Group I, the developer behind San Francisco’s first office-to-home conversion, has defaulted on a $26 million loan tied to the historic building.
The locally based developer was served a notice of default from its lender for the mortgage for 988 Market Street, in Mid-Market, the San Francisco Chronicle reported.
After restoring the 40,000-square-foot Warfield Building nearly a decade ago, the firm filed preliminary plans in late 2022 to convert the top five floors into 34 apartments.
Now the first project approved in San Francisco to convert vacant offices into housing after the pandemic is in jeopardy.
As of Feb. 2, Group I was behind on nearly $1 million worth of payments on its mortgage, according to the notice by Evertrust Bank, reviewed by the Chronicle. The notice is a predecessor to foreclosure.
The developer had filed plans to convert 25,000 square feet of the nine-story building into 34 homes, while retaining 15,000 square feet of offices. In 2013, Group I restored the century-old building next to the Lowes Warfield theater for $30 million, according to its website.
Last summer, San Francisco passed legislation to reduce the red tape for office-to-home conversions, making it more feasible for developers to build such projects.
Group I didn’t respond to messages by the Chronicle to comment about the status of the conversion.
Rich Hillis, planning director for the city, said he wasn’t aware of the developer’s debt on the property, but confirmed the reuse project was “entitled and ready to go.”
In her State of the City address last week, Mayor London Breed, who is running for re-election in November, trumpeted the Warfield office-to-housing conversion project as part of her aim to restore the city’s ailing Downtown.
Some 35.6 percent of the offices across San Francisco stand empty during a broad shift to remote work. The record vacancy has shrunk foot traffic and hurt sidewalk businesses.
Converting the unused offices into homes is touted as a way to bring people and life back to Downtown. Breed has announced a new initiative to bring 30,000 residents into Downtown by 2030, according to the Chronicle.
“To do that, we first need to create more housing Downtown. We’ve already passed a few local laws to remove and reduce fees and barriers to office conversions,” Breed said. “Our first office conversion is actually happening right now, 34 new homes at the Warfield Building that would not be happening if we hadn’t stepped in, and more are coming.”
Measure C, placed before the city’s voters on March 5 to make it more financially feasible for developers to turn downtown offices into housing, on Sunday led with nearly 53 percent of the votes, with all ballots counted.
The measure would exempt office-to-housing conversion projects from the city’s real estate transfer tax when they’re sold to new owners. The City Controller’s Office concluded the measure won’t likely save developers enough money to help them turn a profit.
More than one in 10 historic office buildings in Downtown San Francisco could be converted into homes, according to Moody’s Analytics, which found that 13 percent of the city’s smaller historic office buildings are candidates for office-to-home conversions.
— Dana Bartholomew
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