How low? LNR buys San Francisco office building for 11% of 2018 price

Unit of Starwood Property pays $6.6M at auction, or $72 psf, for Hewes Building

How low? LNR Buys SF Office Building for 11% of 2018 Price
Starwood Property Trust's Job Warshaw with 995 Market Street (Starwood Property Trust, Google Maps)

LNR Partners has snagged a 90,500-square-foot office building in San Francisco with a winning auction bid of $6.56 million — or 10.5 percent of its last traded price.

An affiliate of the Miami-based investor took control of the 16-story Hewes Building at 995 Market Street, in Mid-Market, the San Francisco Business Times reported. The seller was Bridgeton Holdings, based in New York.

The deal for the tower at Market and Sixth streets works out to $72 per square foot. 

The mostly vacant building was auctioned off eight months after Bridgeton Holdings defaulted on a $45 million mortgage loan. The investor bought the tower in 2018 for $62 million, or $685 per square foot.

LNR, a unit of Connecticut-based Starwood Property Trust, had been acting as special servicer for the $45 million loan. The LNR affiliate took over the loan this month from the original lender, Dallas-based LStar Capital.

Bridgeton, which told lenders last summer it would stop payments on the loan, owed more than $47 million by the April 18 auction.

Because it had taken over the loan from LStar, LNR could have simply credited the $6.56 million auction bid against the more than $47 million Bridgeton owed on the building, instead of plunking down cash at auction, according to the Business Times.

David Putro, head of commercial real estate analytics at Morningstar, said it’s likely LNR would try to sell the property, with proceeds going back to commercial mortgage-backed security bondholders.

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Mid-Market, once bolstered by a payroll tax cut that lured tech companies to the area, was hit hard during a broad shift led by tech firms to remote work during the pandemic.

This month, Washington, D.C.-based ASB Real Estate Investments listed a 117,200-square-foot, six-story office building that once served as the headquarters for Zendesk at 989 Market Street for a reported $12 million, or $102 per square foot.

The Mid-Market building’s asking price is 80 percent less than it traded for a decade ago.

Last month, Hudson Pacific Properties agreed to give the City of San Francisco a cut-rate deal for up to 1 million square feet of offices at a 22-story office building at 1455 Market Street in Mid-Market.

Even as Bridgeton cut its losses at 995 Market Street, the investor poured more money into San Francisco.

The day its offices in Mid-Market went on the auction block, Bridgeton and New York Life Real Estate Investors closed on a 76,000-square-foot office building at 410 Townsend Street in South of Market for $22 million, or $290 per square foot. That’s a quarter of what the building last traded for in 2019.

— Dana Bartholomew

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