22 ms·

Fire Sale: $300M San Francisco Office Tower, Mostly Empty

72 points by sam345 3y ago

sam345 3y ago
No Paywall: https://archive.is/y66Ke https://archive.is/y66Ke
2Gkashmiri 3y ago
years ago when those webOS tablets had a firesale, i so much wanted to experience that UI but sadly i was living on the other side of the world. Should buy this office space instead. lol
- MarcoZavala 3y ago
  [dead]
quickthrower2 3y ago
I am sure some of us HNers could afford it now? Ha ha! Is it cheap? Or was it vastly overpriced? Bit of both? Or 100 companies with 600k each could buy it
- bufferoverflow 3y ago
  Why though? SF has a crime problem. People are leaving. Businesses are leaving.
  - 1letterunixname 3y ago
    Pure fiction. SF's crime rate hasn't changed appreciably in 20 years (it went up and down twice, but it's back where it was). It is safer than: - Baltimore, MD - New Orleans, LA - Washington, DC - Chicago, IL - Dallas, TX - Philadelphia, PA - Houston, TX and it goes on because 29 other major cities are more dangerous than SF. So where is the outrage about those cities? Seems more like poverty shaming and anti-liberal bias against SF. https://www.macrotrends.net/cities/us/ca/san-francisco/crime-rate-statistics https://www.macrotrends.net/cities/us/ca/san-francisco/crime... What's changed is people can work remotely and don't need to commute, so there's no primary purpose to reside or travel into a city anymore. And, besides, the main problem with SF is that housing there is too damn expensive because of all of the starry-eyed people who yearn to live there.
    - bufferoverflow 3y ago
      You're confusing crime and crime reporting. SF stopped charging people with crimes, police stopped arresting people committing crimes, because they know the leftist DA will just release them in an hour.
  - mrbombastic 3y ago
    SF feels like it is in a similar place to NYC in the 80s. Not perfectly analogous but rampant crime and quality of life issues will eventually force in some hard changes in political landscape which will in time correct the problem. SF geographically is gorgeous and has many advantages. I believe long term it will turn around but what that timeline will be is unclear. Still if I had a bunch of cash sitting around once the real estate there hits bottom it would be tempting.
    - ghaff 3y ago
      Very different cities but there is a similar something's gotta give feeling based on the time I spent in Manhattan in the mid-80s. Of course, things don't have to get better. Look at Detroit. (And, yes, there's been significant improvements around the river but the city as a whole is still pretty bad.) As you say, San Francisco's geographic assets are something you can't take away and very few other cities can match--but they're not enough by themselves.
      - mrbombastic 3y ago
        It’s a fair point, and SF’s over reliance on the tech sector might have some concerning overlap with Detroit relationship with the auto industry. Nothing is guaranteed but still I am optimistic it is a city people will want to live in long term.
xrd 3y ago
There are issues with crime of course, but aren't these "vacant" downtowns ripe for a transformation with mixed use living, etc? I see a lot of new apartments (I shudder to mention Adam Neuman's new venture Flow as an example: https://en.wikipedia.org/wiki/Flow_(real_estate_company) https://en.wikipedia.org/wiki/Flow_(real_estate_company)) that are combinations of work and life and after-work life. People won't be building those in the suburbs, can you imagine the NIMBY fights? It will take a little bit of time to convert them, but aren't dense cities going to come out in an interesting way? SF has so much to offer geographically.
- tedivm 3y ago
  This is what Chicago is doing. They're converting a ton of office space into housing. https://www.marketplace.org/2022/10/04/chicago-iconic-office-buildings-apartment-conversions/ https://www.marketplace.org/2022/10/04/chicago-iconic-office... San Francisco hates housing though, so it doesn't seem like anyone is actually considering this there.
  - marcinzm 3y ago
    >They're converting a ton of office space into housing. From that article if I read correctly, they're trying to see if it's possible to convert a lot of existing office space into housing. Not yet at the actually doing it phase.
    - tedivm 3y ago
      They're planning on approving the first projects this quarter. https://www.costar.com/article/666325850/over-12-billion-in-office-to-residential-conversions-proposed-for-chicagos-lasalle-street-corridor https://www.costar.com/article/666325850/over-12-billion-in-...
