San Francisco fire sale: Investors 'bottom fishing' are buying up city's downtown at '70% discount'
- Investors are snagging properties in downtown San Francisco for a bargain
- Vacant office complexes are up for grabs as crime sparked a mass exodus
- One investor paid just $41 million for a property bought for $107 in 2014
Vacant properties in San Francisco's downtown area are being snapped up by investors at heavily reduced rates.
A run of crime and homelessness in the area sparked a mass exodus as businesses and residents abandon hope of a revival.
Office vacancies dipped to a low of 31 percent this year while developers stepped back from mammoth construction projects.
Out of 203 retailers open in 2019 in the city's Union Square area, just 107 are still operating, a drop of 47 percent in just a few pandemic-ravaged years.
Among the heavy hitters, Brooks Brothers, Ray Ban, Christian Louboutin, Lululemon and Marmot have all packed it in.
Real estate investor Cyrus Sanandaji poured $41 million into purchasing 60 Spear Street
A homeless man and a pedestrian are seen in front of a closed-down Walgreens store at 60 Spear Street in downtown San Francisco, California on August 18
Cyrus Sanandaji, the founder of Presidio Bay Ventures, is convinced the area is ready to rise again
Economists warn the city is spiraling into an 'urban doom loop' - a vicious circle of interconnected trends and forces that send cities into economic and social ruin.
But real estate investor Cyrus Sanandaji, the founder of Presidio Bay Ventures, is convinced the area is ready to rise again.
He's confident enough to put $41 million of his company's money up to buy an office building at 60 Spear Street, the San Francisco Chronicle reports.
The seller, Clarion Partners, paid $107 million for it back in 2014.
Just a month ago, another firm, SKS Investments purchased 350 California St. for 75 percent less than the seller had wanted for it in 2020.
Presidio Bay Ventures has committed a further investment of $50 million into the complex to bring the building renew its aesthetic, yet the price is still significantly lower than what local office real estate was before the pandemic.
Sanandaji is hopeful the city's artificial intelligence $12 funding boost and job market will make a difference.
When other investors heard about his deal, they got in touch to figure out what they were missing.
A security employee walks inside a closed-down Walgreens store at 60 Spear Street in downtown San Francisco, California on August 18
A homeless man walks by a closed-down 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 ton of interest from institutional folks who had previously told us San Francisco was a 'no-fly zone',' he said.
'They were not ready to write the check, but they were asking, "What are you seeing that we are not? What are you seeing on the ground that has inspired you to make this bet?" Even to have that conversation was a massive shift.'
Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the Berkeley Haas business school, believes is this a time for investors to make their move.
'The recovery is absolutely starting,' he said. 'If you can buy any good building in the downtown core for $200 or $300 a square foot, it's a good medium to long-term bet.
'Smart people are bottom fishing - I think you are going to see more of it.'
He believes it could be some time before signs of recovery really start to show.
'San Francisco is still behind the curve, the least recovered of the major markets,' Rosen said.
Earlier this year, a disturbing report showing 95 retailers downtown - more than half the total - have closed since the start of the pandemic.
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 open-air drug use
Out of 203 retailers open in 2019 in the city's Union Square area, just 107 are still operating
It's a drop of 47 percent in just a few pandemic-ravaged years
The city has also struggled for years with rampant fentanyl use and fatal overdoses, and is on pace for its deadliest year yet
In the first five months of 2023, preliminary reports show there were 346 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 has fallen on doesn't reflect the opportunity for growth in some areas.
'There is a major perception and reality disconnect in San Francisco right now,' he said.
'Nationally and internationally, people conflate what is happening in Mid-Market and Seventh and Mission as representative of what is happening in the entire 7X7.'
Earlier this year, Westfield stopped making mortgage payments on its massive mall.
The firm defaulted on the $558million loan and is handing it back to the lender, which will appoint a receiver.
The decision was sparked by the decision from Nordstrom, the mall's anchor tenant, to close.
Nordstrom, Westfield mall's anchor tenant, is to close this month
Coco Republic was seen advertising that it would be shutting up shop in downtown San Francisco
Westfield had blamed 'unsafe conditions' and 'lack of enforcement against rampant criminal activity' in large part for Nordstrom's departure.
Nordstrom occupied 312,000 square feet in the mall: when it closes this month, Westfield San Francisco will only be 55 percent leased.
'For more than 20 years, Westfield has proudly and successfully operated San Francisco Centre, investing significantly over that time in the vitality of the property,' the company said.
'Given the challenging operating conditions in downtown San Francisco, which have led to declines in sales, occupancy and foot traffic, we have made the difficult decision to begin the process to transfer management of the shopping center to our lender to allow them to appoint a receiver to operate the property going forward.'
