With office values tanking in San Francisco, lenders have grown willing to cut deals with landlords and lose millions on maturing mortgages.
Property owners with loans coming due can either overpay for the outstanding balance, walk away and let the building fall into foreclosure or negotiate a graceful exit for the bank, the San Francisco Standard reported.
The graceful exit may become a top choice for lenders, loath to be stuck with buildings in a city where 36.6 percent of offices sit empty.
And landlords increasingly want to use that leverage to pay off debts at deep discounts.
“The figures that borrowers and owners got [before the pandemic] are not as relevant anymore as the facts on the ground,” Gary Kaplan, a partner at Farella Braun + Martel who specializes in restructuring and bankruptcy issues, told the Standard. “Forget about the original money, it’s gone.”
Take Bank of America, founded in San Francisco and now based in North Carolina.
In December, its $53.6 million mortgage to Vanbarton Group was coming due for a 14-story,108-year-old Beaux Arts building at 115 Sansome Street, in the Financial District.
With support from the bank, the New York-based investor held a public auction to help the lender recoup some of its money. Vanbarton entered the fray — topping 20 bids to buy the building for around $35 million, The Real Deal reported.
That’s nearly 40 percent off the original loan amount and 60 percent less than the $83 million that Vanbarton paid for the building in 2016.
The landlord walked away from the auction free of debt — as the owner of a historic office building with an omakase sushi restaurant and Blue Bottle Coffee on the ground floor.
And B of A limped away having lost untold millions, but recovering part of its loan without a new title of building landlord.
A similar settlement occurred last month between Jamestown and its lender, Capital One, for the nine-story Rialto Building at 116 New Montgomery Street.
In 2015, the Atlanta-based investor bought the now 122-year-old building for $111 million. Last fall, Jamestown defaulted on its $60.6 million loan tied to the building.
But before an auction was scheduled, both sides cut a deal “whereby the outstanding loan balance was satisfied,” Jamestown spokeswoman Lisa Serbaniewicz told the Standard. She did not disclose the final price reached in negotiations.
Public records only show that Jamestown repaid its lender in March and, like Vanbarton, is now the sole owner of its building, according to the San Francisco Business Times.
— Dana Bartholomew
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