Gemdale USA lists trophy building that could reset SF office prices

Gemdale USA has put the first trophy office building in San Francisco up for sale since higher interest rates and record vacancy nuked the city’s ailing office market.

The Pasadena unit of China-based Gemdale has listed the 19-story, 387,600-square-foot building at 350 Bush Street, in the north Financial District, the San Francisco Chronicle reported. The asking price was not disclosed.

The gleaming glass building was developed in 2018 by Gemdale and Dallas-based Lincoln Property by fusing the historic terra cotta facade and columns of the now 101-year old San Francisco Mining Exchange Building with a new tower of Class A offices.

It’s not clear if Lincoln still has a share in the building, which doesn’t come up in a website property search.

Its sale could reset prices for San Francisco’s most desirable office buildings following the pandemic, real estate market observers told the Chronicle.

The building is the city’s first trophy asset, or premium building in terms of value, demand and location, to be listed since high interest rates, growing office vacancy and poor economic conditions curtailed investor interest in the office segment of the market.

The tower is also fully leased to tech companies Twitch, Atlassian and advertising firm Publicis at pre-pandemic rental rates considered to be “performing.”

“Every building is unique and has its own elements that make it marketable or unmarketable, but it does give us an idea of what we consider to be ‘tier one’ type of buildings might be worth,” Alexander Quinn, director of research for brokerage JLL, told the Chronicle.

“These types of buildings ultimately should drive higher pricing, especially considering the circumstances of this specific building, which generally has pretty good occupancy levels,” he said. “Its sale could give us a pretty good idea of what a higher-end building will go for.” 

In 2019, the building was appraised at $522 million, or $1,346 per square foot. An updated appraisal would factor in rents in the remainder of the market, which would sink its value, according to an unidentified market participant.

The tower would have to sell for at least $650 per square foot to clear the loans that backed its construction, estimated at $250 million, according to an unidentified source. At that price, Gemdale could seek at least $251.94 million. 

At the same time, values of non-trophy buildings have plunged in the last couple of years to less than half their earlier traded prices. 

In August, the 157,400-square-foot building at 60 Spear Street sold by New York-based Clarion Partners for $41 million, or $260 per square foot.  

In September, the vacant 355,000-square-foot office building at 550 California Street was sold by locally based Wells Fargo for $40.5 million, or $114 per square foot.

Other steeply discounted offices sold for between $200 and $300 per square foot.

Owners chose to sell because they wanted to cut their exposure to office real estate, growing office vacancies and maturing loans and the higher cost of borrowing.

“Anybody selling right now is doing so either because they’re in trouble, or they’re trying to get out, or because they’ve got some equity and are thinking, ‘It’s not going to get better — so we’ll get out now,’” an unidentified veteran San Francisco office broker told the Chronicle. 

Some 13 San Francisco office buildings sold last year, according to JLL. 

While two buildings have sold this year, 10 are on the market and three are in pending deals, including 255 California Street and 33 New Montgomery Street, at respective discounts of 75 percent and 50 percent.

— Dana Bartholomew

Read more

San Francisco

San Francisco office buyers look for bargain-basement deals

San Francisco

Presidio Bay Ventures buys office building in Downtown SF for $41M