Redco looks to make another low-ball buy of San Francisco offices

Redco Development is in talks to buy a historic office building in San Francisco’s Financial District for around $26 million, a third of what it traded for five years ago.

The local investor may be close to a deal with Intercontinental Real Estate and Harvest Properties to buy the 12-story Kohl Building at 400 Montgomery Street, the San Francisco Business Times reported.

The price in negotiation for the 85,600-square-foot building is $300 per square foot, or $26 million.

Boston-based Intercontinental and Oakland-based Harvest bought the building in 2019 for $77.5 million, or $906 per square foot, 55 percent more than it sold for three years earlier. In 2016, the same building traded for nearly $50 million, or $582 per square foot.

The deal hasn’t closed. Intercontinental and Harvest listed the property in April priced in the low $300s per-square-foot range, according to the Business Times.

The building is 69 percent occupied, according to marketing materials from JLL, with a weighted average lease term of just more than two years. Since 2016, landlords have invested $22.8 million in the property.

The pending deal by Redco would be its third in Downtown San Francisco in just the past year. 

At the end of last year, Redco partnered with investors and members of the Harrington family to acquire and reopen Harrington’s, a beloved Irish bar in the Financial District.

Six months later, Redco and locally based GCI Contractors bought a 120,000-square-foot, eight-story office building at 300 California Street, a block from 400 Montgomery, for $28.5 million, or $238 per square foot.

Chris Friese, a managing partner for Redco, told the Business Times in May the firm was taking a long view of Downtown San Francisco. In doing so, it joined other local investors over the past year to buy up Downtown real estate at fire-sale discounts.

Since a pandemic shift to remote work, office vacancy in San Francisco shot up to a record 37 percent, according to CBRE.

Recent Downtown office building sales in San Francisco have reset the market. Many sales are driven by lender pressure, as building owners who bought properties in the years leading up to 2020 found themselves with looming loan maturities and no viable way to refinance their debt, according to the Business Times.

Webster Bank originated a $31 million loan when Intercontinental and Harvest bought 400 Montgomery in 2019, though public records don’t include the loan’s maturity date. It’s not clear whether lender pressure motivated Intercontinental and Harvest to try to sell the building.

The landmark building, built in 1901 on Montgomery and California streets, survived the 1906 San Francisco earthquake. It was renovated in 2018.

Redco Development, founded in 1956 as a masonry firm, was relaunched in 2019 by Chris and Jason Friese, grandsons of its founder, according to its website. The firm focuses on adaptive re-use and repositioning commercial properties.

In November, Redco and Midar Investment employed the builder’s remedy to propose a 382-unit, 17-story apartment complex in Palo Alto, the third tallest in town.

In March last year, Redco and AEW Capital Management walked away from San Francisco’s historic First National Bank building after failing to make their mortgage payments for 1 Montgomery Street. 

— Dana Bartholomew

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