Kevin V. Nguyen

Buying high and selling low is not a smart strategy, but sometimes it’s the only one left.&nbsp;

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Buying high and selling low is not a smart strategy, but sometimes it’s the only one left.&nbsp;

Paramount Group Inc., a New York-based skyscraper owner worth billions, is paying up on bad San Francisco real estate bets made just before the pandemic.&nbsp;

Paramount Group Inc., a New York-based skyscraper owner worth billions, is paying up on bad San Francisco real estate bets made just before the pandemic.&nbsp;

After marking the value of <a href="https://sfstandard.com/2024/03/04/paramount-group-downtown-trophy-buildings-in-trouble/">two of its major office investments down to zero last year</a>, the company just did it again, meaning half the properties it owns in San Francisco are essentially deemed worthless on its books.

Bought for $949M, 2 San Francisco offices have been marked down to zero

After marking the value of <a href="https://sfstandard.com/2024/03/04/paramount-group-downtown-trophy-buildings-in-trouble/">two of its major office investments down to zero last year</a>, the company just did it again, meaning half the properties it owns in San Francisco are essentially deemed worthless on its books.

The move allows Paramount to do some creative accounting to cut its losses. It also unlocks the ability for new blood to come in and revive languishing properties for cheap —&nbsp;something the city desperately needs if the <a href="https://sfstandard.com/2024/12/28/san-franciscos-next-real-estate-wave-is-starting-to-take-shape/?utm_campaign=SF+Standard+Daily&amp;utm_medium=email&amp;utm_source=SF+Standard&amp;utm_content=hero">office market is ever to rebound</a>.

SF’s next real estate wave is starting to take shape

The move allows Paramount to do some creative accounting to cut its losses. It also unlocks the ability for new blood to come in and revive languishing properties for cheap —&nbsp;something the city desperately needs if the <a href="https://sfstandard.com/2024/12/28/san-franciscos-next-real-estate-wave-is-starting-to-take-shape/?utm_campaign=SF+Standard+Daily&amp;utm_medium=email&amp;utm_source=SF+Standard&amp;utm_content=hero">office market is ever to rebound</a>.

Between 2016 and 2019, the New York-based firm bought large stakes in four downtown skyscrapers, tripling its holdings in the city to six properties <a href="https://www.pgre.com/properties/san-francisco">spanning 4.3 million square feet</a>. At their peak, these buildings were collectively valued at more than $1.8 billion.&nbsp;

Between 2016 and 2019, the New York-based firm bought large stakes in four downtown skyscrapers, tripling its holdings in the city to six properties <a href="https://www.pgre.com/properties/san-francisco">spanning 4.3 million square feet</a>. At their peak, these buildings were collectively valued at more than $1.8 billion.&nbsp;

Timing is everything in commercial real estate. After the pandemic <a href="https://sfstandard.com/2024/04/24/how-much-big-tech-pulled-back-in-san-francisco/">upended the office market</a>, San Francisco landlords like Paramount were left with major debt that no longer matched declining property values.&nbsp;

Corporate retreat: Big Tech has slashed its office presence in San Francisco by half

Timing is everything in commercial real estate. After the pandemic <a href="https://sfstandard.com/2024/04/24/how-much-big-tech-pulled-back-in-san-francisco/">upended the office market</a>, San Francisco landlords like Paramount were left with major debt that no longer matched declining property values.&nbsp;

Paramount Inc.'s real estate holdings in San Francisco

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The most recent poster child of this problem is the KPMG building at 55 Second St. The building’s namesake accounting firm is relocating next year, along with software company <a href="https://sfstandard.com/2024/04/14/more-san-francisco-companies-return-to-office/">Rippling</a>, raising the vacancy rate above 50%, according to CoStar data.&nbsp;

San Francisco is getting back to in-person work. Just ask these companies

The most recent poster child of this problem is the KPMG building at 55 Second St. The building’s namesake accounting firm is relocating next year, along with software company <a href="https://sfstandard.com/2024/04/14/more-san-francisco-companies-return-to-office/">Rippling</a>, raising the vacancy rate above 50%, according to CoStar data.&nbsp;

At the company’s <a href="https://s28.q4cdn.com/314435393/files/doc_financials/2024/q4/4Q-2024-Press-Release.pdf">quarterly earnings report</a> Friday, Paramount announced it had internally charged the remaining value of the building as an “impairment loss.” While the loan it used to purchase the building isn’t technically due until October 2026, Paramount is effectively telling its investors that it&#8217;s giving up on the property and flying a flag on the market that it is readily available to buy.&nbsp;

At the company’s <a href="https://s28.q4cdn.com/314435393/files/doc_financials/2024/q4/4Q-2024-Press-Release.pdf">quarterly earnings report</a> Friday, Paramount announced it had internally charged the remaining value of the building as an “impairment loss.” While the loan it used to purchase the building isn’t technically due until October 2026, Paramount is effectively telling its investors that it's giving up on the property and flying a flag on the market that it is readily available to buy.&nbsp;

At the company’s <a href="https://s28.q4cdn.com/314435393/files/doc_financials/2024/q4/4Q-2024-Press-Release.pdf">quarterly earnings report</a> Friday, Paramount announced it had internally charged the remaining value of the building as an “impairment loss.” While the loan it used to purchase the building isn’t technically due until October 2026, Paramount is effectively telling its investors that it&#8217;s giving up on the property and flying a flag on the market that it is readily available to buy.&nbsp;

That signaling mechanism has worked with one of its other albatross buildings: Market Center, a 770,000-square-foot brutalist office complex split across two buildings at 555 and 575 Market St.