      - vuln 3y ago
        Let’s just wait to see what actually gets approved and if the actual projects are completed on time and on budget.
NotYourLawyer 3y ago
Turn it into apartments.
- iLoveOncall 3y ago
  It's not that easy, those places were built as offices, not apartments, they don't have a lot of the things that are required to be liveable.
  - dumbfounder 3y ago
    Who said it was? Do it anyways. The cost of having an empty building in a big city is high. Getting some more people in there is good for the city, so the city should help. Having the downtown area decay is bad bad bad. But I am sure the owners are exploring every option they can. But to me the answer is simple: figure out a way to make it happen.
    - drstewart 3y ago
      Well, nothing is stopping you from making an offer on the building.
      - dumbfounder 3y ago
        I am more talking about the city than buyers.
    - alfor 3y ago
      I agree, but it’s always a question of money. With the cost of transformation it’s possible the value of building will be zero or even negative. In this case the owner of the building default and the building stay there and decay until the city take on the burden of demolition or transformation with dwindling tax revenue... Start to look like Detroit scenario. It doesn’t look that bad form the outside, I wonder what would it take to collapse like this.
  - empty_buildings 3y ago
    [Given enough political motivation and building/zoning permits] Can't these be taken down and rebuild into residential? Given a long enough projected decline in needed office space there must be a ROI to rebuild at some point.
prepend 3y ago
What’s the maintenance on something like this. This seems like a fun opportunity for a billionaire to buy as a personal residence, Stark Tower style. The top few floors can be a penthouse and helipad. It looks like the most expensive personal residence for sale is $250M [0] so this would be the most expensive to date. And would require renovations. But I can’t imagine any company wanting an office tower any longer. [0] https://robbreport.com/shelter/homes-for-sale/gallery/most-expensive-houses-world-sale-now-1234805804/ https://robbreport.com/shelter/homes-for-sale/gallery/most-e...
- bhouston 3y ago
  A bunch of Indian billionaires own high rises in India's biggest cities I understand. They are custom built though, like this one: https://en.wikipedia.org/wiki/Antilia_(building) https://en.wikipedia.org/wiki/Antilia_(building) Seems amazing. But I am not sure if I was ultra rich I would want to live right downtown.
  - cjrp 3y ago
    > But I am not sure if I was ultra rich I would want to live right downtown. Why not? You use it when you want to be in the city for a few nights, and then fly off to one of your other houses when you want a change of scenery!
    - bhouston 3y ago
      Right when you are ultra rich owning choosing houses is no longer a hard exclusionary choice, but rather why not another one...
    - lostcolony 3y ago
      And not like you'd have to come in via the street like the poors. You'll have a helipad at the top, because what kind of billionaire would you be otherwise, coming in via street level? The other billionaires would sneer!
      - 3y ago
mschuster91 3y ago
Certainly explains the deluge of "back to office" propaganda in the last months, lol. Good riddance to all those who think it's a good idea to build office buildings instead of residential units.
jarym 3y ago
The asking rent chart shows its been flat for the last 2+ years with only a bump before the pandemic. Is this a case also of landlords not being realistic? I do think plenty of startups would love an 'office' but the costs are quite high while remote work has much lower overheads and keeps more staff happy.
- xwdv 3y ago
  We have stopped investing in startups that have offices for no good reason. It is often a sign that they don’t have ways to measure their employee progress and productivity, and that they are wasteful with money. Scalability of startups that cling to physical office culture is also poor, as they lack experience tapping into the global market of talent, artificially constraining themselves to locals or those employees willing to relocate. Offices are a big corp’s game, not fledgling startups.
  - throwaway20222 3y ago
    What is a “good reason” in your classification?
    - bitwidget 3y ago
      [dead]
    - password-234 3y ago
      Probably collaboration hubs, client meetings etc.
    - mschuster91 3y ago
