Real estate investor Cyrus Sanandaji has placed a $91 million bet on Downtown San Francisco, dubbed early this year as “the most empty downtown in America.”
The founder of locally based Presidio Bay Ventures has bought an 11-story, 56-year-old office building at 60 Spear Street in the south Financial District for $41 million, with plans to pour in another $50 million to fix it up, the San Francisco Chronicle reported.
The seller was Clarion Partners, which bought the 157,400-square-foot building in 2014 for $107 million. The New York-based investor took a $66-million bath on the deal.
When news leaked of the sale, Sanandaji was barraged with phone calls from investors.
“There was a ton of interest from institutional folks who had previously told us San Francisco was a ‘no-fly zone,’” Sanandaji told the Chronicle. “They were not ready to write the check, but they were asking, ‘What are you seeing that we are not? What are you seeing on the ground that has inspired you to make this bet?’ Even to have that conversation was a massive shift.”
Sanandaji has high hopes for the city, where one in three offices are empty, where an increasing number of storefronts stand empty, and where developers have halted major projects.
He points to the city’s central role in artificial intelligence. This year San Francisco, dubbed by Mayor London Breed as “the AI capital of the world,” received $12 billion in funding for its growing number artificial intelligence companies.
He points to San Francisco trailing only Austin among U.S. cities gaining employees over the past 12 months, according to LinkedIn. The city’s “Area AI” now has two dozen firms.
And he points to widespread reporting on the open-air drug markets and street crime plaguing parts of SoMa, the Tenderloin and Civic Center, which he says has distorted global perception.
“There is a major perception and reality disconnect in San Francisco right now,” Sanandaji told the Chronicle. “Nationally and internationally, people conflate what is happening in Mid-Market and Seventh and Mission as representative of what is happening in the entire 7X7.”
Sanandaji says his investment at 60 Spear includes a building with 16-foot ceilings just a block and a half from the Embarcadero. A makeover will add a spa and fitness center, podcast studio, golf simulator and a rooftop restaurant and bar.
Plans for the building also include a co-working office, and dining and entertainment similar to Springline, an urban retail village that Presidio Bay opened last year in Menlo Park.
Ken Rosen, chairman of the Berkeley Haas Fisher Center for Real Estate and Urban Economics, said a growing number of investors look to buy into the city at a “60 percent to 70 percent discount.
“The recovery is absolutely starting,” Rosen told the Chronicle. “If you can buy any good building in the downtown core for $200 or $300 a square foot, it’s a good medium- to long-term bet.”
— Dana Bartholomew
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