180 Howard St. in San Francisco under contract as market shows signs of capitulation
180 Howard St. in San Francisco under contract as market shows signs of capitulation
At least three San Francisco office buildings re-listed at severe discounts after failing to achieve asking prices in recent years are now under contract, a sign that the days of landlords “testing the market” to gauge office values amid rising vacancy may be coming to an end.
The latest is 180 Howard St., a 250,000-square-foot office building in SoMa that has served as the headquarters for the State Bar of California for three decades. San Francisco-based development firm Ellis Partners and equity partner Baupost Group are slated to buy the 13-story building, sources with knowledge of the deal say.
The price is expected to be about $250 per square foot, or $62 million. The building was initially shopped around for sale a year ago for an undisclosed price but failed to trade. Earlier this year, it was re-listed with a price-guidance of about $85 million, or $400 per square foot.
It’s a similar story at two other San Francisco office towers that hit the market since Covid-19 but failed to secure buyers — reportedly because offers came back too low — until now.
One, the 350 California St. tower once occupied by Union Bank, is under contract for 75% below what its seller hoped to get for it in 2020. The other, 550 California St., is expected to sell for less than half what current owner Wells Fargo paid for it nearly two decades ago.
While all three deals are pending and have yet to close, the advancing negotiations indicate that owners of certain properties — owner-occupied, single-tenant buildings burdened by vacancies — have come to terms with a new reality of permanently weakened demand in San Francisco and are increasingly willing to take substantial losses or reduced profit to offload their buildings.
Ellis Partners did not respond to messages seeking comment on Friday. The State Bar, an arm of the California Supreme Court that licenses and regulates attorneys, declined to comment on the price or identify the buyer.
But a spokesperson said Monday the State Bar Board of Trustees approved “proceeding with the sale of the San Francisco headquarters building” at its May meeting, at which it directed staff to “refine pending offers and select a best offer, negotiate with the selected buyer over sale and leaseback agreements and return to the board or its executive committee for review and approval of the agreements.” The organization is pursuing a sale/leaseback, the spokesperson said.
Other buildings that have hit the market and could sell at steep discounts include the 157,400-square-foot tower at 60 Spear St. and the 138,000-square-foot 123 Townsend St.
Clarion Partners acquired 60 Spear St. in 2014 for $107 million, or roughly $680 per square foot. Now the building, which is about 37% leased, is expected to trade in the high $200s per square foot, sources say. Best and final offers were due last week and Clarion is now evaluating a “small group” of buyers.
CBRE Investment Management purchased the historic six-story brick-and-timber building at 123 Townsend in 2020 for $140 million; the building is now valued at roughly $90 million. The offering has yet to gain any traction, sources say.
Nearly $2 billion in loans are scheduled to come due in San Francisco this year, followed by nearly another $2 billion next year. As office vacancy neared 30% amid remote work and a slow economic recovery post-pandemic, buildings in San Francisco have steadily seen their values tumble. Meanwhile, higher interest rates have created a difficult financial climate for refinancing. While building owners struggling to keep current with their loan payments have largely been able to negotiate with lenders, an increasing number of landlords have faced defaults this year, and some owners have opted for voluntary foreclosure.
Landlords of other commercial properties, such as retail, and multifamily owners are facing similar issues.
