What Are Older Office Towers Worth? Here’s the First Sale in San Francisco’s New Era of Office CRE

Union Bank made a deal to sell its tower at 75% off original listing price, setting the first new benchmark. Other towers waiting in the wings.

By Wolf Richter for WOLF STREET.

We have been tracking what older office towers, many of them from the 1980s and 1990s, are worth when they finally do sell, either in a foreclosure auction or in a regular transaction. Two towers in Houston sold at a foreclosure auction at a price where the lenders – holders of Commercial Mortgage-Backed Securities (CMB) – lost 80% and 88% respectively. In the foreclosure sale of the vacant 46-story 1980s “One AT&T Center” in downtown St. Louis, CMBS holders took a 100% loss.

Foreclosure sales are brutal, and these are among the extremes. Regular sales are a little less brutal, and we’ve documented a bunch where investors in CRE debt have taken losses in the range of 35% to 50%.

These losses on CRE debt are on top of the equity losses that landlords took. So far with big losses on office debt, it has been investors that were on the hook and not banks.

Now we have the first sale in the new-era of working-from-home and office-downsizing in San Francisco, which has surpassed Houston and Dallas as the worst major office market in the US. There are a number of office towers on the market. One of them, the headquarters of Union Bank at 350 California Street in the Financial District, has found a buyer.

Union Bank, which owns the 300,000-square-foot tower, and occupies a portion of it, put it on the market as a sale-lease-back, where it would lease back a small portion of the tower. The rest would be vacant. It listed it in 2020 at $250 million, amid zero interest. In 2022, it pulled the listing. During that time, Mitsubishi UFJ sold Union Bank to U.S. Bancorp, the fifth largest bank in the US; the deal closed in December 2022.

Union Bank then relisted the tower in February 2023 at $120 million.

It has now made a deal to sell the building for $60 million to $67 million to San Francisco-based SKS Real Estate Partners and South Korea-based Genesis, according to sources cited by San Francisco Business Times. This would be about 75% off the original listing price.

The $200 to $225 per square foot price will set a benchmark in San Francisco for what older office towers are worth. A sense of reality is setting in. And it might make other deals possible. Until this sale, no one knew what anything was worth in this new era when about one-third of the office space in San Francisco is on the market for lease.

This tower doesn’t involve debt. There is quite a bit of office CRE that is owned by companies that occupy it, and they may be debt free, and they’re listed for sale, including the nearby 550 California, owned by Wells Fargo, which originally listed it for $160 million, then pulled the listing, and will try again in 2023.

So this Union Bank tower isn’t a story about lenders that got stuck with huge losses, and it isn’t a story about a landlord defaulting on a floating-rate mortgage whose interest rate doubled in two years. Those are the kinds of issues that are now ravaging office CRE.

The Union Bank deal is a story about a bank selling a tower that it has owned and occupied for many years, that it has depreciated year after year, bringing down the carrying value of the building’s original purchase price.  According to The Registry, it also plowed $41 million into the building over the years for seismic and other upgrades and various renovations.

This is the easiest kind of deal to make in a very tough market. And there are a few other deals like this that could happen in San Francisco, including Wells Fargo’s tower, that could further define the benchmark price.

But there are already two massive defaults in San Francisco: PIMCO’s Columbia Property Trust defaulted on the debt of the office towers at 201 California St. and at 650 California St.

The $200-$225 per square foot price of the Union Bank tower at 350 California is sending cold shivers down the spines of holders of the CMBS that contain the defaulted mortgages of those two towers; they do not want to have to sell those towers in a foreclosure sale; they’re going to be motivated to work out a deal with Columbia Trust, because foreclosure sales in stressed markets get really ugly.

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  116 comments for “What Are Older Office Towers Worth? Here’s the First Sale in San Francisco’s New Era of Office CRE

  1. SWE Josh says:

    Hi Wolf, if $200 to $225 per square foot is low, what was a typical price before the pandemic? Was it closer to $800-$900?

    • Wolf Richter says:

      Yes, around $800 for these older office buildings.

      But it varies. So I’m just googling around a little for deals that stuck in my memory:

      At the end of the crazy times, in early 2020, Salesforce bought a historic five-story building near the Salesforce Tower for about $2,000 per square foot.

      In 2019, when Boston Properties bought the remaining 5% of the new Salesforce Tower that it didn’t already own, it paid nearly $2,800 per square foot.

      These prices were really crazy, and everyone oohed and aahed over them at the time. Only the sky is the limit.

