San Francisco Braces For Onslaught of Office Defaults and Foreclosures

Laura Waxman, reporter for the SF Business Times, wrote yesterday that investors who purchased office buildings prior to 2020 paid top dollar. I remember prices of $800-1000 per square foot or more announced back in the good old days before the pandemic hit. “Companies paid top dollar for amenity-rich workplaces designed to keep employees both engaged and productive for long hours…” and now the five-day work week in the offices basically doesn’t exist anymore. Companies put millions of feet on the office sublease market, others downsized or canceled leases, and the overall San Francisco office vacancy rate is now reportedly at 23- 28%.  Cap rates are way up with the rise in interest rates, and lenders are now adverse to make or even renew many office building loans. “Other high-profile office towers have landed on so-called watchlists for various reason in 2023. They include the former San Francisco headquarters of Charles Schwab Corp. at 211 Main St. in SoMa; One Market Plaza, which counts Google among its tenants; and 300 Mission St., where Autodesk shuttered its brand new office early last year.” As John Drachman, Professor at USC real estate department and a co-founder of Watershed Property Co. said, “Office buildings to me are like the DVD business. I mean, its not coming back. There will always be demand, I just don’t think it’ll be to the extent at which it once was.”