Brookfield Sells Debt Tied to San Francisco Office Tower

Brookfield Properties is getting ready to offload a newly built office tower in San Francisco’s South of Market neighborhood.

A partnership between the Maryland-based Meridian Group and Solana Beach-based Fenway Capital Advisors has purchased the outstanding debt associated with a nearly $400 million construction loan for 415 Natoma Street, the San Francisco Chronicle reported, citing sources familiar with the matter. Meridian and Fenway are expected to take control of the $1 billion property without court intervention through a deed-in-lieu of foreclosure process. The firms are expected to finalize the ownership transfer within the next month.

Brookfield, which developed the first phase of the 5M mixed-use project, received a $393 million construction loan for the Natoma tower in 2020 from United Overseas Bank Limited. How much of that loan was outstanding when Meridian and Fenway purchased it this week has not been disclosed, as has the price that the companies ultimately paid to acquire the debt.

The tower, which opened in 2022, is largely vacant and has struggled to secure tenants despite its status as a premier, newly constructed high-rise. One source described the project to the Chronicle as a “great building, a great project, an ill-timed delivery.” The building’s sole tenant at the moment is home services marketplace Thumbtack, which occupies approximately 20,000 square feet on the 13th floor. The tech company’s lease expires this year and it is reportedly looking to relocate to a nearby office.

Brookfield will retain ownership of The George, a 302-unit residential complex within the 5M development that has seen stronger leasing performance. Hearst Corporation continues to hold the rights to the project’s second phase, a proposed residential tower at 110 Fifth Street that has already received entitlements. The neighborhood is in the midst of other transitions, including the recent purchase by local developers Presidio Bay Ventures and Prado Group of the nearby San Francisco Centre mall, which saw its value spiral over the past decade after its previous owner defaulted on loan payments and tenants fled the shopping center in droves.

Meridian and Fenway are reportedly planning to ramp up investment in the office tower to take advantage of growing demand in the market from artificial intelligence startups and other tech companies that are currently driving office leasing in San Francisco, according to the Chronicle.

— Chris Malone Méndez