PGIM Poised to Sell 18-Story Office Building in SF for $70M

PGIM Real Estate Finance is poised to sell a 252,600-square-foot office building in Downtown San Francisco whose owner went sideways on a $125 million loan.

The lender, the real estate arm of Prudential Financial in New Jersey, has cut a deal to sell the 18-story tower at 201 Spear Street in the South Financial District for close to $70 million, the San Francisco Business Times reported, citing unidentified sources. The buyer is locally based Strada Investment Group and an undisclosed equity partner.

The deal works out to nearly $270 per square foot. Eastdil Secured is brokering the building sale.

A KBS Realty Advisors fund bought the Class-A building in 2013 for $121 million, or $465 per square foot. The Newport Beach-based investor indicated in August it was poised to surrender the building to the lender.

The office building, home to such firms as WeWork and Google, faces a financial crisis as its occupancy and value plunge ahead of a debt maturity deadline in January.

KBS reported this week that it didn’t expect to make its full mortgage payment this month.

PGIM, which is already overseeing the building’s sale, told KBS that failure to make the payment by Nov. 14 would send the loan into default.

A slump in value of the 39-year-old office building near the Embarcadero reflects the fall of San Francisco’s once robust office market, where offices are now a third vacant.

In 2019, the brown accordion-faced tower with waterfront views was 97 percent leased.

Last March, its occupancy had dropped to 65 percent — half taken by New York-based WeWork, now bankrupt. Google, a WeWork tenant, was set to pull out last month. Should WeWork leave, occupancy would drop to 30 percent.

The office building is the latest to trade hands in Downtown San Francisco at a severe discount, including offices at 550 California, 350 California, 180 Howard and 60 Spear streets, each of which have sold for between $120 and $260 per square foot.

Strada Investment, founded in 2011, has largely invested in offices. But in the summer last year, it handed off a 270,000-square-foot office tower project in San Francisco’s South of Market, after winning approvals at 490 Brannan Street.

The previous May, the firm filed plans to construct a 16-story, 500-unit apartment complex on Bryant Street in South of Market. The $220 million tower is now under construction.

Among its development projects is a new campus for Samuel Merritt University at 520 11th Street in Downtown Oakland and a joint venture with Trammell Crow for a $1.2 billion plan to redevelop two aging San Francisco piers along the Embarcadero into offices, housing and a floating swimming pool.

— Dana Bartholomew