LBA Realty finds office bargain in San Francisco debt deal

There’s little doubt that San Francisco of Haight-Ashbury fame sees the world differently from Orange County, where “good Republicans go before they die,” as Ronald Reagan once proudly proclaimed.

But a bargain is still a bargain, and it looks as though one of Orange County’s major real estate investors sees bargains in San Francisco these days. 

The bargain hunter is Irvine-based LBA Realty, the San Francisco Business Times reported. The firm is betting that the 182,000-square-foot, 14-story office building at 255 California Street in San Francisco’s Financial District will rebound in value. 

LBA bought a $92 million loan against the property from the Teachers Insurance and Annuity Association (TIAA). Rockpoint transferred ownership to LBA in a July 26 deed-in-lieu transaction worked out in conjunction with TIAA.

No details of the deal were disclosed, but the  Business Times cited sources who indicate that the $92 million note traded for $55 million — fetching about 60 cents on the dollar to deliver a price around $300 per square foot.

That amounts to about a third of the $157 million — or $860 per square foot — that Rockpoint paid for the 14-story office. The Boston-based investor made the investment in June 2019, less than a year before the onset of the pandemic.

LBA is a long-established investor with a diverse portfolio of office and industrial properties, ranging from Park Place in Irvine to North Town in San Jose. 255 California is the firm’s second deal for an office in San Francisco in the past year, following the $25 million buy of the 83,000-square-foot Showplace Square building at 650 7th Street from Blackstone. That deal  also equated to around $300 per square foot, or about half of what Blackstone paid for the property in 2016.

The search for bargains in San Francisco’s office market is one of several flashing indicators that the market has hit bottom, found its footing and could be taking steps toward a comeback.

San Francisco-based Redco gave the trend a hometown boost when it bought 300 California Street, paying $28 million — or $240 per square foot — for the 119,000-square-foot building in the Financial District.

The deals with bargain prices come as San Francisco continues to see vacancy rates of 35 percent or more for its 89.2 million-square-office market, according to CBRE.