      Not the OP but something like a hardware / chemistry lab or the need to comply with government-classified secret protection would be a good reason. Basically, stuff that you can't legally and/or reasonably do from home, or from other countries. Additionally, in some jurisdictions regulations require that certain kinds of documents - mostly HR and finance - are to be kept in offices as well.
    - 3y ago
xyst 3y ago
Perfect time to change the zone from commercial to mixed use and convert some space to residential.
- local_crmdgeon 3y ago
  Great! The Board of Supervisors will get right on that! /s
lukemercado 3y ago
Disclosure: I live in SF and co-founded www.daybreakhealth.com which is fully remote. I am, 100%, part of why this tower, and others like it, are empty. > "[...] Mayor Breed, who in an interview earlier this year said that “for this city to be thriving, we need people back in the office.”" This is such a frustrating statement. If I were going to make this point I would say "for this city to be thriving in its current incarnation, we need people back in the office." Sadly, the mayor, as espoused above, and at least one city supervisor (Matt Dorsey¹), simply do not seem open to the rebirth necessary to make this city thrive again. In 2020, in preparation for the debates with my co-founders on whether we should establish a fully-remote or fully-in-office culture I spent a lot of time trying to understand what remote work would mean for the Silicon Valley Business Cluster² and San Francisco in particular. I built a working theory for how Silicon Valley functions as a business cluster, San Francisco's role within that cluster, and San Francisco's city finances. Based on that working theory I built a cone-of-possibility broken out into four main scenarios that looked something like this: * Theory 1 - Remote Work is a Pandemic Only adventure. Workers will exit the major cities, first in fear, then in pursuit of better personal finances. The pandemic will end, and the functions that drew workers into the city in the first place will reassert themselves. Workers will flock back to business clusters, the cities within them, and the offices in which they used to work. * Theory 2 - Remote Work isn't sustainable for workers in most industries. Workers will exit the major cities, first in fear, then begin to hate their new normals. They will return to the city, and to the office, possibly before the pandemic ends. * Theory 3 - Remote Work in Software is here to stay. Business Clusters that relied less heavily on Software workers, such as LA's film cluster, or the Boston / Cambridge BioPharma cluster would see a return to the office. Yes, they would have a lower over all demand for office space, but we'd be looking at a mid single digits³ reduction. Meanwhile San Francisco's office buildings would become a ghost town. This reduction in worker need for office space in SF would drive a cascade collapse in its office districts. First the streets are empty of pedestrians, which collapses all the local retail, which draws in more of the unhoused, which trash the place due to lack of supporting infrastructure, which drives up the cost of keeping the streets from looking like the Tenderloin. All the while, commercial leases lapse or go up for sublet in alarming volumes. These forces of reduced software workers, reduced retail spend, and reduced office rents combined to create a financial collapse in SF's city budget, anywhere from 10 to 20% of city revenues. In the worst case, with vacancy reaching into the 70 or 80% range, SF's budget craters by as much as 30% forcing a material reduction in city services which exacerbates the unhoused problem, creating a vicious cycle.⁴ * Theory 4 - Remote Work is here to stay for all knowledge work. In this scenario, all of the financial woes that play out for SF in Theory 3, play out for any city that has a major knowledge worker dependency. The breadth of the commercial real estate collapse begins to threaten the solvency of many banks. The workers, faced with the isolation of in-home work begin to branch out socially in their evenings and weekends. We see a resurgence in hobbies that bring people together. By my understanding we're currently somewhere between Theory 3 and Theory 4. I think my theories were a bit aggressive on the potential collapse scenarios, but I'm seeing enough of what I predicted to feel comfortable in my reasoning. With that in mind, let's talk about how this ends: The lack of demand for office buildings in many cities results in the collapse of the system used to