Canyon Catalyst Funds and Rubicon Point Properties have allegedly defaulted on a $42 million loan tied to an 85,200-square-foot office building in San Francisco’s Civic Center.
Lender East West Bank, based in Pasadena, has sued the partnership alleging the mortgage loan default, and has asked that the six-story building at 1128 Market Street be put into receivership, the San Francisco Business Times reported.
Canyon Catalyst — a joint venture between the real estate arm of Los Angeles-based Canyon Partners and the California Public Employees’ Retirement System — teamed up with San Francisco-based Rubicon in 2018 to buy the office and retail building for $49 million.
The partnership missed more than $2.2 million in monthly payments and other related fees in May, according to a notice of default filed late last month. The outstanding balance on the $42 million loan, set to mature in 2025, was more than $33 million.
The partnership between Canyon Catalyst Funds and Rubicon Point Properties began a decade ago, when they invested in more than half a dozen office properties in Northern California, according to the Business Times.
Canyon Catalyst served as the equity partner, while Rubicon served as manager for the properties, including the building at 1128 Market. Rubicon had planned to renovate the curved white-and-gray building, built in 1982, for tech tenants, according to a marketing brochure. Upgrades were to include a new lobby, shops, paint and maybe a rooftop deck.
While Rubicon applied for permits last year, its revamp never got off the ground.
Rubicon appears to have tried leasing the entire building, including nearly 79,000 square feet of offices and 6,000 square feet of shops, starting in 2019. It was billed as a “rare full building opportunity in the city’s most dynamic neighborhood,” according to the brochure.
Since then, The Civic Center and Mid-Market have been hurt by widespread retail and office vacancies, rising homelessness and open-air drug use, according to the Business Times.
East West, a unit of East West Bancorp, is pursuing a nonjudicial foreclosure of the property, according to court papers.
A nonjudicial foreclosure allows a lender to seize and sell the property without court intervention, allowing a bank such as East West to recoup its money faster than in a judicial foreclosure.
Canyon Catalyst and Rubicon have 90 days from the Oct. 30 notice of default to repay the $2.2 million owed, or East West Bank could foreclose on the building.
Despite the hiccup in paying its bills in Civic Center, Rubicon late last month bought a 137,600-square-foot office building at 123 Townsend Street in South of Market for $73 million.
Ani Vartanian, co-managing partner of Rubicon, said the firm bought the building because of a rise in demand this year from office tenants — 5.5 million square feet compared to 3.5 million square feet last year.
The deal, she said, was a “comment about San Francisco and the Bay Area.”
— Dana Bartholomew
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