that day to the highest bidder. And it’s true that anyone could go up and put in a winning offer for the mall. But don’t expect a dramatic tussle between real estate interests looking to buy a slice of San Francisco, says Joel Zeldin, an attorney at law firm Shartsis Friese specializing in sophisticated business litigation.

The Market Street entrance at San Francisco Centre on Thursday, Oct. 24, 2024. The mall, which has been under receivership, is up for auction next month.

<figure class="wp-block-image size-large"><img height="1667" width="2500" src="https://content.sfstandard.com/wp-content/uploads/2024/10/20241027-potentialmallbuyers-es-25.jpg?w=2500" alt="The image shows the exterior of a building with the name &quot;San Francisco Centre&quot; beneath a circular architectural feature on a tiled wall." class="wp-image-325120"/><figcaption class="wp-element-caption">The San Francisco Centre Mall, which has been under receivership, will be put up for auction next month.</figcaption></figure>

<figure class="wp-block-image size-large"><img src="https://content.sfstandard.com/wp-content/uploads/2024/10/20241027-potentialmallbuyers-es-25.jpg?w=2500" alt="The image shows the exterior of a building with the name &quot;San Francisco Centre&quot; beneath a circular architectural feature on a tiled wall." class="wp-image-325120"/><figcaption class="wp-element-caption">The San Francisco Centre Mall, which has been under receivership, will be put up for auction next month.</figcaption></figure>

Bloomingdale's is seen in the distance at The San Francisco Centre, previously called the Westfield mall, attracts little to no shoppers in San Francisco on Tuesday, Nov. 21, 2023.

<figure class="wp-block-image size-large"><img height="1667" width="2500" src="https://content.sfstandard.com/wp-content/uploads/2023/12/inlined08_20231130marketstreet.jpg?w=2500" alt="An empty mall with Bloomingdale's in the background." class="wp-image-227725"/><figcaption class="wp-element-caption">The mall is over 50% vacant but is still anchored by the likes of Bloomingdale&#8217;s, which has a longterm lease.</figcaption></figure>

<figure class="wp-block-image size-large"><img src="https://content.sfstandard.com/wp-content/uploads/2023/12/inlined08_20231130marketstreet.jpg?w=2500" alt="An empty mall with Bloomingdale's in the background." class="wp-image-227725"/><figcaption class="wp-element-caption">The mall is over 50% vacant but is still anchored by the likes of Bloomingdale's, which has a longterm lease.</figcaption></figure>

<figure class="wp-block-image size-large"><img src="https://content.sfstandard.com/wp-content/uploads/2023/12/inlined08_20231130marketstreet.jpg?w=2500" alt="An empty mall with Bloomingdale's in the background." class="wp-image-227725"/><figcaption class="wp-element-caption">The mall is over 50% vacant but is still anchored by the likes of Bloomingdale&#8217;s, which has a longterm lease.</figcaption></figure>

An auction for a property <a href="https://sfstandard.com/2024/01/24/san-francisco-centre-mall-store-owners-pray-for-turnaround/">severely underwater</a> like the San Francisco Centre, Zeldin explained, is generally a process for lenders — in this case, Deutsche Bank AG and JPMorgan Chase Bank — to make their own “credit bid.”&nbsp; This means using their existing debt on the property as leverage to formally gain control over the property and market it for sale themselves.

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An auction for a property <a href="https://sfstandard.com/2024/01/24/san-francisco-centre-mall-store-owners-pray-for-turnaround/">severely underwater</a> like the San Francisco Centre, Zeldin explained, is generally a process for lenders — in this case, Deutsche Bank AG and JPMorgan Chase Bank — to make their own “credit bid.”&nbsp; This means using their existing debt on the property as leverage to formally gain control over the property and market it for sale themselves.

Zeldin is not involved in the mall or its sales process, but provided general insight in line with his work on complex real estate foreclosures over his 50-year legal career. He said his comments do not reflect the facts or merits of disputes concerning the San Francisco Centre Mall.&nbsp;

Zeldin is not involved in the mall or its sales process, but provided general insight in line with his work on complex real estate foreclosures over his 50-year legal career. He said his comments do not reflect the facts or merits of disputes concerning the San Francisco Centre Mall.&nbsp;

“It is unlikely that a local buyer would emerge in a case like this,” Zeldin said. “They would have already surfaced and tried to negotiate directly with the borrower and the creditor long ago.”&nbsp;

“It is unlikely that a local buyer would emerge in a case like this,” Zeldin said. “They would have already surfaced and tried to negotiate directly with the borrower and the creditor long ago.”&nbsp;

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Generally, defaulting borrowers want to escape and put failed investments in the rear-view mirror, Zeldin explained. But in a judicial foreclosure, which involves court approval, the borrower can be exposed to a judgment that allows the lender to recover the amount by which the outstanding loan balance and other costs exceed the lender’s winning credit bid.