finance them. Banks and the hedge funds, REITs, pensions and other debtors take a monstrous haircut as the buildings are sold at huge (60%+) losses. A few will make it out OK, having held the buildings long enough to have turned a profit, but none of them walk out of this with their financial projections intact. The buyers of these buildings are, predominantly, in it to blow them up. The buildings are torn down and replaced with purpose-built housing and specialty offices (think biopharma or cultured-meat infrastructure). This article, and 350 California Street in particular, represent the pin hole in the proverbial dam. I wait with baited breadth. ¹. I spoke with Dorsey for several hours during his District 6 Supervisor election campaign on this topic as I was living in his district. His views can be concretely summed up as a deep belief that tax policy alone can get office workers back. He seems unable, or unwilling, to distinguish between office tenants and office workers. ². https://en.wikipedia.org/wiki/Business_cluster#The_Silicon_Valley_case https://en.wikipedia.org/wiki/Business_cluster#The_Silicon_V... ³. This is purely a guess, I base this on nothing but my assumption of how many software folks work in these industries. ⁴. That's leaving out the potential residential real estate cascades which in Silicon Valley could actually kill the business cluster itself.
xqcgrek2 3y ago
The title is misleading. The asking price is $300 million (the original sale price from years ago) but bids are expected in the $60 million range. It's that ominous.
- chasd00 3y ago
  if it's empty and no one wants to lease space and the city isn't going to let you change the purpose of the building then why are there any bids at all?
  - ttyprintk 3y ago
    That’s where the article ends. Will a conventional lender finance the debt? Will a cash buyer speculate against your premise?
  - Ekaros 3y ago
    Speculate. Let's say market recovers somewhat in next n years. And the price goes back to even half of the original 300M and you got asset for 60M. That would be 90M profit or 150%, in however many years. If you are strong believer in commercial real estate, it might not be bad bet. And then take other investments. Is there more sensible or less risky place?
  - xboxnolifes 3y ago
    Nobody wants to rent in it and the city won't let you change the purpose of the building right now. The future is always uncertain.
fnordpiglet 3y ago
I envision a day when we build San Francisco Residential Towers instead of human hamster wheel towers.
csomar 3y ago
Let's do some math. The building has 27,651 Sq meters. It would cost (with discount) $60m and it would cost (for commercial renovation, according to the article) $50 if we assume the conversion to residential is going to be the same. An average 2 Bedroom is 150 Sq meters. If we assume an 80% usage capacity (some space has to go for the gym, I guess), then we get 147 apartments. Or $750K per apartment. Obviously, there will be other costs (taxes, finder fees, city, whatever) so let's say $850K per apartment to be safe. This is an insane price for an apartment; however, this is a competitive price for SF. The people who did a 80% discount on this, seems to have reasonable math pricing in that most of the "value" of the building was derived from the scarcity of commercial building and demand. The new "value" might have been priced based on the residential market.
- ghaff 3y ago
  Conversion to residential is probably quite a bit more. The cost of the modern office building conversion described in the New York Times article mentioned on this thread wasn't given, but the resulting condos were selling for $3-$4 million.
- nicpottier 3y ago
  Office buildings are often tricky to turn into apartments. Too much interior space, not enough windows. But I agree someone should look into it!
- caseysoftware 3y ago
  The bigger problem is likely water - both use and removal. Most offices will have a couple bathrooms per floor and a kitchen. Those are used frequently 9-5 but rarely on nights and weekends and there's no heavy usage like showers or clothes washing. If you build 100+ apartments, you need to either build 100+ bathrooms and kitchens (expensive!) or do it dorm style with common spaces plus private bedrooms. That brings it down to a smaller number but still probably 5:1 for 20+. That's just on the consumption side. And the entire infrastructure - both inflows and outflows - are probably not sized to handle that change in usage. It's definitely not impossible but the conversion costs are massive.

