Fortress Investment acquires $22M loan linked to SF office building

Fortress Investment Group has bought a $22.2 million loan tied to a 40,100-square-foot office building in Downtown San Francisco, allowing it to potentially take control of the property.

An affiliate of the New York-based investor bought a mortgage in February backed by the five-story building owned by Jamestown at 660 Market Street, in the Financial District, the San Francisco Business Times reported. 

The seller was Truist, the lender to Jamestown, for an undisclosed price. The loan doesn’t mature until December 2025, an unidentified source told the newspaper.

If Jamestown can’t secure new financing for the property before the loan comes due — or chooses to walk away from the asset — Fortress could foreclose and take control of the building. 

Jamestown could also hand over the keys to the property by signing a deed in lieu of foreclosure.

The building, built in 1924, includes two stories of shops and three stories of offices. It was fully  leased when Jamestown bought it in 2018 for $40 million, or $1,000 per square foot.

Tenants now include Knotel, Ginto Izakaya Japonaise, Culture Amp, Mithun and Sola Salon, according to its website.

Fortress has been on a buying spree, snapping up $1.5 billion of performing office loans for between 50 and 69 cents on the dollar, according to Bloomberg.

Lenders are selling now because they fear real estate values have further to fall, Fortress’ Co-CEO Joshua Pack told Bloomberg in February. 

While Jamestown has faced headwinds paying for some of its San Francisco properties, no notice of default has been recorded for 660 Market Street, indicating the Atlanta-based investment firm has made the payments on its $22.2 million loan. 

The investor defaulted on $93 million in loans tied two historic Downtown office buildings last year, though it said this week it had cut a deal to keep the 135,500-square-foot building at 116 New Montgomery Street.

Fortress Co-CEO Drew McKnight said on CNBC’s “Fast Money” last month that the firm believes real estate values have not bottomed out yet, describing distress as at “the top of the first inning.” Defaults have been limited, he said, in part because landlords have secured temporary loan extensions.

“Real estate was the biggest beneficiary of low rates, right? That was the prime beneficiary,” he said. “And unless rates can reset and reset quickly, I just don’t see an easy solution.”

Acquiring loans at a “healthy enough discount” offers the firm some downside protection, McKnight said, even as he described a “long, long road ahead” for commercial real estate.

Fortress had $48 billion in assets under management at the end of last year, with real estate accounting for $7.7 billion of its portfolio. 

— Dana Bartholomew

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