That signaling mechanism has worked with one of its other albatross buildings: Market Center, a 770,000-square-foot brutalist office complex split across two buildings at 555 and 575 Market St.

A person walks in front of 555 Market Street in San Francisco on Monday, Mar. 4, 2024. The Paramount Group, a major office landlord in San Francisco, may give up two of its trophy properties at 555 Market Street and 575 Market Street.

<figure class="wp-block-image size-large"><img src="https://content.sfstandard.com/wp-content/uploads/2024/03/paramountgroupproblems-01.jpg?w=1620" alt="man walks in front of a building" class="wp-image-255321"/><figcaption class="wp-element-caption">The Paramount Group said it has zeroed in on a buyer for 555 Market St. and 575 Market St.</figcaption></figure>

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<figure class="wp-block-image size-large"><img src="https://content.sfstandard.com/wp-content/uploads/2024/03/paramountgroupproblems-01.jpg?w=1620" alt="man walks in front of a building" class="wp-image-255321"/><figcaption class="wp-element-caption">The Paramount Group said it has zeroed in on a buyer for 555 Market St. and 575 Market St.</figcaption></figure>

Benches and tables at the Privately Owned Public Open Space (POPOS) at 55 2nd Street, in San Francisco on Monday, August 21, 2023. The Standard reviewed POPOS around the city to see if they mirrored the deteriorating state of Downtown SF.

<figure class="wp-block-image size-large"><img height="1668" width="2500" src="https://content.sfstandard.com/wp-content/uploads/2023/08/55SecondStreet_TheStateOfDowntownPOPOs_08212023_15.jpg?w=2500" alt="The image shows a spacious, modern room with wooden floors, long tables, benches, plants, and skylights. The design is minimalistic with ample seating." class="wp-image-194496"/><figcaption class="wp-element-caption">The Privately Owned Public Open Space at 55 2nd Street. Paramount wrote down the building&#8217;s value to zero last quarter.</figcaption></figure>

<figure class="wp-block-image size-large"><img src="https://content.sfstandard.com/wp-content/uploads/2023/08/55SecondStreet_TheStateOfDowntownPOPOs_08212023_15.jpg?w=2500" alt="The image shows a spacious, modern room with wooden floors, long tables, benches, plants, and skylights. The design is minimalistic with ample seating." class="wp-image-194496"/><figcaption class="wp-element-caption">The Privately Owned Public Open Space at 55 2nd Street. Paramount wrote down the building's value to zero last quarter.</figcaption></figure>

<figure class="wp-block-image size-large"><img src="https://content.sfstandard.com/wp-content/uploads/2023/08/55SecondStreet_TheStateOfDowntownPOPOs_08212023_15.jpg?w=2500" alt="The image shows a spacious, modern room with wooden floors, long tables, benches, plants, and skylights. The design is minimalistic with ample seating." class="wp-image-194496"/><figcaption class="wp-element-caption">The Privately Owned Public Open Space at 55 2nd Street. Paramount wrote down the building&#8217;s value to zero last quarter.</figcaption></figure>

Paramount CFO Wilbur Paes indicated during the earnings call that the lender had “awarded” a deal — on course to close in the second quarter of this year — for the sale of the property it defaulted on last year. Flynn Properties, led by San Francisco businessman Greg Flynn, is <a href="https://www.bizjournals.com/sanfrancisco/news/2025/01/13/flynn-market-center-debt.html">reportedly the front-runner</a> in acquiring that debt.

Paramount CFO Wilbur Paes indicated during the earnings call that the lender had “awarded” a deal — on course to close in the second quarter of this year — for the sale of the property it defaulted on last year. Flynn Properties, led by San Francisco businessman Greg Flynn, is <a href="https://www.bizjournals.com/sanfrancisco/news/2025/01/13/flynn-market-center-debt.html">reportedly the front-runner</a> in acquiring that debt.

It would be far and away his biggest San Francisco real estate play. <a href="https://sfstandard.com/2024/08/26/navigating-the-bottom-of-san-franciscos-office-market/">Flynn’s recent deals in the city</a> —&nbsp;a defunct hotel and Class B office building —&nbsp;have each been for less than $100 million and only a fraction of the size of Market Center.&nbsp;

How low can they go? Here&#8217;s who’s buying San Francisco buildings at fire-sale prices

It would be far and away his biggest San Francisco real estate play. <a href="https://sfstandard.com/2024/08/26/navigating-the-bottom-of-san-franciscos-office-market/">Flynn’s recent deals in the city</a> —&nbsp;a defunct hotel and Class B office building —&nbsp;have each been for less than $100 million and only a fraction of the size of Market Center.&nbsp;

A representative of Flynn Properties declined to comment.&nbsp;Purchasing a building at a lower debt or basis allows the new owner more breathing room for rents and leasing.

A representative of Flynn Properties declined to comment.&nbsp;Purchasing a building at a lower debt or basis allows the new owner more breathing room for rents and leasing.

