By Jon Peterson
Juul, the e-cigarette maker that has been surrounded by controversy over the last few years, has made the decision to bring back to the market its 346,000-square-foot headquarters office building in San Francisco located at 123 Mission Street. The pricing guidance on the sale is in the neighborhood of $450 per square foot, according to multiple sources that track the sale of office buildings in San Francisco. That would bring the potential sales price of the property at around $155 million.
Juul has awarded the listing to the San Francisco office of Newmark. The real estate services company did not respond to multiple emails seeking comments for this story.
The seller will face a difficult time with this sale on a couple of fronts. One is that the property has real estate debt that is valued significantly more that the potential asking price on the sale. Industry sources have indicated that there is roughly $700 million of current debt on the property. The first mortgage is in the neighborhood of $500 million, which is held by insurance giant AIG, and a roughly $200 million second mortgage is provided by Square Mile Capital. A company representative of Square Mile declined to comment when contacted for this story.
Another difficulty in selling the property is that the asset is currently vacant. Capital sources that have shown any interest in buying office buildings in San Francisco have done so on properties that are either leased to a single tenant with strong credit or to several tenants in a nearly fully leased property. No capital sources are currently willing to take leasing risk given the present state of the office market in San Francisco.
According to data compiled by Cushman & Wakefield, the overall vacancy for the San Francisco office market increased by 130 basis points during the third quarter. It went from 21.7 percent to 23 percent. This happened as more companies are turning to remote or a hybrid work model, and the need for space is lessened or put on hold. Asking rents in the central business district for Class A space fell three percent to $78.15 per square foot. This result is due to mostly new leasing of quality space in non-CBD submarkets.
The asking price for the Juul building shows how far potential sale prices on buildings have fallen in three years. The seller had paid $397 million for the property when it purchased the asset in 2019. It also tried to sell the property in 2020. One potential bidder on the property was PGIM Real Estate, which ultimately decided not to buy the property.