Generally, defaulting borrowers want to escape and put failed investments in the rear-view mirror, Zeldin explained. But in a judicial foreclosure, which involves court approval, the borrower can be exposed to a judgment that allows the lender to recover the amount by which the outstanding loan balance and other costs exceed the lender’s winning credit bid.

At this point, interest and penalties have been accruing on the previous mall owners’ debt, which has seen the loan amount increase to $625.6 million, according to the auction notice.&nbsp;

At this point, interest and penalties have been accruing on the previous mall owners’ debt, which has seen the loan amount increase to $625.6 million, according to the auction notice.&nbsp;

In some cases, the borrower can challenge whether the credit bid reflects the fair value of the property or the calculation of the outstanding loan balance, Zeldin said.&nbsp;

In some cases, the borrower can challenge whether the credit bid reflects the fair value of the property or the calculation of the outstanding loan balance, Zeldin said.&nbsp;

San Francisco police stand in August 2023 outside the San Francisco Centre mall. The San Francisco's District Attorney's Office has charged two 21-year-olds in connection with thefts at the mall that same month.

<figure class="wp-block-image size-large"><img height="1667" width="2500" src="https://content.sfstandard.com/wp-content/uploads/2023/08/NordstromLastDay08242023_-0003.jpg?w=2500" alt="A dark uniformed police officer stands outside a large building, with a city skyline partly visible behind him." class="wp-image-195489"/><figcaption class="wp-element-caption">Safety concerns and a steep fall in foot traffic during the pandemic dealt near fatal blows to San Francisco&#8217;s once premier shopping mall. </figcaption></figure>

<figure class="wp-block-image size-large"><img src="https://content.sfstandard.com/wp-content/uploads/2023/08/NordstromLastDay08242023_-0003.jpg?w=2500" alt="A dark uniformed police officer stands outside a large building, with a city skyline partly visible behind him." class="wp-image-195489"/><figcaption class="wp-element-caption">Safety concerns and a steep fall in foot traffic during the pandemic dealt near fatal blows to San Francisco's once premier shopping mall. </figcaption></figure>

<figure class="wp-block-image size-large"><img src="https://content.sfstandard.com/wp-content/uploads/2023/08/NordstromLastDay08242023_-0003.jpg?w=2500" alt="A dark uniformed police officer stands outside a large building, with a city skyline partly visible behind him." class="wp-image-195489"/><figcaption class="wp-element-caption">Safety concerns and a steep fall in foot traffic during the pandemic dealt near fatal blows to San Francisco&#8217;s once premier shopping mall. </figcaption></figure>

Shoppers ride the escalators inside the San Francisco Centre, formerly Westfield Mall, on Market Street in San Francisco on Friday, Jan. 12, 2024. After dozens of closures to various businesses within Westfield Mall, including Nordstrom’s, the remaining businesses and their workers continue to serve customers and clients although the future of the mall and its businesses are in question.

<figure class="wp-block-image size-large"><img src="https://content.sfstandard.com/wp-content/uploads/2024/02/20240119-sfcentremall-089.jpg?w=2500" alt="A multi-level shopping mall features several escalators and decorative lights. People stand on one escalator, looking upward, while shops are visible in the background." class="wp-image-245261"/><figcaption class="wp-element-caption">When Nordstrom closed last year, it left behind multiple floors of space that has yet to be filled. </figcaption></figure>

Brookfield and Westfield did not respond to a request for comment. Gregg Williams of Trident Pacific, which is overseeing the property as the court-appointed receiver, <a href="https://www.bizjournals.com/sanfrancisco/news/2024/10/18/san-francisco-centre-westfield-brookfield-auction.html">told the San Francisco Business Times last week</a> that “the notice simply reflects that the lenders are moving forward in the foreclosure process as planned.”&nbsp;

Brookfield and Westfield did not respond to a request for comment. Gregg Williams of Trident Pacific, which is overseeing the property as the court-appointed receiver, <a href="https://www.bizjournals.com/sanfrancisco/news/2024/10/18/san-francisco-centre-westfield-brookfield-auction.html">told the San Francisco Business Times last week</a> that “the notice simply reflects that the lenders are moving forward in the foreclosure process as planned.”&nbsp;