      • Longtime Listner says:

        Anyone know how much square footage We Work has in what’s the left of their Cult of Cuture?

        • Wolf Richter says:

          I don’t, but WeWork has been defaulting on office space left and right, including in San Francisco.

        • Harry Houndstooth says:

          When Adam Neumann was offering free beer and wine at We Work I was wondering if he was related to Alfred E.

        • rusell1200 says:

          There is a little office sharing building that opened up in Wake Forest (bedroom community of Raleigh, NC – not University in Winston-Salem, NC) that seems to be doing ok. But it’s small. And there is nothing else nearby like it, and it is in the booming part of a booming county.

          Our WeWorks are in Raleigh and Durham. I saw a news article for Q4 of 22 that put office vacancies at 17% – highest since 2006.

      • TimTim says:

        Even in these times of horrendous financial news in general, these figures are stark.

        • Steve Riggs says:

          I have read the offices can be remodeled or redesigned to condos or apts which would be awesome for urban living.

      • Edward Teach says:

        It will be a domino effect. When office space closes lot’s of other businesses also close. Without the office workers for clientele restaurants, shops, etc. will also close. Soon the whole city gets abandoned as people move away. Just look at the rust belt. You can pick up a house in Detroit for $1 a sq. ft.

        • Wolf Richter says:

          San Francisco has always been a boom-and-bust town, ever since the gold rush. Huge booms, huge busts. You can count on them. We had the boom, now we have a bust — well the bust is just downtown offices and housing so far. People are still highly paid, and unemployment in minuscule.

    • Leo says:

      Finally some good news for some commercial real estate agents.

      Not so much for residential real estate agents.
      1. The owners in Seattle area want to sell their houses at peak Zestimates at 60% to 90% above 2020 price.
      2. The problem is that the 30 year emi is 50% higher for 2020 price today and 2.6 TIMES HIGHER when you want to sell at 75% higher price than 2020.
      3. There are very few new buyers in this area that can afford these prices, mostly folks that are fleeing silicon valley and not going to Texas.
      4. So most of the inventory is not selling despite few houses up for sale.
      5. So real estate agents are not earning any commissions, and there are too many agents chasing a few sellers and fewer buyers.

      Is it the FOMO sales Karma?

    • Leo says:

      CPI for Apr came in at 4.9%, below the March number of 5.0%.

      I repeat my bet that this figure will be revised higher by 0.2% over next 2 months and CPI will start increasing again.

      It seems funny that BLS always errors out towards a number favored by wallstreet. No wonder, the trust on government agencies, their numbers, and their intentions are at am all time low.

      God bless America.

  2. stan65 says:

    A real price discovery journey playing out before our eyes. At $225 average purchase now and assuming someone wants to convert into residential/educational/hospitality at say a further $250-300 psft, plus profits and contingency leading to say $600 psft resale. An overall 33% drop so far.

    More to come next year when rebuild rates go up to $400 psft?

    • gametv says:

      It is amazing this fallout is happening despite the massive debt bubble that has been blown by the central bankers. Even though central bankers were buying Treasuries, it crowds out investors and greatly impacts all financial instruments, including other debt markets.

      I think that the real solution to inflation is simply to kill off the residential real estate market. The majority of the middle class has most of their net worth in their home. Take away all that equity that makes them feel rich and you will find that spending will evaporate and inflation will reverse.

      I would like to see a year or two of 5% deflation. My personal belief is that the biggest lie out of the mouth of economists is that deflation is destructive to an economy. Deflation is often the symptom of an economy that is ill, but I dont think it is what causes the disease.

      My example are all the tech companies. Technology is in a constant state of deflation. Better products for less money. If you set up production of a product and expect to extract the same profits into eternity in technology, you will soon be losing money, because the profits keep dropping on the old tech. This forces companies to innovate the next wave of products. This is a real positive thing for the economy.

      An industry that seems ripe for technological innovation is housing. We are using building techniques that have many similariteis to practices from 100 years ago. Depreciation in home prices would force companies to innovate or die. Or course, we might need to also change building regulations if we really want that to work. The bureaucrats are not set up to see innovation in the building industry.

      Just as a fever, sneezing and coughing are not what causes sickness, but a symptom of the sickness, deflation is not the disease, but a result of an economy that is not vibrant. But what if we followed financial policies that actually causes a small amount of deflation, while at the same time having policies that pushed innovation within the economy?