“The assets will come off our books,” Paes said of the impending deal. “And we&#8217;ll recognize a tax loss that we can play around with.”&nbsp;

“The assets will come off our books,” Paes said of the impending deal. “And we'll recognize a tax loss that we can play around with.”&nbsp;

“The assets will come off our books,” Paes said of the impending deal. “And we&#8217;ll recognize a tax loss that we can play around with.”&nbsp;

This time last year, the firm had also written off 111 Sutter St., a neo-gothic tower totaling 293,000 square feet, purchased in 2019, that is now only half occupied, according to CoStar.

This time last year, the firm had also written off 111 Sutter St., a neo-gothic tower totaling 293,000 square feet, purchased in 2019, that is now only half occupied, according to CoStar.

Trump wants to dump two SF office buildings. Here is what the feds actually occupy

sf-standard/related-post

San Francisco’s biggest mall needs to be reborn, but it’s stuck in financing hell

Burdened by debt, savvy SF office owners get creative

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Paramount’s other trophy buildings are also losing key tenants. After JPMorgan <a href="https://sfstandard.com/2023/05/01/regulators-seize-first-republic-and-sell-assets-to-jpmorgan-chase/">acquired First Republic Bank</a> in 2023, it terminated the latter’s lease at One Front St. Meanwhile, Google wound down its lease at One Market Plaza, another Paramount property, and added more than 100,000 square feet to its existing presence elsewhere at Hills Plaza at 345 Spear St.

Regulators seize First Republic and sell assets to JPMorgan Chase

Paramount’s other trophy buildings are also losing key tenants. After JPMorgan <a href="https://sfstandard.com/2023/05/01/regulators-seize-first-republic-and-sell-assets-to-jpmorgan-chase/">acquired First Republic Bank</a> in 2023, it terminated the latter’s lease at One Front St. Meanwhile, Google wound down its lease at One Market Plaza, another Paramount property, and added more than 100,000 square feet to its existing presence elsewhere at Hills Plaza at 345 Spear St.

Peter Brindley, head of real estate at Paramount, told investors that 66% of the company’s expiring San Francisco leases were from Google and JPMorgan. With those moves in motion, the company is now focused on retrenching at its existing properties.&nbsp;

Peter Brindley, head of real estate at Paramount, told investors that 66% of the company’s expiring San Francisco leases were from Google and JPMorgan. With those moves in motion, the company is now focused on retrenching at its existing properties.&nbsp;

Last year, a Paramount property at 300 Mission St. was able to <a href="https://sfstandard.com/2024/01/08/japanese-tech-giant-doubles-down-on-san-francisco-with-new-downtown-office/">attract Rakuten</a> from 160 Spear St. for a 29,000-square-foot lease.&nbsp;

Japanese tech giant doubles down on San Francisco with new downtown office

Last year, a Paramount property at 300 Mission St. was able to <a href="https://sfstandard.com/2024/01/08/japanese-tech-giant-doubles-down-on-san-francisco-with-new-downtown-office/">attract Rakuten</a> from 160 Spear St. for a 29,000-square-foot lease.&nbsp;

CEO Albert Behler, who has led Paramount since 1991, called San Francisco a challenging office market “not as diversified as the New York economy” but with “deep value.”&nbsp;&nbsp;

CEO Albert Behler, who has led Paramount since 1991, called San Francisco a challenging office market “not as diversified as the New York economy” but with “deep value.”&nbsp;&nbsp;

When it made its last batch of purchases, low interest rates and a booming tech industry squeezed San Francisco’s office vacancy below 5% and drove rents to record highs.&nbsp;

When it made its last batch of purchases, low interest rates and a booming tech industry squeezed San Francisco’s office vacancy below 5% and drove rents to record highs.&nbsp;

A person walks  past One Market Plaza in San Francisco on Wednesday, April 17, 2024. Landlords are essentially holding their own key buildings hostage, threatening foreclosure to purchase their own debt more cheaply.

<figure class="wp-block-image size-large"><img height="2500" width="2222" src="https://content.sfstandard.com/wp-content/uploads/2024/04/inlined04_20240416-landlordsholdingransom.jpg?w=2222" alt="A building labeled &quot;One Market Plaza&quot; with a man in a black vest and blue shirt walking in front. The sun reflects off the windows above." class="wp-image-268256"/><figcaption class="wp-element-caption">Google sunsetted its lease at One Market Plaza last year, driving much of Paramount&#8217;s vacancy problems. </figcaption></figure>

<figure class="wp-block-image size-large"><img src="https://content.sfstandard.com/wp-content/uploads/2024/04/inlined04_20240416-landlordsholdingransom.jpg?w=2222" alt="A building labeled &quot;One Market Plaza&quot; with a man in a black vest and blue shirt walking in front. The sun reflects off the windows above." class="wp-image-268256"/><figcaption class="wp-element-caption">Google sunsetted its lease at One Market Plaza last year, driving much of Paramount's vacancy problems. </figcaption></figure>

<figure class="wp-block-image size-large"><img src="https://content.sfstandard.com/wp-content/uploads/2024/04/inlined04_20240416-landlordsholdingransom.jpg?w=2222" alt="A building labeled &quot;One Market Plaza&quot; with a man in a black vest and blue shirt walking in front. The sun reflects off the windows above." class="wp-image-268256"/><figcaption class="wp-element-caption">Google sunsetted its lease at One Market Plaza last year, driving much of Paramount&#8217;s vacancy problems. </figcaption></figure>

A San Francisco commercial mortgage professional said REITS like Paramount are better positioned to emerge from this down cycle because they are usually not entirely liable for foreclosures.&nbsp;

A San Francisco commercial mortgage professional said REITS like Paramount are better positioned to emerge from this down cycle because they are usually not entirely liable for foreclosures.&nbsp;

Loan documents show that Paramount is mainly involved in joint ventures in its San Francisco properties. That means risk is spread more evenly. 