72 points by sam345 3y ago

No Paywall: https://archive.is/y66Ke https://archive.is/y66Ke

years ago when those webOS tablets had a firesale, i so much wanted to experience that UI but sadly i was living on the other side of the world. Should buy this office space instead. lol

MarcoZavala 3y ago
[dead]

quickthrower2 3y ago

I am sure some of us HNers could afford it now? Ha ha! Is it cheap? Or was it vastly overpriced? Bit of both? Or 100 companies with 600k each could buy it

bufferoverflow 3y ago
Why though? SF has a crime problem. People are leaving. Businesses are leaving.
- 1letterunixname 3y ago
  Pure fiction. SF's crime rate hasn't changed appreciably in 20 years (it went up and down twice, but it's back where it was). It is safer than: - Baltimore, MD - New Orleans, LA - Washington, DC - Chicago, IL - Dallas, TX - Philadelphia, PA - Houston, TX and it goes on because 29 other major cities are more dangerous than SF. So where is the outrage about those cities? Seems more like poverty shaming and anti-liberal bias against SF. https://www.macrotrends.net/cities/us/ca/san-francisco/crime-rate-statistics https://www.macrotrends.net/cities/us/ca/san-francisco/crime... What's changed is people can work remotely and don't need to commute, so there's no primary purpose to reside or travel into a city anymore. And, besides, the main problem with SF is that housing there is too damn expensive because of all of the starry-eyed people who yearn to live there.
  - bufferoverflow 3y ago
    You're confusing crime and crime reporting. SF stopped charging people with crimes, police stopped arresting people committing crimes, because they know the leftist DA will just release them in an hour.
- mrbombastic 3y ago
  SF feels like it is in a similar place to NYC in the 80s. Not perfectly analogous but rampant crime and quality of life issues will eventually force in some hard changes in political landscape which will in time correct the problem. SF geographically is gorgeous and has many advantages. I believe long term it will turn around but what that timeline will be is unclear. Still if I had a bunch of cash sitting around once the real estate there hits bottom it would be tempting.
  - ghaff 3y ago
    Very different cities but there is a similar something's gotta give feeling based on the time I spent in Manhattan in the mid-80s. Of course, things don't have to get better. Look at Detroit. (And, yes, there's been significant improvements around the river but the city as a whole is still pretty bad.) As you say, San Francisco's geographic assets are something you can't take away and very few other cities can match--but they're not enough by themselves.
    - mrbombastic 3y ago
      It’s a fair point, and SF’s over reliance on the tech sector might have some concerning overlap with Detroit relationship with the auto industry. Nothing is guaranteed but still I am optimistic it is a city people will want to live in long term.

xrd 3y ago

There are issues with crime of course, but aren't these "vacant" downtowns ripe for a transformation with mixed use living, etc? I see a lot of new apartments (I shudder to mention Adam Neuman's new venture Flow as an example: https://en.wikipedia.org/wiki/Flow_(real_estate_company) https://en.wikipedia.org/wiki/Flow_(real_estate_company)) that are combinations of work and life and after-work life. People won't be building those in the suburbs, can you imagine the NIMBY fights? It will take a little bit of time to convert them, but aren't dense cities going to come out in an interesting way? SF has so much to offer geographically.

tedivm 3y ago
This is what Chicago is doing. They're converting a ton of office space into housing. https://www.marketplace.org/2022/10/04/chicago-iconic-office-buildings-apartment-conversions/ https://www.marketplace.org/2022/10/04/chicago-iconic-office... San Francisco hates housing though, so it doesn't seem like anyone is actually considering this there.
- marcinzm 3y ago
  >They're converting a ton of office space into housing. From that article if I read correctly, they're trying to see if it's possible to convert a lot of existing office space into housing. Not yet at the actually doing it phase.
  - tedivm 3y ago
    They're planning on approving the first projects this quarter. https://www.costar.com/article/666325850/over-12-billion-in-office-to-residential-conversions-proposed-for-chicagos-lasalle-street-corridor https://www.costar.com/article/666325850/over-12-billion-in-...
    - vuln 3y ago
      Let’s just wait to see what actually gets approved and if the actual projects are completed on time and on budget.