Trident and <a href="https://sfstandard.com/2024/10/06/inside-jlls-acquisition-of-raise-commercial/">real estate firm JLL</a> will continue managing the mall until its sale. As its custodians, they have the authority to collect rent, <a href="https://sfstandard.com/2024/06/14/san-francisco-centre-new-leases-launch-next-phase/">negotiate leases</a>, and make changes to the property so long as they align with their fiduciary obligation to preserve as much of the asset’s value as possible.&nbsp;

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Trident and <a href="https://sfstandard.com/2024/10/06/inside-jlls-acquisition-of-raise-commercial/">real estate firm JLL</a> will continue managing the mall until its sale. As its custodians, they have the authority to collect rent, <a href="https://sfstandard.com/2024/06/14/san-francisco-centre-new-leases-launch-next-phase/">negotiate leases</a>, and make changes to the property so long as they align with their fiduciary obligation to preserve as much of the asset’s value as possible.&nbsp;

Since the onset of the pandemic rocked San Francisco’s commercial real estate market four years ago, borrowers and lenders have been playing an <a href="https://sfstandard.com/2024/04/18/san-francisco-office-owners-score-discounts/">elaborate game of musical chairs </a>to align debt levels with current real estate values.

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Brookfield Properties, for instance, <a href="https://sfstandard.com/2024/01/05/brookfield-ballast-residential-landlord-in-sf-apartment-veritas/">purchased a lender’s position</a> of nearly $1 billion of mortgages this year, previously loaned to apartment building owner Veritas Investments, after the latter had defaulted on their loan. When the portfolio went on public auction later that month, <a href="https://www.sfchronicle.com/sf/article/s-f-apartment-takeover-veritas-18615683.php">no one else made a bid</a> and Brookfield walked away as the new owner.&nbsp;

Brookfield Properties, for instance, <a href="https://sfstandard.com/2024/01/05/brookfield-ballast-residential-landlord-in-sf-apartment-veritas/">purchased a lender’s position</a> of nearly $1 billion of mortgages this year, previously loaned to apartment building owner Veritas Investments, after the latter had defaulted on their loan. When the portfolio went on public auction later that month, <a href="https://www.sfchronicle.com/sf/article/s-f-apartment-takeover-veritas-18615683.php">no one else made a bid</a> and Brookfield walked away as the new owner.&nbsp;

For the San Francisco Centre, indications are that had the borrowers thought it was still redeemable, they would have injected more money into the project or made a sincere attempt to buy out the loan at a discount price, Zeldin said.

For the San Francisco Centre, indications are that had the borrowers thought it was still redeemable, they would have injected more money into the project or made a sincere attempt to buy out the loan at a discount price, Zeldin said.

As for a future sale of the property, Zeldin said, from his experience, the lender will likely engage a high-end broker, who will already have a list of potential buyers that would make sense for a property of that size and/or price.&nbsp;

As for a future sale of the property, Zeldin said, from his experience, the lender will likely engage a high-end broker, who will already have a list of potential buyers that would make sense for a property of that size and/or price.&nbsp;

Customers dine near Mashaallah Halal Pakistani Food inside the food court inside the San Francisco Centre mall, formerly Westfield mall, on Friday, Jan. 12, 2024. After dozens of closures to various businesses within Westfield Mall, including Nordstrom’s, the remaining businesses and their workers continue to serve customers and clients although the future of the mall and its businesses are in question.

<figure class="wp-block-image size-large"><img src="https://content.sfstandard.com/wp-content/uploads/2024/01/inlined5_20240119-sfcentremall.jpg?w=2500" alt="people dine in front of a halal pakistani restaurant stand" class="wp-image-242086"/><figcaption class="wp-element-caption">The downstairs food court inside the San Francisco Centre Mall still draws a regular crowd for the likes of Shake Shack and Mashaallah Halal Pakistani Food. </figcaption></figure>

A private security guard stands in front of a store inside the San Francisco Centre Mall, formerly Westfield Mall, on Market Street on Friday, Jan. 12, 2024. After dozens of closures to various businesses within Westfield Mall, including Nordstrom’s, the remaining businesses and their workers continue to serve customers and clients although the future of the mall and its businesses are in question.

