High-value deals in San Francisco plunge by nearly 50%

Hefty real estate deals in San Francisco have dropped by nearly half.

The number of transactions in the city topping $10 million in the fiscal year ending June 30 fell 45 percent to 55 deals, from 101 in the previous year, the San Francisco Business Times reported, citing figures from the San Francisco Controller’s Office.

The number of high-value real estate transactions fell 62 percent from the average 143 deals between fiscal year 2015 and fiscal year 2019.

The plunge in sales has hammered San Francisco transfer tax collection and appears unlikely to turn around soon, according to Macias Gini & O’Connell, the independent auditor behind the Controller’s report.

Sales of high-value real estate, a category of mostly commercial properties in Downtown San Francisco, are restrained by high interest rates and uncertainty about future workplace trends, MGO’s report said. 

That could force San Francisco to further trim its budget.

Revenue generated by transfer tax, a fee levied on real estate when it changes hands, fell to $186 million in fiscal year 2023, down more than 64 percent from $520 million in fiscal year 2022. Transfer tax revenue helps pay for basic services such as public safety, public health and public works. 

The first few Downtown office buildings to sell after the pandemic were in early fiscal year 2024, setting a new baseline for office values.

Transfer tax is levied only on the sale of real property, not on debt or properties transferred in lieu of foreclosure, according to the Business Times. Some of the biggest office deals over the past year were done through such in-lieu deeds, where a buyer picks up troubled or matured debt linked to a building, instead of slogging through a lengthy foreclosure.

Gaw Capital at the end of last year acquired North Park, a 294,000-square-foot office property at 75 Broadway, 560 Davis and 650 Davis streets it snagged through a deed-in-lieu-deal that valued the building at $82 million.

Strada Investment Group did the same early this year when it snatched up a 255,000-square-foot building at 201 Spear Street in a deed-in-lieu deal that valued the building at $67.25 million.

Had both deals traded without the deeds, the deals would have generated nearly $9 million in transfer tax revenue for San Francisco, according to the Business Times.

— Dana Bartholomew

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