Rialto Capital Pursues Foreclosure at Market Street Offices

Another distressed downtown San Francisco property is barrelling toward foreclosure as its value collapses and leasing struggles compound.

Rialto Capital, acting as special servicer, is pursuing foreclosure of the six-story, roughly 35,000-square-foot commercial building at 580 Market Street after a $15.7 million loan backed by the property matured last year without repayment, the San Francisco Business Times reported. Rialto expects to complete the foreclosure process by the third quarter of this year, according to servicer notes provided by Morningstar, per the Business Times.

An affiliate of La Jolla-based Paragon Company bought the property in 2015 for nearly $24.2 million, or about $690 per square foot. The building was appraised at $8.9 million last July, representing a roughly 63 percent loss in value over the past decade.

Occupancy at 580 Market has also taken a nosedive in the wake of the pandemic as more companies shifted to remote work. By the end of 2024, occupancy had fallen to 53 percent, and several major leases representing about half the building were slated to expire between January 2025 and January 2026. Current occupancy is unclear, though marketing materials suggest parts of the building remain leased, according to the Business Times.

Paragon’s default traces back to last June when the $15.7 million loan matured. A notice of default filed in October pegged the outstanding debt at nearly $16.7 million. Rialto, which took over servicing the loan in February 2025, had initially targeted a foreclosure in the first quarter of this year. If Rialto completes the foreclosure process at 580 Market, it could subsequently list the building for sale.

Foreclosures at office buildings have been piling up in San Francisco and across the Bay Area in recent years. Last month, CW Capital Asset Management acquired part of a Mid-Market office building once home to City of San Francisco offices at foreclosure for $4 million. In October, lenders seized another Market Street building at 1019 Market at foreclosure for $10.3 million.

Rialto’s foreclosure pursuit at 580 Market isn’t its first for the region this year; the lender filed a lawsuit in January to foreclose on three office properties across the Bay in Oakland.

— Chris Malone Méndez