Loan documents show that Paramount is mainly involved in joint ventures in its San Francisco properties. That means risk is spread more evenly.

Paramount’s net loss last year, including dividends, was $38.6 million versus $205 million the year prior.&nbsp;

Paramount’s net loss last year, including dividends, was $38.6 million versus $205 million the year prior.&nbsp;

The firm transformed from a private office to a public company after it <a href="https://www.reuters.com/article/business/real-estate-company-paramounts-ipo-raises-229-billion-idUSKCN0J22P4/">raised a record-breaking $2.29 billion</a> in 2014. The majority of its 11 New York properties are concentrated in Manhattan.&nbsp;

The firm transformed from a private office to a public company after it <a href="https://www.reuters.com/article/business/real-estate-company-paramounts-ipo-raises-229-billion-idUSKCN0J22P4/">raised a record-breaking $2.29 billion</a> in 2014. The majority of its 11 New York properties are concentrated in Manhattan.&nbsp;

“They established a nice beachhead in San Francisco during the good times,” said a REIT office broker who requested anonymity to protect relationships. “But now you’re seeing they bit off more than they could chew.”

“They established a nice beachhead in San Francisco during the good times,” said a REIT office broker who requested anonymity to protect relationships. “But now you’re seeing they bit off more than they could chew.”

Correction: This story has been updated to accurately reflect the financial relationship between different properties in Paramount&#8217;s portfolio.

Correction: This story has been updated to accurately reflect the financial relationship between different properties in Paramount's portfolio.

Correction: This story has been updated to accurately reflect the financial relationship between different properties in Paramount&#8217;s portfolio.

A huge real estate investor declared another SF building worthless. That may be good news

Joel Umanzor

The iconic sign above the former Nordstrom store at the San Francisco Centre mall was removed by workers on Friday afternoon.

The iconic sign above the former Nordstrom store at the San Francisco Centre mall was removed by workers on Friday afternoon.

Nordstrom closed its behemoth store in the former <a href="https://sfstandard.com/2023/08/27/san-francisco-nordstrom-shoppers-say-goodbye/">Westfield mall on Aug. 27</a>, almost <a href="https://sfstandard.com/2023/05/02/nordstrom-to-shutter-both-san-francisco-downtown-stores-citing-deteriorating-conditions-report/">four months after it would shutter</a> both its Downtown San Francisco locations.

Inside the downtown San Francisco Nordstrom on its last day

Nordstrom to shutter both downtown San Francisco stores, citing difficult conditions

Nordstrom closed its behemoth store in the former <a href="https://sfstandard.com/2023/08/27/san-francisco-nordstrom-shoppers-say-goodbye/">Westfield mall on Aug. 27</a>, almost <a href="https://sfstandard.com/2023/05/02/nordstrom-to-shutter-both-san-francisco-downtown-stores-citing-deteriorating-conditions-report/">four months after it would shutter</a> both its Downtown San Francisco locations.

The gold lettering was in the process of being removed by workers on Friday afternoon when The Standard visited.

The gold lettering was in the process of being removed by workers on Friday afternoon when The Standard visited.

French real estate company Unibail-Rodamco-Westfield, which co-owns the building with Brookfield Properties, announced in June it&nbsp;<a href="https://sfstandard.com/2023/06/12/westfield-gives-up-downtown-san-francisco-mall/">would give up control of the mall</a>&nbsp;and planned to default on a multimillion-dollar loan for the space. The mall has since been renamed San Francisco Centre.

Westfield gives up downtown San Francisco mall

French real estate company Unibail-Rodamco-Westfield, which co-owns the building with Brookfield Properties, announced in June it&nbsp;<a href="https://sfstandard.com/2023/06/12/westfield-gives-up-downtown-san-francisco-mall/">would give up control of the mall</a>&nbsp;and planned to default on a multimillion-dollar loan for the space. The mall has since been renamed San Francisco Centre.

The iconic Nordstrom sign was removed from the San Francisco Centre mall on Friday, Sept. 22, 2023. 

<figure class="wp-block-image size-large"><img height="1875" width="2500" src="https://content.sfstandard.com/wp-content/uploads/2023/09/IMG_4138.jpg?w=2500" alt="" class="wp-image-203906"/><figcaption class="wp-element-caption">The iconic Nordstrom sign was removed from the San Francisco Centre mall on Friday. </figcaption></figure>

<figure class="wp-block-image size-large"><img src="https://content.sfstandard.com/wp-content/uploads/2023/09/IMG_4138.jpg?w=2500" alt="" class="wp-image-203906"/><figcaption class="wp-element-caption">The iconic Nordstrom sign was removed from the San Francisco Centre mall on Friday. </figcaption></figure>

Mayor London Breed has floated the idea of demolishing the mall and turning the space into a&nbsp;<a href="https://sfstandard.com/2023/08/23/downtown-san-francisco-soccer-stadium-plans-for-former-westfield-mall-revealed/">soccer stadium</a>.

