Juul relights 29-story office sale attempt in San Francisco

Juul Labs, the e-cigarette firm once based in San Francisco, has re-sparked efforts to offload a 29-story office building in South of Market. The price: $174 million.

The Washington, D.C., company has relisted the 387,600-square-foot tower at 123 Mission Street after a failed attempt to sell it in 2020, the San Francisco Business Times reported, citing unidentified sources.

Newmark holds the listing, at $450 per square foot.

Juul paid $397 million— more than $1,000 per square-foot — when it bought the four-decade-old building from Northwood Investors in 2019. It asked $450 million when it listed it for sale a year later.

The vaping firm would take a haircut on the property – if it can sell it. The deal is muddied by a CMBS loan, according to the Business Times.

Two office properties listed last summer — Wells Fargo’s 620,000-square foot tower at 550 California Street and UBS Realty Investors’ 374,000-square-foot building at 455 Market Street — were pulled after lackluster offers.

Wells Fargo asked $160 million, UBS $280 million. Both properties are in the Financial District, as is Juul’s 123 Mission.

The pandemic has upended the office market in San Francisco, with a vacancy rate that hit a record 25.5 percent late last month, up 20 percent from a year earlier, according to CBRE Group. Other tracking companies put the chunk of empty offices at slightly less.

Workers have been slow to return to Downtown, with 40 percent less office use than before the contagion, according to security company Kastle Systems.

Office values in the city have dropped nearly 40 percent per square foot from a high in December 2020, according to MSCI Real Assets.
The decline mirrors a broader economic slowdown in San Francisco, with home prices falling, employment declining and tourism lagging.

In June, the Food and Drug Administration ordered Juul, owned in part by tobacco giant Altria, to take all of its vapes off the market, citing a failure to show their products are appropriate for the protection of public health.

A sale of the Juul building would set a benchmark for pricing overall, according to local real estate experts. The market is beset with high interest rates, office vacancies and a lack of sales comps.
“Once something sells, it could lead to more sales,” an unidentified source told the Business Times.

Last year was marked by some notable San Francisco office sales. Buildings at 510 Townsend and 505 Brannan streets, formerly leased to Stripe and Pinterest, respectively, sold for $572 million. Another building leased to Ancestry.com at 153 Townsend sold for $225 million.

Some forecast a big wave of office building deals next year – with some “distress,” according to sources. That could mean keys being handed back to lenders, or building owners cutting their losses and selling at a discount.

— Dana Bartholomew

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