TMG faces roadblock in purchase of office building in SF’s SoMa

TMG Partners has hit a snag in its quest to buy a troubled retail-office building in San Francisco’s South of Market.

The locally based investor faces a roadblock in purchasing the 92,000-square-foot building because of a delinquent loan that may put its landlord on the hook for millions from the sale of 731 Market Street, the San Francisco Business Times reported, citing unidentified sources.

The landlord, Atlanta-based Jamestown Properties, has defaulted on $93.1 million in mortgages tied to two historic office buildings in Downtown. 

Among them was a $32.5 million loan tied to the Market Street building near Union Square. The loan, due last April, had $25.5 million in unpaid debt to Capital One.

Jamestown paid $65.5 million, or $712 per square foot, for the now 116-year-old building.

Last spring, Capital One asked a San Francisco court to begin a judicial foreclosure, according to the Business Times. In July, the Virginia-based bank served Jamestown with a notice of default. 

Jamestown spokesperson Lisa Serbaniewicz said the firm continues to negotiate with its lender, but declined to say more.

Meanwhile, TMG has circled as a potential buyer since at least last fall, multiple sources told the Business Times. A potential purchase would come as local investors look to snap up offices at steep discounts given that office properties across the city have a record 35.9 percent vacancy rate.

But there’s a problem.

The $32.5 million mortgage is a partial recourse loan, meaning that Jamestown must make up a portion of the financial shortfall if the building sells for less than the value of the debt.

Loan documents from Capital One’s October lawsuit show that Jamestown, under the terms of its partial recourse loan, has a guaranteed obligation of $12 million.

A potential sale of between $160 to $180 per square foot, or $14.72 million to $16.56 million, sources say, would put the building’s sale price far below the value of Jamestown’s unpaid debt, keeping the $12 million obligation in play, according to the Business Times.

The $12 million obligation, coupled with proceeds from a potential sale, could position Capital One to recoup a majority of the $32.5 million loan, with Jamestown facing a major loss.

Each of the building’s five floors of offices, or close to 70,000 square feet, is available for lease, according to online listings. CVS, which closed its ground-floor storefront in 2022, is committed to its lease through 2031.

In San Francisco, Jamestown also owns the landmark Ghirardelli Square, the 930,000-square-foot Levi’s Plaza and a 42,000-square-foot office and retail building at 660 Market Street.

— Dana Bartholomew

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