Downtown San Francisco soccer stadium plans for former Westfield mall revealed

Mayor London Breed has floated the idea of demolishing the mall and turning the space into a&nbsp;<a href="https://sfstandard.com/2023/08/23/downtown-san-francisco-soccer-stadium-plans-for-former-westfield-mall-revealed/">soccer stadium</a>.

San Francisco architect Mark Hogan also recently <a href="https://sfstandard.com/2023/09/19/legoland-to-downtown-san-franciscos-rescue-architect-has-bold-plan-to-fill-vacant-mall/">floated the left-field idea of turning the mall&#8217;s vacant department-store floors into a Legoland</a>.

Legoland to downtown San Francisco’s rescue? Architect has bold plan to fill vacant mall

San Francisco architect Mark Hogan also recently <a href="https://sfstandard.com/2023/09/19/legoland-to-downtown-san-franciscos-rescue-architect-has-bold-plan-to-fill-vacant-mall/">floated the left-field idea of turning the mall's vacant department-store floors into a Legoland</a>.

San Francisco architect Mark Hogan also recently <a href="https://sfstandard.com/2023/09/19/legoland-to-downtown-san-franciscos-rescue-architect-has-bold-plan-to-fill-vacant-mall/">floated the left-field idea of turning the mall&#8217;s vacant department-store floors into a Legoland</a>.

A rendering of how the Legoland in the San Francisco Centre might look. 

<figure class="wp-block-image size-large"><img src="https://content.sfstandard.com/wp-content/uploads/2023/09/Legoland-San-Francisco-1.png?w=1344" alt="" class="wp-image-199116"/><figcaption class="wp-element-caption">A rendering depicts how the Legoland in the San Francisco Centre might look. </figcaption></figure>

“I feel terrible about it,” Michael Tsang said as he walked down Fifth Street, “seeing it leave because of all of the drugs and crime around here.”

“I feel terrible about it,” Michael Tsang said as he walked down Fifth Street, “seeing it leave because of all of the drugs and crime around here.”

Vito Ferrara, who has been living in San Francisco for nine years, said any business moving into the former location should be concerned about the environment surrounding the mall.

Vito Ferrara, who has been living in San Francisco for nine years, said any business moving into the former location should be concerned about the environment surrounding the mall.

“I’ve seen people support themselves based on what they’ve been able to steal from this mall,” Ferrara said. “Anyone who moves into this spot will have to deal with that reality.”

“I’ve seen people support themselves based on what they’ve been able to steal from this mall,” Ferrara said. “Anyone who moves into this spot will have to deal with that reality.”

Ferrara said crime at the location should be worrisome for anyone moving their business into the Nordstrom location.

Ferrara said crime at the location should be worrisome for anyone moving their business into the Nordstrom location.

When the Nordstrom at the former Westfield San Francisco Centre mall opened in the fall of 1988, thousands lined up to see the department store&#8217;s spiral escalators and retractable skylight, the champagne and caviar bar, the five-star spa and the live pianist.

When the Nordstrom at the former Westfield San Francisco Centre mall opened in the fall of 1988, thousands lined up to see the department store's spiral escalators and retractable skylight, the champagne and caviar bar, the five-star spa and the live pianist.

When the Nordstrom at the former Westfield San Francisco Centre mall opened in the fall of 1988, thousands lined up to see the department store&#8217;s spiral escalators and retractable skylight, the champagne and caviar bar, the five-star spa and the live pianist.

Unibail-Rodamco-Westfield did not respond to a request for comment.

Unibail-Rodamco-Westfield did not respond to a request for comment.

Iconic San Francisco Nordstrom sign removed from old Westfield mall

If the San Francisco Centre had been on life support since Nordstrom left in 2023, then the announcement that Bloomingdale’s, the sole remaining anchor, was <a href="https://sfstandard.com/2025/01/21/bloomingdales-to-exit-downtown-san-francisco-centre-mall/?itm_source=wp-parsely-content-helper">exiting the mall</a> with 20 years still on its lease marked the pulling of the plug.&nbsp;

Bloomingdale&#8217;s to exit downtown San Francisco Centre mall

If the San Francisco Centre had been on life support since Nordstrom left in 2023, then the announcement that Bloomingdale’s, the sole remaining anchor, was <a href="https://sfstandard.com/2025/01/21/bloomingdales-to-exit-downtown-san-francisco-centre-mall/?itm_source=wp-parsely-content-helper">exiting the mall</a> with 20 years still on its lease marked the pulling of the plug.&nbsp;

Normally, a clean slate would represent an opportunity to reimagine the property. But in this case, a complicated web of lenders who are anxious to get their money back are keeping the mall frozen in place.&nbsp;

Normally, a clean slate would represent an opportunity to reimagine the property. But in this case, a complicated web of lenders who are anxious to get their money back are keeping the mall frozen in place.&nbsp;

Banks often bundle mortgages into an asset known as a commercial mortgage-backed security (CMBS) that can be bought and sold on the market. This process may not sound consequential, but it’s actually a key factor holding up the sale of the mall.

Banks often bundle mortgages into an asset known as a commercial mortgage-backed security (CMBS) that can be bought and sold on the market. This process may not sound consequential, but it’s actually a key factor holding up the sale of the mall.

