Goldman Pushes Pair of Union Square Office Buildings to Auction

Goldman Sachs plans to auction two office buildings in San Francisco’s Union Square after Gem Realty Capital and Flynn Properties defaulted on a $47.5 million mortgage loan.

The New York lender has set an April 10 foreclosure auction for the 121,000-square-foot building at 222 Kearny Street and the 24,000-square-foot building at 180 Sutter Street, the San Francisco Business Times reported.

The notice of sale priced the two buildings at $56.74 million, or $391 per square foot, according to a web page for the auction, which doesn’t list an opening bid price.

Chicago-based Gem and locally based Flynn Properties bought both buildings in a 2019 deal that valued the pair at $74.75 million, or $516 per square foot.

Last summer, appraisers marked the value of the side-by-side buildings at $18.3 million, or $126 per square foot, according to November notes sent to commercial mortgage-backed securities bondholders. As of September, they were 68 percent vacant.

Goldman had repeatedly threatened to foreclose on the properties, serving Gem and Flynn with a notice of default in April, then saying they expected to foreclose in August, according to the Business Times.

But talks between the lender and its debtors managed to stave off foreclosure, until now.

Negotiations between the two sides “effectively ceased” this month, according to notes sent to CMBS bondholders. Foreclosure is expected this spring. Buildings set for public auction often have their sale dates pushed back as lenders and borrowers wrestle in last-minute talks.

Goldman plans to formally foreclose on the buildings at auction, though they could also be picked up by a third-party bidder, according to CMBS reporting.

Office values across San Francisco have plunged over the past five years as demand for office space fell during a pandemic shift to remote work. The office vacancy rate rose to 36.6 percent so far in the first quarter, from 36.5 percent at the close of last year, according to CBRE.

— Dana Bartholomew