Vacant properties in downtown San Francisco are being bought up by investors at greatly discounted rates.
A surge in crime and homelessness in the area has sparked a mass exodus as businesses and residents lose hope of a revival.
Office vacancies fell to a low of 31 percent this year as developers pulled back from mammoth construction projects.
Of the 203 retailers that opened in the city’s Union Square area in 2019, only 107 are still operating, a 47 percent drop in just a few years battered by the pandemic.
Heavyweights include Brooks Brothers, Ray Ban, Christian Louboutin, Lululemon and Marmot.
Real estate investor Cyrus Sanandaji invested $41 million to buy 60 Spear Street
A homeless man and a pedestrian are seen outside a closed Walgreens store at 60 Spear Street in downtown San Francisco, California August 18
Cyrus Sanandaji, founder of Presidio Bay Ventures, believes the region is poised for a rebound
Economists warn that the city is falling into an “urban vicious circle” — a vicious circle of interrelated trends and forces that is driving cities toward economic and social ruin.
But real estate investor Cyrus Sanandaji, founder of Presidio Bay Ventures, believes the area is poised for a resurgence.
He is confident enough to put $41 million of his company’s money into buying an office building at 60 Spear Street, reports the San Francisco Chronicle.
The seller, Clarion Partners, paid $107 million for it in 2014.
Just a month ago, another company, SKS Investments, bought 350 California St. for 75 percent less than what the seller was expecting in 2020.
Presidio Bay Ventures has committed an additional $50 million investment in the complex to give the building a new aesthetic. Nonetheless, the price is still significantly lower than the price of local office real estate before the pandemic.
Sanandaji is confident that boosting the city’s artificial intelligence by $12 and the job market will make a difference.
When other investors heard about his deal, they reached out to find out what they were missing.
A security guard enters a closed Walgreens store at 60 Spear Street in downtown San Francisco, California on August 18
A homeless man walks past a closed Walgreens store at 60 Spear Street on August 18
The city has also struggled for years with rampant drug use and homelessness (pictured: a group of homeless people on May 16).
“There was a lot of interest from institutional people who had previously told us that San Francisco was a ‘no-fly zone,'” he said.
“They weren’t ready to write the check, but they said, ‘What do you see that we don’t see? What do you see in the field that inspired you to make this bet?” Just having that conversation was a huge shift.”
Ken Rosen, chair of the Fisher Center for Real Estate and Urban Economics at Berkeley Haas Business School, believes this is the right time for investors to make their move.
“The recovery has only just begun,” he said. “If you can buy a good downtown building for $200 or $300 per square foot, that’s a good choice in the medium to long term.”
“Smart people fish the bottom – I think you’ll see more of it.”
He believes it could take some time before there are any real signs of recovery.
“San Francisco is still behind the curve and has recovered the least from the big markets,” Rosen said.
Earlier this year, a disturbing report showed that 95 inner-city retailers — more than half of all — have closed since the pandemic began.
San Francisco’s once-bustling Union Square is facing an exodus of businesses, residents and tourists caused by the city’s lax approach to crime, homelessness and outdoor drug use
Of the 203 retailers that opened in the city’s Union Square area in 2019, only 107 remain operational
That’s a 47 percent drop in just a few years ravaged by the pandemic
The city has also struggled with rampant fentanyl use and deadly drug overdoses for years, and is facing its deadliest year yet
In the first five months of 2023, there were preliminary reports of 346 drug overdose deaths in the city – an increase of more than 40 percent from the same period in 2022.
But Sanandaji said media coverage of the hard times parts of the city have fallen through does not reflect opportunities for growth in some areas.
“There’s a huge disconnect between perception and reality in San Francisco right now,” he said.
“Nationally and internationally, people mistake what’s happening in Mid-Market and Seventh and Mission as representative of what’s happening throughout 7X7.”
Earlier this year, Westfield stopped making mortgage payments for its massive mall.
The company has defaulted on the $558 million loan and is returning it to the lender, who will appoint a trustee.
The decision was prompted by the decision by Nordstrom, the mall’s main tenant, to close.
Nordstrom, the main tenant of the Westfield mall, is scheduled to close this month
Coco Republic announced it was closing its downtown San Francisco store
Westfield blamed in large part “unsafe conditions” and “a lack of enforcement action against rampant criminal activity” for Nordstrom’s departure.
Nordstrom occupied 312,000 square feet of the mall: when it closes this month, Westfield San Francisco will be only 55 percent occupied.
“Westfield has proudly and successfully operated the San Francisco Center for more than 20 years, during which time it has made significant investments in the vitality of the property,” the company said.
“Given the difficult operating conditions in downtown San Francisco, which have resulted in declines in revenue, occupancy and footfall, we have made the difficult decision to begin the process of transferring management of the mall to our lender so they can appoint one. ‘ The insolvency administrator will take over the future administration of the property.’