Shorenstein Loses Oakland Office Tower to Kennedy Wilson

A downtown Oakland office tower has been handed back to lenders in the latest foreclosure to hit a commercial property in the Bay Area.

Kennedy Wilson took control of the 600,000-square-foot 601 City Center building through a foreclosure proceeding, acquiring the property at 601 12th Street from a Shorenstein Properties affiliate after efforts to restructure roughly $265 million in debt fell apart, the San Francisco Business Times and Mercury News reported.

Kennedy Wilson is one of the lenders in the building’s capital stack alongside Deutsche Bank. The Beverly Hills-based firm teamed up with Deutsche Bank for the acquisition, with Kennedy Wilson taking over the ownership position of the property and Deutsche Bank as the lender. Kennedy Wilson bought the debt secured by the office tower before acquiring the property itself via a grant deed; that document, filed with the Alameda County Assessor’s office, showed Kennedy Wilson was both the buyer and foreclosing lender in the deal.

Kennedy Wilson assumed $63.8 million of the debt, or roughly a quarter of the total. Approximately $179.6 million was discharged, according to property records.

The 23-story tower was completed in 2020 and, at the time, was a symbol of Oakland’s office boom. Blue Shield was the anchor tenant in the tower, leasing 255,000 square feet across the top nine floors. Other tenants include E.l.f. Beauty, which signed a lease for 27,831 square feet there in 2024, as well as consulting firm CRA International and engineering firm Degenkolb.

Like many Bay Area offices, the building struggled through the pandemic as leasing activity slowed, interest rates climbed and tenant improvement costs made deals hard to pencil. About 260,000 square feet remains vacant and available for rent, including eight contiguous floors still in shell condition.

The deal is the latest in a wave of Oakland office resets, with lenders increasingly taking back properties as values plunge. Comparable buildings that once traded for $400 to $500 per square foot have more recently sold for as little as $50 to $100 per square foot, according to the Business Times. That slide has implications beyond landlords and lenders, as lower valuations threaten property tax revenues, putting pressure on local governments already grappling with post-pandemic budget constraints.

In January, Deutsche Bank took over three office buildings in Oakland from Starwood Capital via deed-in-lieu of foreclosure. Those properties at 2100 Franklin Street, 2101 Webster Street and 1901 Harrison Street went back to lender Deutsche Bank after Starwood Capital racked up unpaid debt totaling $442.1 million.— Chris Malone Méndez