Earlier in the summer, two office properties in San Francisco hit the market with hopes of getting strong interest from investors who wanted a piece of San Francisco’s commercial real estate market. There was interest, however, it was very unsatisfactory, and the two properties have been removed from the market.
The two properties are located at 455 Market Street and 550 California Street. UBS Realty Investors is the owner of the 374,203-square-foot 455 Market Street office building in downtown San Francisco, and in June of this year, the company set pricing guidance on the sale is $280 million, or $750 per square foot, according to previous reporting by The Registry. UBS worked with the San Francisco office of Eastdil Secured as the listing agent on the sale and to help make the property.
455 Market is a multi-tenant property with some larger, decent credit tenants. One of the building’s main tenants is Hinge Health Inc., which according to the company’s website is listed as its headquarters.
UBS has been the only property owner this asset has ever had. The real estate manager was the original manager and developer of the property when it was first constructed in 1987. The office building is now 80 percent occupied, which some industry sources believe represents good occupancy given what has been going on with the overall office market in San Francisco.
550 California is owned by Wells Fargo. The bank had just extended a 620,000 square foot lease in the city, yet at the same time, it placed on the market for sale this property located seeking $160 million, or roughly $450 per square foot, for the 355,000 square foot building. Wells Fargo had engaged the San Francisco office of JLL to market the asset.
The property is thirteen stories high, and it was constructed in 1960. Wells Fargo acquired the asset in 2005 for $108 million. Its sale marks the bank’s strategy to reduce real estate holdings across its portfolio in the region and also across the country. In an earnings call earlier this year, Wells Fargo’s Chief Financial Officer Mike Santomassimo stated that the bank would be looking to reduce its real estate portfolio by around 7 percent. This is following the reduction in force across the bank of around 6 percent since early 2021.
According to a report by the San Francisco Chronicle, both properties received offers, albeit far below the expected range, and because of that they have been pulled from the market.
UBS received offers around $500 per square foot, about 33 percent less than what it was seeking, while Wells Fargo’s bids came in around $250 per square foot, or roughly 45 percent below asking pricing.
This level of interest marks a remarkable turn of events for the city of San Francisco and for its Class-A office product stock. While both of these properties had some challenging circumstances—455 Market is a multi-tenant property, while 550 California would have been vacated by Wells Fargo—it was difficult to gauge where the pricing would land. In many ways, these two properties were going to be some of the first ones to test the market, which preferred properties with single occupancy and longer credit leases.
Both properties are located within the Financial District submarket of San Francisco. The current vacancy in this area is 22 percent, according to data compiled by the San Francisco office of CBRE. The total amount of space that is available is in excess of 28 percent. The size of the office market in this part of San Francisco totals 27.1 million square feet, according to CBRE’s reporting.
