Hudson Pacific Properties is trimming its portfolio with the offloading of one of its most vacant office buildings.
The Los Angeles-based office owner, currently facing outstanding debts, sold 625 2nd Street in San Francisco’s Bayside Village for $28 million, CoStar reported. The sale price of the 138,000-square-foot office building to Frontline Realty Capital and Triyar Realty Group marks a nearly 50 percent price reduction from the $58.5 million Hudson paid for the property in 2011.
At about a 36 percent vacancy rate, the four-story building was one of the emptiest in Hudson’s portfolio. That vacancy rate aligns with CBRE’s first-quarter estimate of 35.6 percent office vacancy across San Francisco.
Hudson Pacific has sold $95 million worth of office buildings so far this year in an effort to pay down nearly $600 million in maturing debt. Company CEO Victor Coleman said the sales are part of “efforts to monetize non-core assets at favorable pricing and in a timely manner,” according to CoStar. Other deals from Hudson are reportedly coming down the pike.
In February, Hudson sold a two-building office complex in the Los Angeles Arts District for $46 million and has closed several deals in Silicon Valley for a total financial recoup of up to $225 million.
At the same time, Frontline has been snapping up office properties that have lost significant value in recent years.
In January, the San Diego-based real estate investment trust grabbed a distressed 10-story office building in downtown Oakland for $5.5 million. That property sold at an even deeper discount than 625 2nd Street did, down from the $43.5 million a BrightSpire Capital affiliate paid for it in 2018. Frontline said that acquisition was part of its strategy to pick up “well-located assets with significant potential to create value through thoughtful repositioning and patience.” The 2nd Street purchase presumably aligns with that mission.
As many office buildings across California sell for much less than what buyers paid for them before the pandemic, CoStar data from April shows that office sales volume in the first quarter more than doubled year-over-year.
Flynn Properties, for example, just dropped $177 million on the two-building Market Center complex in the Financial District, marking San Francisco’s most expensive sale in years. DivcoWest and Blackstone Real Estate spent $111.3 million in May to acquire the vacant 25-story building at 300 Howard Street in the South of Market neighborhood with plans to bring in artificial intelligence clients.
The growth of AI companies could help drive the office rebound in San Francisco. CBRE predicts that the influx of tens of thousands of AI employees could cut office vacancies in the city in half over the next five years. The city moved out of last place in the return-to-office race. — Chris Malone Méndez