Two San Francisco office properties trade at fire-sale discounts

Two office buildings in San Francisco have traded for tens of millions less than they sold for a decade ago.

Ellis Partners and Flynn Properties have snagged a 108,800-square-foot office building in San Francisco for $35.6 million — more than $26 million less than it traded for in 2014, IPE Real Assets reported, citing unidentified sources.

The locally based investors bought the nearly century-old building at 631 Howard Street, in the South Financial District. The sellers were Invesco Real Estate, based in Atlanta, and ASB Real Estate Investments, based in Maryland.

The deal works out to $327 per square foot.

Investco and ASB bought the four-story building in 2014 for $62 million, or $570 per square foot.

The Art Deco building, built in 1929, has been listed in a JLL brochure as a “best-in-class creative office,” with  open floor plans, modern finishes and abundant natural light. 

The building is fully leased to SC Johnson & Son and Finix through September of next year. Rents paid by the tenants were not disclosed. Ellis Partners declined a request for comment by IPE, a website for institutional real estate investors.

Fountainhead Development also got a scorching office deal, according to IPE, citing another unidentified source.

The Alaska-based investor bought a 187,200-square-foot building at 795 Folsom Street in South of Market for $46.8 million, or $250 per square foot. The six-story building is 33 percent occupied. 

The seller was ASB Real Estate, which traded the property for $63.2 million less than it paid 11 years ago. ASB bought the property in 2013 for $110 million, or $588 per square foot.

The purchases by Ellis-Flynn and Fountainhead fall in line with other recent San Francisco office deals roughly in the $300 per square foot range.

Late last month, Irvine-based LBA Realty bought a loan tied to a 182,000-square-foot, 14-story office building at 255 California Street in the Financial District. The deal worked out to $300 per square foot, a third of what the property traded for in 2019.

In April, locally based Redco Development and GCI bought 300 California Street, a 119,000-square-foot office property, for $28 million, or about $240 a square foot. Last month Redco was in talks to buy a 85,600-square-foot office building at 400 Montgomery Street in the Financial District for $26 million, or $300 a square foot. That’s a third of what it traded for five years ago.

The San Francisco office market has been hit hard by a broad shift to remote work, higher borrowing costs and building defaults. Office vacancy is a record 37 percent, according to CBRE.

Capital Economics had forecast a 40 percent fall in capital values in the San Francisco office market between 2023 and next year, according to IPE.  Local real estate firms see opportunity.

— Dana Bartholomew

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