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Real estate developer hit by millions of dollars in losses on San Francisco office building

Real estate developer hit by millions of dollars in losses on San Francisco office building

Real estate developer Clarion Properties suffered a $60 million loss on a San Francisco office building it bought five years ago.

The property at 410 Townsend Street is a four-story, 76,000-square-foot building. During the heyday of the tech industry, 410 Townsend was known as a startup village and was valued at $1,100 per square foot. That amounts to $86 million, for which Clarion Partners purchased the property in 2019. That high price is emblematic of the high valuations of prime office properties before the COVID-19 pandemic.

Fast forward to late 2023, when San Francisco’s office market and the entire commercial sector are at a low ebb due to record high vacancy rates, and the picture changes dramatically. According to information collected by ATTOM, a real estate data and research firm, California led the nation in commercial bankruptcies in 2023 with 187 bankruptcies. Unfortunately for Clarion Partners and many other commercial real estate investors, San Francisco is the scene of much of that financial carnage.

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Ironically, many of the innovations that have turned the tech industry into a financial juggernaut and turbocharged the Bay Area’s commercial real estate values ​​are contributing to the nightmare scenario facing commercial real estate owners nationwide. Remote work would be impossible without things like Slack, Zoom and Google.

Many workers may never return to an office, meaning millions of square feet of office space are essentially unrentable. The hardest hit markets by this new wave of remote work and officeless businesses are those where real estate values ​​have been the highest. Renting space is one of the largest expenses for any business.

One of the enduring realities of the COVID-19 pandemic is that enough companies have realized they don’t need office space to create a massive inventory glut in the commercial real estate industry. No one could have predicted this new reality in 2019 when Clarion Partners purchased 410 Townsend.

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At the end of December, 410 Townsend was experiencing an occupancy rate of 75%. Clarion, which had taken out a $39 million loan from Nationwide Life and Annuity Insurance to buy the building, gave the keys to the lender and walked away. The new owners, New York Life Real Estate Investors and Bridgeton, just closed on 410 Townsend for $22 million.

In a statement about the acquisition, Alfred Pura, New York Life’s Senior Director of Transactions, said: “We believe this is the beginning of the recovery for the San Francisco real estate market and that 410 Townsend provides us with the opportunity to best-in-class creative brick-and-beam office building well below replacement cost and where the building traded in 2013 and 2019.”

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This article Real Estate Developer Hit by Millions of Dollars Loss on San Francisco Office Building originally appeared on Benzinga.com

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