<figure class="wp-block-image size-large"><img src="https://content.sfstandard.com/wp-content/uploads/2024/01/inlined6_20240119-sfcentremall.jpg?w=1844" alt="security guard stands in front of store" class="wp-image-242087"/><figcaption class="wp-element-caption">A private security guard stands in front of a store inside the San Francisco Centre Mall.</figcaption></figure>

“If there is a party with substantial buying power who appears genuine in its desire to acquire the foreclosed property, that buyer may request an exclusive negotiation period since conducting due diligence costs a lot of money and is time-consuming for the buyer’s executives,” Zeldin said.&nbsp;

“If there is a party with substantial buying power who appears genuine in its desire to acquire the foreclosed property, that buyer may request an exclusive negotiation period since conducting due diligence costs a lot of money and is time-consuming for the buyer’s executives,” Zeldin said.&nbsp;

Once it is officially on the market, the Centre Mall will be one of several trophy retail properties for sale in the city’s Union Square.&nbsp;

Once it is officially on the market, the Centre Mall will be one of several trophy retail properties for sale in the city’s Union Square.&nbsp;

Earlier this month, JLL started <a href="https://sfstandard.com/2024/10/15/the-actually-successful-downtown-sf-mall-is-for-sale/">marketing The Metreon</a>, which is more than 90% leased, for sale. Meanwhile, the building that houses <a href="https://sfstandard.com/2024/01/27/san-francisco-ross-huge-line-downtown-retail/">the popular Ross Dress for Less store</a> on Market Street is also <a href="https://www.bizjournals.com/sanfrancisco/news/2024/10/17/asb-799-market-sale-ross-dress-for-less.html">reportedly on the market</a> with an asking price of around $50 million.

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Earlier this month, JLL started <a href="https://sfstandard.com/2024/10/15/the-actually-successful-downtown-sf-mall-is-for-sale/">marketing The Metreon</a>, which is more than 90% leased, for sale. Meanwhile, the building that houses <a href="https://sfstandard.com/2024/01/27/san-francisco-ross-huge-line-downtown-retail/">the popular Ross Dress for Less store</a> on Market Street is also <a href="https://www.bizjournals.com/sanfrancisco/news/2024/10/17/asb-799-market-sale-ross-dress-for-less.html">reportedly on the market</a> with an asking price of around $50 million.

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In uber-wealthy circles, there’s often talk of the “shirtsleeves to shirtsleeves” phenomenon.&nbsp;

In uber-wealthy circles, there’s often talk of the “shirtsleeves to shirtsleeves” phenomenon.&nbsp;

It refers to the cycle of a family that initially rolls up its sleeves to amass a great fortune, only to have the second or third generation squander it because of mismanagement or lavish spending—leaving them back where they started.

It refers to the cycle of a family that initially rolls up its sleeves to amass a great fortune, only to have the second or third generation squander it because of mismanagement or lavish spending—leaving them back where they started.

Today, the heirs of the Mosser family, one of San Francisco’s most active and controversial residential landlords, are fighting to keep their fortune alive amid an unprecedented real estate downturn that has left no corners of the industry unscathed.&nbsp;

Today, the heirs of the Mosser family, one of San Francisco’s most active and controversial residential landlords, are fighting to keep their fortune alive amid an unprecedented real estate downturn that has left no corners of the industry unscathed.&nbsp;

But as in any family business, the direction of the firm is inextricably tied to their relationships with each other.&nbsp;

But as in any family business, the direction of the firm is inextricably tied to their relationships with each other.&nbsp;

At the head of the table is Neveo Mosser, who was adopted into the family at a young age and whom the late Charles William Mosser—the clan’s patriarch—appointed as his successor as CEO more than two decades ago.

At the head of the table is Neveo Mosser, who was adopted into the family at a young age and whom the late Charles William Mosser—the clan’s patriarch—appointed as his successor as CEO more than two decades ago.

CEO Neveo Mosser of Mosser Living has defaulted on a major portion of its portfolio and is now being sued for nonpayment of rent on its lease on February 25, 2011.

<figure class="wp-block-image size-large is-resized"><img src="https://content.sfstandard.com/wp-content/uploads/2024/06/inline-01-20240620-mossersuccessionbattle-cropped_03df9c.jpg?w=1600" alt="A man in a dark suit with a blue dress shirt and patterned tie is smiling, holding a wine glass, with a floral arrangement and a well-lit, modern background." class="wp-image-286875" style="width:670px;height:auto"/><figcaption class="wp-element-caption">Neveo Mosser has led the Mosser Companies since 2000 after his late father stepped back from the business to retire in the Philippines.</figcaption></figure>

In accordance with their father’s will, his sisters Deborah Mosser and the now-deceased Kathleen Massouda each have a stake in the business, which at its height, paid them a monthly six-figure sum.&nbsp;&nbsp;

In accordance with their father’s will, his sisters Deborah Mosser and the now-deceased Kathleen Massouda each have a stake in the business, which at its height, paid them a monthly six-figure sum.&nbsp;&nbsp;

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