NotYourLawyer 3y ago

Turn it into apartments.

iLoveOncall 3y ago
It's not that easy, those places were built as offices, not apartments, they don't have a lot of the things that are required to be liveable.
- dumbfounder 3y ago
  Who said it was? Do it anyways. The cost of having an empty building in a big city is high. Getting some more people in there is good for the city, so the city should help. Having the downtown area decay is bad bad bad. But I am sure the owners are exploring every option they can. But to me the answer is simple: figure out a way to make it happen.
  - drstewart 3y ago
    Well, nothing is stopping you from making an offer on the building.
    - dumbfounder 3y ago
      I am more talking about the city than buyers.
  - alfor 3y ago
    I agree, but it’s always a question of money. With the cost of transformation it’s possible the value of building will be zero or even negative. In this case the owner of the building default and the building stay there and decay until the city take on the burden of demolition or transformation with dwindling tax revenue... Start to look like Detroit scenario. It doesn’t look that bad form the outside, I wonder what would it take to collapse like this.
- empty_buildings 3y ago
  [Given enough political motivation and building/zoning permits] Can't these be taken down and rebuild into residential? Given a long enough projected decline in needed office space there must be a ROI to rebuild at some point.

prepend 3y ago

What’s the maintenance on something like this. This seems like a fun opportunity for a billionaire to buy as a personal residence, Stark Tower style. The top few floors can be a penthouse and helipad. It looks like the most expensive personal residence for sale is $250M [0] so this would be the most expensive to date. And would require renovations. But I can’t imagine any company wanting an office tower any longer. [0] https://robbreport.com/shelter/homes-for-sale/gallery/most-expensive-houses-world-sale-now-1234805804/ https://robbreport.com/shelter/homes-for-sale/gallery/most-e...

bhouston 3y ago
A bunch of Indian billionaires own high rises in India's biggest cities I understand. They are custom built though, like this one: https://en.wikipedia.org/wiki/Antilia_(building) https://en.wikipedia.org/wiki/Antilia_(building) Seems amazing. But I am not sure if I was ultra rich I would want to live right downtown.
- cjrp 3y ago
  > But I am not sure if I was ultra rich I would want to live right downtown. Why not? You use it when you want to be in the city for a few nights, and then fly off to one of your other houses when you want a change of scenery!
  - bhouston 3y ago
    Right when you are ultra rich owning choosing houses is no longer a hard exclusionary choice, but rather why not another one...
  - lostcolony 3y ago
    And not like you'd have to come in via the street like the poors. You'll have a helipad at the top, because what kind of billionaire would you be otherwise, coming in via street level? The other billionaires would sneer!
    - 3y ago

mschuster91 3y ago

Certainly explains the deluge of "back to office" propaganda in the last months, lol. Good riddance to all those who think it's a good idea to build office buildings instead of residential units.

jarym 3y ago

The asking rent chart shows its been flat for the last 2+ years with only a bump before the pandemic. Is this a case also of landlords not being realistic? I do think plenty of startups would love an 'office' but the costs are quite high while remote work has much lower overheads and keeps more staff happy.

