KPMG considers exit from namesake building in San Francisco

Accounting giant KPMG may pull out of its namesake 26-story office tower in San Francisco.

The Netherlands-based firm is seeking to move into a smaller office after its lease for 125,000 square feet expires at the end of the year at 55 2nd Street, in the South Financial District, the San Francisco Chronicle reported, citing a new listing as well as unidentified sources.

KPMG currently takes up eight floors of the 380,000-square-foot building of granite and green-tinted glass, managed and partly owned by Paramount Group, based in New York.

A year after the Art Deco-inspired building was built in 2002, the accounting firm inked a 10-year lease for 90,000 square feet of offices, while obtaining naming rights. It then grew its footprint to take up a third of the tower.

With its nearly two-decade occupancy set to expire, its offices are on the market for direct leasing.

People with knowledge of the listing have confirmed that KPMG was on the hunt last year for a new, smaller office in San Francisco, according to the Chronicle.

They told the newspaper that KPMG seeks around 75,000 square feet of offices, or 40 percent fewer than its current cubicles. It’s not clear if it has found a new location.

It’s also not known whether the firm is negotiating to keep all or some of its offices on 2nd Street.

Its exit would impact the San Francisco office market, now at 35.9 vacancy after a general shift to remote work. It would also impact the building’s landlords, with pressure to lower rents.

Paramount Group and Harel Insurance, based in Israel, bought the building in August 2019 for $408 million, or $1,054 per square foot, according to the San Francisco Business Times. Its occupancy rate was 95.7 percent.

The joint venture assumed an existing $137 million mortgage tied to the acquisition and “upsized it by an additional $50 million,” Paramount said in a 2019 annual report to its investors.

That $187 million mortgage is slated to mature in 2026, according to the Chronicle.

The tower, now 86.7 percent occupied, has such tenants as software companies Intercom and Rippling.

To date, Paramount has warded off the fate of other landlords who gave up properties after defaulting on loans tied to increasingly hollow office buildings.

Last week, Paramount and Blackstone cut a deal to extend a $975 million loan tied to the 1.6 million-square-foot One Market Plaza at 1 Market Street, in the Financial District.

In October, Paramount was at risk of defaulting on a $273 million loan tied to a 660,000-square-foot tower at 300 Mission Street, in the South Financial District. But it managed to land financing, now set to mature in 2026, according to a regulatory filing.

— Dana Bartholomew

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