Kylli Loses SF Office Tenant as $350M Loan Deadline Looms

Sunrun has uprooted its headquarters from a 22-story office building in San Francisco’s Financial District, leaving its landlord in the lurch ahead of a looming loan deadline.

The locally based solar company has pulled up stakes from its corporate office at the century-old building at 225 Bush Street, leaving nearly 44,000 square feet of empty offices, the San Francisco Business Times reported, citing an unidentified source.

The vacancy represents 7.5 percent of the leasable floor inside the 580,000-square-foot building owned by Kylli, whose $350 million loan tied to the property matures in November.

Sunrun, which had leased offices there in 2019, relocated its hub to smaller digs at 600 California Street, where it leased 14,800 square feet of offices late last year. In May, it listed the new building as its main address.

Kylli, a Santa Clara-based unit of Chinese pharmaceuticals and real estate company Genzon, bought the former Standard Oil building at 225 Bush Street in 2014 for $350 million, or $600 a square foot, according to the Business Times.

Five years later, the firm refinanced the building with a $350 million loan.

When Kylli took out the loan, the building was fully occupied. As of March, the most recent month for which figures are available, it was 47 percent occupied. The building’s two largest tenants, LiveRamp and Stryder, take up a respective 77,000 and 53,000 square feet, with leases ending in 2029 and 2027.

After Sunrun’s exit, the building’s occupancy now stands at less than 40 percent. That puts Kylli in a tough spot.

Its $350 million loan was placed on a watchlist in 2021 after the building’s debt service coverage ratio, or ability to cover its debt obligations, fell below the required threshold. In three months, the loan comes due.

The building’s high vacancy could make it difficult, or more costly, for Kylli to secure an extension from its lenders when the loan matures this fall, according to the newspaper.

Two years ago, the Kylli-owned building, built in 1922, raked in $40 million in revenue when it was 100-percent full, according to commercial mortgage-backed securities data cited by the Business Times. That sank to $24 million last year, when the building was less than half full.

The overall office vacancy in San Francisco is 37 percent, according to CBRE, following a shift to remote work. Office buildings have been trading for around $300 per square foot.

Some building owners have worked with their lenders to sell buildings at discounts ahead of looming loan maturities, while others have simply walked away from their investments, allowing lenders to foreclose. Kylli did not respond to a request for comment.

Kylli, founded in 2013, has more than $1.6 billion in assets under management in California, which include more than 500,000 square feet of offices in San Francisco, 800,000 square feet of offices under construction in Burlingame and more than 48 acres of land in Santa Clara, according to its LinkedIn page.

— Dana Bartholomew