Brookfield CEO down on development of new offices in SF

Head of Brookfield Asset Management to San Francisco: No new office buildings … for now.

Bruce Flatt, CEO of the Toronto-based investment firm, said that given market conditions, he wouldn’t develop a new office building in San Francisco, the San Francisco Business Times reported, citing CNBC.

“San Francisco’s tougher — there’s a lot of excess space and you wouldn’t do it today, but eventually yes,” Flatt said in an interview Monday on CNBC’s “Squawk on the Street.”

“San Francisco is going to come back. It’ll be a great city in the long term. We don’t have a big exposure to San Francisco, but longer term it will come back.”

In the era of remote work and tech layoffs, one in three offices in the city are now vacant – with a glut of subleases now flooding the office market.

San Francisco this year faces a wave of office defaults, experts say, because of soaring vacancy rates and a drop in value of older buildings. 

Brookfield’s commercial real estate arm, Brookfield Property Partners, has already defaulted on  nearly $1 billion in loans related to office properties in Los Angeles and Washington, D.C.

“There is some real estate that is defaulting and some real estate interest rates went up a lot and tertiary or properties that aren’t well located, they’re bad,” Flatt said, when asked about the unpaid mortgages. “Those are a small percentage of our portfolio, but our core of our business which is great industrial, hotels, high-end retail, premium office is actually doing really well today.”

Like its peers, Brookfield is struggling to refinance properties because of higher interest rates, as well as the devaluation of office properties after the pandemic sent tenants scurrying home.

Brookfield, which owns several office buildings in San Francisco, has two large projects in the pipeline.

In October 2021, the owner of Stonestown Galleria filed plans for a $2 billion makeover of the 775,000-square-foot mall in Parkside Merced. If approved, the mixed-use redevelopment would include 3,000 homes and take two decades to complete.

Last April, Brookfield halted construction of its $3.5 billion mixed-use redevelopment of Pier 70, citing economic conditions from the pandemic. The Pier 70 project, which broke ground in 2018, calls for up to 2,150 homes and 2.3 million square feet of commercial space.

This month, the developer signed seven food and art tenants at the pier’s historic Building 12, which it had restored prior to packing up its tools.  

Brookfield owns a number of office buildings in the city, including One Post Street, 685 Market Street and the 5M office building at 415 Natoma Street, which it completed early last year, according to the Business Times.

— Dana Bartholomew