At 800,000 square feet, it’s the city’s largest mall and was <a href="https://sfstandard.com/2024/01/24/san-francisco-centre-mall-store-owners-pray-for-turnaround/">once a piece of prime real estate</a>. But because the last refinancing, in 2016, involved a chunk of CMBS debt, multiple groups — not just the banks that initially loaned cash — have a say on the future of the property, and they’re pulling in different directions.&nbsp;

Dead mall walking: Inside the reeling San Francisco Centre, store owners pray for a turnaround

At 800,000 square feet, it’s the city’s largest mall and was <a href="https://sfstandard.com/2024/01/24/san-francisco-centre-mall-store-owners-pray-for-turnaround/">once a piece of prime real estate</a>. But because the last refinancing, in 2016, involved a chunk of CMBS debt, multiple groups — not just the banks that initially loaned cash — have a say on the future of the property, and they’re pulling in different directions.&nbsp;

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 mall, which has been under receivership, goes up for auction in February.</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 mall, which has been under receivership, goes up for auction in February.</figcaption></figure>

People walk outside of Bloomingdale’s in San Francisco on Tuesday, Jan. 21, 2025. Bloomingdale’s announced it would close their location in San Francisco later this year, making it the most recent place department store to leave the city.

<figure class="wp-block-image size-large"><img height="1668" width="2500" src="https://content.sfstandard.com/wp-content/uploads/2025/01/1212024_bloomingdales_aar_1.jpg?w=2500" alt="A person walks in front of a Bloomingdale's store, with a modern glass and metal facade. Sunlight casts shadows on the pavement and building entrance." class="wp-image-357534"/><figcaption class="wp-element-caption">The exit of Bloomingdale’s left the mall without anchor tenants and tanked its occupancy rate.</figcaption></figure>

<figure class="wp-block-image size-large"><img src="https://content.sfstandard.com/wp-content/uploads/2025/01/1212024_bloomingdales_aar_1.jpg?w=2500" alt="A person walks in front of a Bloomingdale's store, with a modern glass and metal facade. Sunlight casts shadows on the pavement and building entrance." class="wp-image-357534"/><figcaption class="wp-element-caption">The exit of Bloomingdale’s left the mall without anchor tenants and tanked its occupancy rate.</figcaption></figure>

The distressed $566 million loan was <a href="https://sfstandard.com/2024/10/28/san-francisco-centre-mall-headed-to-auction/">supposed to be auctioned off</a> late last year, but that process was delayed twice at the behest of lenders. According to the special servicer, Midland Loan Services of PNC Bank, an auction is now scheduled for February.&nbsp;

Who wants to own a dead mall? The San Francisco Centre heads to auction

The distressed $566 million loan was <a href="https://sfstandard.com/2024/10/28/san-francisco-centre-mall-headed-to-auction/">supposed to be auctioned off</a> late last year, but that process was delayed twice at the behest of lenders. According to the special servicer, Midland Loan Services of PNC Bank, an auction is now scheduled for February.&nbsp;

“It could be that [the lenders] don’t know what they want to do next,” said Brad Blake, managing partner of Blake Griggs Properties, which is not involved in the mall but has served as a receiver on other properties undergoing tumultuous ownership changes.&nbsp;

“It could be that [the lenders] don’t know what they want to do next,” said Brad Blake, managing partner of Blake Griggs Properties, which is not involved in the mall but has served as a receiver on other properties undergoing tumultuous ownership changes.&nbsp;

“It’s hard to get consensus when there are multiple people at the table,” Blake added. “Some might want to cut their losses for whatever they can get, while others might see the property’s future value differently and want to explore different options.”&nbsp;

“It’s hard to get consensus when there are multiple people at the table,” Blake added. “Some might want to cut their losses for whatever they can get, while others might see the property’s future value differently and want to explore different options.”&nbsp;

An auction could also be postponed if a settlement is reached with the delinquent borrower or a new buyer emerges whom lenders prefer.

An auction could also be postponed if a settlement is reached with the delinquent borrower or a new buyer emerges whom lenders prefer.

San Francisco Centre Mall's occupancy rate by year

The saga started in 2023, when the mall’s previous owners, Unibail-Rodamco-Westfield and Brookfield Properties, <a href="https://sfstandard.com/2023/06/12/westfield-gives-up-downtown-san-francisco-mall/">defaulted on their loan obligations</a> and walked away from the property.&nbsp;

The saga started in 2023, when the mall’s previous owners, Unibail-Rodamco-Westfield and Brookfield Properties, <a href="https://sfstandard.com/2023/06/12/westfield-gives-up-downtown-san-francisco-mall/">defaulted on their loan obligations</a> and walked away from the property.&nbsp;

This left it under the care of a court-appointed receiver, Trident Pacific, whose mandate is to preserve the value of the physical asset and existing cash flow, not <a href="https://sfstandard.com/2023/08/23/downtown-san-francisco-soccer-stadium-plans-for-former-westfield-mall-revealed/">redevelop it</a>. The firm did not respond to requests for comment.&nbsp;

This left it under the care of a court-appointed receiver, Trident Pacific, whose mandate is to preserve the value of the physical asset and existing cash flow, not <a href="https://sfstandard.com/2023/08/23/downtown-san-francisco-soccer-stadium-plans-for-former-westfield-mall-revealed/">redevelop it</a>. The firm did not respond to requests for comment.&nbsp;