xwdv 3y ago
We have stopped investing in startups that have offices for no good reason. It is often a sign that they don’t have ways to measure their employee progress and productivity, and that they are wasteful with money. Scalability of startups that cling to physical office culture is also poor, as they lack experience tapping into the global market of talent, artificially constraining themselves to locals or those employees willing to relocate. Offices are a big corp’s game, not fledgling startups.
- throwaway20222 3y ago
  What is a “good reason” in your classification?
  - bitwidget 3y ago
    [dead]
  - password-234 3y ago
    Probably collaboration hubs, client meetings etc.
  - mschuster91 3y ago
    Not the OP but something like a hardware / chemistry lab or the need to comply with government-classified secret protection would be a good reason. Basically, stuff that you can't legally and/or reasonably do from home, or from other countries. Additionally, in some jurisdictions regulations require that certain kinds of documents - mostly HR and finance - are to be kept in offices as well.
  - 3y ago

xyst 3y ago

Perfect time to change the zone from commercial to mixed use and convert some space to residential.

local_crmdgeon 3y ago
Great! The Board of Supervisors will get right on that! /s

lukemercado 3y ago

Disclosure: I live in SF and co-founded www.daybreakhealth.com which is fully remote. I am, 100%, part of why this tower, and others like it, are empty. > "[...] Mayor Breed, who in an interview earlier this year said that “for this city to be thriving, we need people back in the office.”" This is such a frustrating statement. If I were going to make this point I would say "for this city to be thriving in its current incarnation, we need people back in the office." Sadly, the mayor, as espoused above, and at least one city supervisor (Matt Dorsey¹), simply do not seem open to the rebirth necessary to make this city thrive again. In 2020, in preparation for the debates with my co-founders on whether we should establish a fully-remote or fully-in-office culture I spent a lot of time trying to understand what remote work would mean for the Silicon Valley Business Cluster² and San Francisco in particular. I built a working theory for how Silicon Valley functions as a business cluster, San Francisco's role within that cluster, and San Francisco's city finances. Based on that working theory I built a cone-of-possibility broken out into four main scenarios that looked something like this: * Theory 1 - Remote Work is a Pandemic Only adventure. Workers will exit the major cities, first in fear, then in pursuit of better personal finances. The pandemic will end, and the functions that drew workers into the city in the first place will reassert themselves. Workers will flock back to business clusters, the cities within them, and the offices in which they used to work. * Theory 2 - Remote Work isn't sustainable for workers in most industries. Workers will exit the major cities, first in fear, then begin to hate their new normals. They will return to the city, and to the office, possibly before the pandemic ends. * Theory 3 - Remote Work in Software is here to stay. Business Clusters that relied less heavily on Software workers, such as LA's film cluster, or the Boston / Cambridge BioPharma cluster would see a return to the office. Yes, they would have a lower over all demand for office space, but we'd be looking at a mid single digits³ reduction. Meanwhile San Francisco's office buildings would become a ghost town. This reduction in worker need for office space in SF would drive a cascade collapse in its office districts. First the streets are empty of pedestrians, which collapses all the local retail, which draws in more of the unhoused, which trash the place due to lack of supporting infrastructure, which drives up the cost of keeping the streets from looking like the Tenderloin. All the while, commercial leases lapse or go up for sublet in alarming volumes. These forces of reduced software workers, reduced retail spend, and reduced office rents combined to create a financial collapse in SF's city budget, anywhere from 10 to 20% of city revenues. In the worst case, with vacancy reaching into the 70 or 80% range, SF's budget craters by as much as 30% forcing a material reduction in city services which exacerbates the unhoused problem, creating a vicious cycle.⁴ * Theory 4 - Remote Work is here to stay for all knowledge work. In this scenario, all of the financial woes that play out for SF in Theory 3, play out for any city that has a major knowledge worker dependency. The breadth of the commercial real estate collapse begins to threaten the solvency of many banks. The workers, faced with the isolation of in-home work begin to branch out socially in their evenings and weekends. We see a resurgence in hobbies that bring people together. By my understanding we're currently somewhere between Theory 3 and Theory 4. I think my theories were a bit aggressive on the potential collapse scenarios, but I'm seeing enough of what I predicted to feel comfortable in my reasoning. With that in mind, let's talk about how this ends: The lack of demand for office buildings in many cities results in the collapse of the system used to finance them. Banks and the hedge funds, REITs, pensions and other debtors take a monstrous haircut as the buildings are sold at huge (60%+) losses. A few will make it out OK, having held the buildings long enough to have turned a profit, but none of them walk out of this with their financial projections intact. The buyers of these buildings are, predominantly, in it to blow them up. The buildings are torn down and replaced with purpose-built housing and specialty offices (think biopharma or cultured-meat infrastructure). This article, and 350 California Street in particular, represent the pin hole in the proverbial dam. I wait with baited breadth. ¹. I spoke with Dorsey for several hours during his District 6 Supervisor election campaign on this topic as I was living in his district. His views can be concretely summed up as a deep belief that tax policy alone can get office workers back. He seems unable, or unwilling, to distinguish between office tenants and office workers. ². https://en.wikipedia.org/wiki/Business_cluster#The_Silicon_Valley_case https://en.wikipedia.org/wiki/Business_cluster#The_Silicon_V... ³. This is purely a guess, I base this on nothing but my assumption of how many software folks work in these industries. ⁴. That's leaving out the potential residential real estate cascades which in Silicon Valley could actually kill the business cluster itself.

