Investors Buy Debt Tied to Juul Labs’ San Francisco Offices

Investors have acquired the debt tied to Juul Labs’ former offices in San Francisco’s Financial District, setting the stage for a possible foreclosure or negotiated transfer.

Madison Capital and PGIM bought the debt associated with 123 Mission Street for between $90 million and $100 million, the San Francisco Chronicle reported. Jonathan Nachmani, Madison’s head of acquisitions, said the debt was purchased in the “low $90 million” range, according to the Chronicle.

Prior to the deal closing on March 13, Madison Capital first emerged as a buyer last fall. Madison and PGIM will likely pursue a deed-in-lieu of foreclosure at the site, allowing Juul to surrender its ownership to avoid a court-ordered takeover, Nachmani said.

The two firms previously attempted to buy the building in 2019, reportedly agreeing to pay $1,200 per square foot for the 29-story structure. The latest estimated sale price for the debt works out to less than $300 per square foot – less than 25 percent of its pre-pandemic value.

Juul purchased the building in 2019 for $397 million. Affinius provided a $220 million loan for the acquisition. The Texas-based lender began searching for a buyer for the debt backed by 123 Mission Street last year.

The 360,000-square-foot office tower is largely empty. Juul abandoned its post there less than a year after buying, listing it for sale in early 2020 and expecting to fetch roughly $450 million, according to the Chronicle.

With no successful purchase offers, the electronic cigarette maker searched for lease tenants for 123 Mission, tapping Align Real Estate and Newmark to market 266,000 square feet for lease in 2021, though no deal materialized. The company has since relocated its headquarters to Washington, D.C.

Madison plans to pursue “hospitality-driven” improvements to the building, which it views as a “blank canvas opportunity,” Nachmani said.

— Chris Malone Méndez