Any large-scale changes to the property would have to come out of the pockets of the lenders, Blake explained. So until new ownership comes in, the mall will likely remain as it is — gradually <a href="https://sfstandard.com/2024/06/14/san-francisco-centre-new-leases-launch-next-phase/">depleted of brand-name stores</a>.&nbsp;

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Any large-scale changes to the property would have to come out of the pockets of the lenders, Blake explained. So until new ownership comes in, the mall will likely remain as it is — gradually <a href="https://sfstandard.com/2024/06/14/san-francisco-centre-new-leases-launch-next-phase/">depleted of brand-name stores</a>.&nbsp;

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With the exit of Bloomingdale&#8217;s, which is owned by Macy’s, the largest retailer remaining at the mall is Zara, which occupies more than 27,000 square feet, according to loan reports.&nbsp;

With the exit of Bloomingdale's, which is owned by Macy’s, the largest retailer remaining at the mall is Zara, which occupies more than 27,000 square feet, according to loan reports.&nbsp;

With the exit of Bloomingdale&#8217;s, which is owned by Macy’s, the largest retailer remaining at the mall is Zara, which occupies more than 27,000 square feet, according to loan reports.&nbsp;

“It’s going to take a long time to turn around a large ship like this,” said Alex Sagues of CBRE, a retail broker with listings in Union Square and Mission Bay.&nbsp;

“It’s going to take a long time to turn around a large ship like this,” said Alex Sagues of CBRE, a retail broker with listings in Union Square and Mission Bay.&nbsp;

“There are very few tenants right now that can <a href="https://sfstandard.com/2024/02/21/san-francisco-centre-prospective-anchor-tenants/">take space of that size</a>,” he added. “There are even fewer who are interested in an urban location.”&nbsp;

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“There are very few tenants right now that can <a href="https://sfstandard.com/2024/02/21/san-francisco-centre-prospective-anchor-tenants/">take space of that size</a>,” he added. “There are even fewer who are interested in an urban location.”&nbsp;

Similar to the city’s <a href="https://sfstandard.com/2024/09/08/san-franciscos-hottest-office-market-heats-up/">slow-recovering office sector</a>, the demand for smaller floor plans in retail is robust, while the largest tenants are in the process of <a href="https://sfstandard.com/2024/04/24/how-much-big-tech-pulled-back-in-san-francisco/">downsizing their real estate.</a>&nbsp;

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Similar to the city’s <a href="https://sfstandard.com/2024/09/08/san-franciscos-hottest-office-market-heats-up/">slow-recovering office sector</a>, the demand for smaller floor plans in retail is robust, while the largest tenants are in the process of <a href="https://sfstandard.com/2024/04/24/how-much-big-tech-pulled-back-in-san-francisco/">downsizing their real estate.</a>&nbsp;

Real estate sources suggest that merging Bloomingdale’s with the Macy’s flagship in Union Square would make sense, as the latter owns the building it occupies at 170 O’Farrell St. and has said it wants to <a href="https://sfstandard.com/2024/12/01/exploring-macys-san-francisco-flagship-potential-sale/">shrink its footprint</a>.&nbsp;

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Real estate sources suggest that merging Bloomingdale’s with the Macy’s flagship in Union Square would make sense, as the latter owns the building it occupies at 170 O’Farrell St. and has said it wants to <a href="https://sfstandard.com/2024/12/01/exploring-macys-san-francisco-flagship-potential-sale/">shrink its footprint</a>.&nbsp;

What will become of the massive empty spaces at the San Francisco Centre? The next owner will face Herculean obstacles in redeveloping the mall, in part because preservation of historic components such as the rotunda will drag out any planning and approval process.&nbsp;Developers say it&#8217;s unlikely that investors would be patient enough to demolish structures around those historic parts without interrupting the property’s existing revenue streams. To complicate matters further, <a href="https://sfstandard.com/2024/10/18/what-happens-to-public-school-buildings-after-closures/">the San Francisco Unified School District</a> owns a 75,675-square-foot lot beneath the mall — yet another stakeholder that would have to be at the table.&nbsp;

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What will become of the massive empty spaces at the San Francisco Centre? The next owner will face Herculean obstacles in redeveloping the mall, in part because preservation of historic components such as the rotunda will drag out any planning and approval process.&nbsp;Developers say it's unlikely that investors would be patient enough to demolish structures around those historic parts without interrupting the property’s existing revenue streams. To complicate matters further, <a href="https://sfstandard.com/2024/10/18/what-happens-to-public-school-buildings-after-closures/">the San Francisco Unified School District</a> owns a 75,675-square-foot lot beneath the mall — yet another stakeholder that would have to be at the table.&nbsp;

What will become of the massive empty spaces at the San Francisco Centre? The next owner will face Herculean obstacles in redeveloping the mall, in part because preservation of historic components such as the rotunda will drag out any planning and approval process.&nbsp;Developers say it&#8217;s unlikely that investors would be patient enough to demolish structures around those historic parts without interrupting the property’s existing revenue streams. To complicate matters further, <a href="https://sfstandard.com/2024/10/18/what-happens-to-public-school-buildings-after-closures/">the San Francisco Unified School District</a> owns a 75,675-square-foot lot beneath the mall — yet another stakeholder that would have to be at the table.&nbsp;