xqcgrek2 3y ago

The title is misleading. The asking price is $300 million (the original sale price from years ago) but bids are expected in the $60 million range. It's that ominous.

chasd00 3y ago
if it's empty and no one wants to lease space and the city isn't going to let you change the purpose of the building then why are there any bids at all?
- ttyprintk 3y ago
  That’s where the article ends. Will a conventional lender finance the debt? Will a cash buyer speculate against your premise?
- Ekaros 3y ago
  Speculate. Let's say market recovers somewhat in next n years. And the price goes back to even half of the original 300M and you got asset for 60M. That would be 90M profit or 150%, in however many years. If you are strong believer in commercial real estate, it might not be bad bet. And then take other investments. Is there more sensible or less risky place?
- xboxnolifes 3y ago
  Nobody wants to rent in it and the city won't let you change the purpose of the building right now. The future is always uncertain.

fnordpiglet 3y ago

I envision a day when we build San Francisco Residential Towers instead of human hamster wheel towers.

csomar 3y ago

Let's do some math. The building has 27,651 Sq meters. It would cost (with discount) $60m and it would cost (for commercial renovation, according to the article) $50 if we assume the conversion to residential is going to be the same. An average 2 Bedroom is 150 Sq meters. If we assume an 80% usage capacity (some space has to go for the gym, I guess), then we get 147 apartments. Or $750K per apartment. Obviously, there will be other costs (taxes, finder fees, city, whatever) so let's say $850K per apartment to be safe. This is an insane price for an apartment; however, this is a competitive price for SF. The people who did a 80% discount on this, seems to have reasonable math pricing in that most of the "value" of the building was derived from the scarcity of commercial building and demand. The new "value" might have been priced based on the residential market.

ghaff 3y ago
Conversion to residential is probably quite a bit more. The cost of the modern office building conversion described in the New York Times article mentioned on this thread wasn't given, but the resulting condos were selling for $3-$4 million.
nicpottier 3y ago
Office buildings are often tricky to turn into apartments. Too much interior space, not enough windows. But I agree someone should look into it!
caseysoftware 3y ago
The bigger problem is likely water - both use and removal. Most offices will have a couple bathrooms per floor and a kitchen. Those are used frequently 9-5 but rarely on nights and weekends and there's no heavy usage like showers or clothes washing. If you build 100+ apartments, you need to either build 100+ bathrooms and kitchens (expensive!) or do it dorm style with common spaces plus private bedrooms. That brings it down to a smaller number but still probably 5:1 for 20+. That's just on the consumption side. And the entire infrastructure - both inflows and outflows - are probably not sized to handle that change in usage. It's definitely not impossible but the conversion costs are massive.