By Jon Peterson
The historic Humboldt Bank Building at 785 Market St. in San Francisco has tumbled into mortgage default, according to a monthly report for March prepared by Morningstar Credit Ratings LLC.
A five-year, interest-only loan of $13.3 million against the 92,600 square-foot Class B building matured Feb. 1. The borrower, Seligman Western Enterprises Ltd., is in discussions with special servicer C-III Asset Management LLC based in Irving, Texas, and a forbearance agreement that terminates May 1 has been executed, according to Trepp LLC. Seligman Western Enterprises is part of the Seligman Group.
The loan remained current through January but was put on a “watch list” by Trepp in November. Revenues from the property declined in 2010 and during the first three quarters of 2011 as occupancy fell from 98 percent to 91 percent. At the same time, expenses nearly doubled from not quite $636,000 for all of 2009 to more than $1.3 million for the first nine months of 2011, Trepp reported.
Morningstar reported debt service coverage of 1.28 as of Sept. 30, and a loan-to-value of not quite 93 percent.
Justin Shapiro, director of acquisitions at Seligman, and Paul Smyth, president at C-III, declined comment.
The 19-story office building was completed in 1907 and became home to the Humboldt Savings Bank in 1908. It is considered a landmark and is notable for its red tile wedding-cake dome. It is the same vintage as One Kearny, The Chronicle Building and The Call Building, all of which are located one block east on Market Street at Third Street. It is also located near Union Square and passenger stations providing access to BART and San Francisco Municipal Railway, known locally as Muni.
A third of the building’s leases come up for renewal in the next two years.
Seligman owns two other office buildings in downtown San Francisco, the 90,000 square-foot Robert Dollar Building at 311 California St. and the 98,000 square-foot 1035 Market St. It also owns the 53,000 square foot Ocean Dorado retail property at 1830-1850 Ocean Ave., where it is landlord to a Rite Aid drug store and a 24-Hour Fitness gym.
The default is a bit of a head-scratcher in that Seligman appears to have substantial resources at its disposal and the San Francisco leasing market is as strong as it has been in a number of years. Seligman has extensive real estate holdings in Southern California and elsewhere, including multiple historic and vintage apartment buildings in Los Angeles. Surging demand from technology companies for space is also reducing vacancy rates and pressuring rents.
Last year saw occupied office space in the city grow by 1.8 million square feet and 20 percent rent growth, according to new numbers from Jones Lang LaSalle. “The Bay Area is the best-positioned regional economy in the United States. It is ahead of the game short term and ahead of the game long term,” Peter C. Roberts, JLL chief executive officer for the Americas, told a San Francisco gathering last week. Office vacancy is 13 percent to 14 percent.
But, law firms and the financial services industry, two sectors that have traditionally been sources of significant space demand, are entirely absent from the leasing market, and should tech falter, it is not at all clear what would take its place, if anything. Also, tech companies are leasing with expectations of growth. Some fear, however, that the regional talent on tap to fill the expected job openings is not deep enough.