Shoppers stroll inside the San Francisco Centre 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/2025/01/20240119-sfcentremall-105-edited.jpg" alt="A person sits on a white bench next to large potted plants on tiled flooring, viewed from above. They appear to be looking at something in their hands." class="wp-image-358335"/><figcaption class="wp-element-caption">Zara is the mall&#8217;s largest remaining retail tenant, according to loan reports.</figcaption></figure>

<figure class="wp-block-image size-large"><img src="https://content.sfstandard.com/wp-content/uploads/2025/01/20240119-sfcentremall-105-edited.jpg" alt="A person sits on a white bench next to large potted plants on tiled flooring, viewed from above. They appear to be looking at something in their hands." class="wp-image-358335"/><figcaption class="wp-element-caption">Zara is the mall's largest remaining retail tenant, according to loan reports.</figcaption></figure>

<figure class="wp-block-image size-large"><img src="https://content.sfstandard.com/wp-content/uploads/2025/01/20240119-sfcentremall-105-edited.jpg" alt="A person sits on a white bench next to large potted plants on tiled flooring, viewed from above. They appear to be looking at something in their hands." class="wp-image-358335"/><figcaption class="wp-element-caption">Zara is the mall&#8217;s largest remaining retail tenant, according to loan reports.</figcaption></figure>

A shoppers walks by the storefront of Adidas, which is having a closing sale, 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/2024/06/inlined1_20240119-sfcentremall.jpg?w=2500" alt="A person walks past mirrored walls in a mall, holding a drink. Large red signs read &quot;STORE CLOSING SALE 50% OFF&quot; in the background." class="wp-image-283427"/><figcaption class="wp-element-caption">“It’s going to take a long time to turn around a large ship like this,” one broker said.</figcaption></figure>

The closest parallel in scale can be found at the former Vallco Shopping Mall, down the street from Apple’s headquarters in Cupertino. The 1.2 million-square-foot shopping center was partially demolished in 2018 to make way for a mixed-use community that would have featured the city’s tallest residential towers and office space, connected by the <a href="https://www.sfchronicle.com/bayarea/article/Cupertino-Vallco-green-roof-17024842.php">world’s largest “green roof.</a>”&nbsp;

The closest parallel in scale can be found at the former Vallco Shopping Mall, down the street from Apple’s headquarters in Cupertino. The 1.2 million-square-foot shopping center was partially demolished in 2018 to make way for a mixed-use community that would have featured the city’s tallest residential towers and office space, connected by the <a href="https://www.sfchronicle.com/bayarea/article/Cupertino-Vallco-green-roof-17024842.php">world’s largest “green roof.</a>”&nbsp;

But more than a decade since those plans were pitched, the project — spearheaded by the Bay Area-based Sand Hill Property Company, with backing from the Abu Dhabi Investment Authority — <a href="https://www.bizjournals.com/sanjose/news/2023/12/05/sand-hill-properties-vallco-the-rise-modifications.html">has been scaled back,</a> and the site remains a patch of dirt.&nbsp;

But more than a decade since those plans were pitched, the project — spearheaded by the Bay Area-based Sand Hill Property Company, with backing from the Abu Dhabi Investment Authority — <a href="https://www.bizjournals.com/sanjose/news/2023/12/05/sand-hill-properties-vallco-the-rise-modifications.html">has been scaled back,</a> and the site remains a patch of dirt.&nbsp;

“If a sovereign wealth fund couldn’t execute on that during a better economy, it’s going to take a miracle to do something of that scale in downtown San Francisco,” said a local developer who asked to remain anonymous to protect working relationships.&nbsp;

“If a sovereign wealth fund couldn’t execute on that during a better economy, it’s going to take a miracle to do something of that scale in downtown San Francisco,” said a local developer who asked to remain anonymous to protect working relationships.&nbsp;

Therefore, repurposing the existing structures at the San Francisco Centre would make more sense, observers say. Blake sees the storefronts and <a href="https://sfstandard.com/2023/06/14/san-francisco-centre-westfield-cinemark-closure-union-square/">abandoned movie theaters</a> as natural fits for classrooms and auditoriums for a satellite college campus. Sagues suggested converting one of the anchor stores into a multi-level parking garage to service neighboring Union Square, where leasing activity is strong.&nbsp;

Westfield&#8217;s San Francisco Centre losing movie theaters as owner abandons mall

Therefore, repurposing the existing structures at the San Francisco Centre would make more sense, observers say. Blake sees the storefronts and <a href="https://sfstandard.com/2023/06/14/san-francisco-centre-westfield-cinemark-closure-union-square/">abandoned movie theaters</a> as natural fits for classrooms and auditoriums for a satellite college campus. Sagues suggested converting one of the anchor stores into a multi-level parking garage to service neighboring Union Square, where leasing activity is strong.&nbsp;

“The [Bloomingdale’s closure] was not positive news, but it wasn’t unexpected,” Sagues said. “It might seem far away now, but it’s not going to take that big of a spark to ignite the recovery of retail on that block.”

“The [Bloomingdale’s closure] was not positive news, but it wasn’t unexpected,” Sagues said. “It might seem far away now, but it’s not going to take that big of a spark to ignite the recovery of retail on that block.”

Kevin Truong

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