      • Flea says:

        Apple is a tech company way overpriced phones,tablets and watches.But the really haven’t innovated much I have a iPhone 6 works great ,theres not enough improvement to pay $1400 for a new phone .Pretty soon it will get outdated ,then I’ll probably drop Verizon and apple

        • Harry Houndstooth says:

          I suspect Apple will follow Tesla in the realization that the only way to move the inventory is to drop the price.

          Auto dealers are drowning in overpriced pickups. Oh, you want a small efficient new car to get back and forth to work? Go to Toyota and put your name on the waiting list…Ford, GM and Chrysler don’t want to work for the masses, only the classes.

          Tesla has also stopped innovation. Check out Lucid.

        • JD says:

          Lol. If you think an iPhone 6 is functionally the same as an iPhone 14 Pro/MAX, you’re really showing your age.

        • MitchV says:

          The innovations in recent cell phones are significant. Feature like more power, bigger sceens, more capacity, nicer cameras, waterproofing, and 5g network support are critical. But you can get all of that on a $299 phone from Motorola. That’s the superpower of Apple.

        • Flea says:

          Jd phone is a utility device , Apple phone 14 ,nowhere near worth 1400$ . Although I love there products

        • Arnold says:

          Motorola went away over a decade ago, around the same time Blackberry folded.

        • Jj says:

          Unfortunately Apple obsoleted the iPhone 6. You can’t update an app that relies on a newer operating system, which is fine, but if you don’t know that ahead of time, you loss the app.

        • Venkarel says:

          Huh no it did not go away. Motorola makes good budget cellphones. You can get them completely unlocked with no bloat ware, it is wonderful.

        • CK says:

          I use a an LG V20 which runs LineageOS 19. It receives weekly or bi-weekly OTA updates from Lineage and does everything I need it to including taking 16MP photos, and it has a removable battery. You can get these models on Ebay for well under $100.

      • Gabe says:

        Agree on the residential real estate. Clearly, the solution is to drain the most recent decade or so monopoly money from residential real estate valuations as well as the S&P 500. As soon as that happens, Gen Z can take their rightful position to continue this thing we call the ‘American Dream’. You sure as hell aren’t getting improved birthrates when young people aren’t sure how they’ll be able to put a roof over their heads and feed themselves while paying off $100k+ in college debt. It’s not rocket science.

      • El Katz says:

        Your assumption that home ownership makes everyone feel prosperous and stimulates spending is preposterous. Especially now that the interest rate to refinance or HELOCs (which are probably becoming unobtanium) are in the same orbit as the purchase mortgages that are making homes “unaffordable”.

        Innovation for the sake of innovation is also absurd. Look to the every changing ecosystem for Apple, where they release “new” features that are as radical as new emoji’s and putting the flashlight and camera on the lock screen so you can trigger it in your pocket and run your battery down, unbeknown to you.

        Housing construction methods? See innovations such as Dryvit, sick house syndrome (over sealing a house without fresh air exchange), etc..

        Maybe they should ban advertising and make everyone wear sack cloth and ashes so there’s no consumer desire to buy stupid stuff to be fashionable.

        The best policies? Get the misguided “policies” of people who never held a job that required them to generate a profit or create a tangible product out of the way. Financialization of everything is what brought us here.

      • Nacho Bigly Libre says:

        I am a fan of your comments. Spot on about targeting symptoms rather than trying to understand the root causes and addressing those.

        Goodhart’s law: “When a measure becomes a target, it ceases to be a good measure”.

    • Maggi says:

      The stench of fresh bailouts is in the air 🤑
      More regional banks in the crosshairs, to be gifted to JPM & cronies soon.

    • SilentC says:

      That’s not enough profit. But you are on point Stan. Even if it’s $850/sf sale price there are new build condos on Zillow nearby with $1200+ asks. SF could become somewhat affordable if PE firms figure out how to fund these conversions.

  3. Gary Fredrickson says:

    Land Value: The high price of single family homes is attributed to 50% being the land “value;” in many parts of California typically being poor quality grazing land at best. For these San Francisco office towers landlocked in prime real estate, perhaps an even greater percentage could be attributed to land. Either that or the prices of all California real estate are inflated far beyond their fundamentals in an over valuation of the land and location. Perhaps San Francisco and a few choice other coastal areas have value, but except for humidity aren’t any different than anywhere else and certainly whole western states have comparable humidity and climate to non coastal California.

  4. Ltlftc says:

    Is this Union Bank tower sale a story about getting ahead of potential deposit outflows?

    • Wolf Richter says:

      Nah, they’ve been trying to sell it since 2020.

      Union Bank is now part of the 5th largest bank US Bancorp, and the small amount of money they will get from the building ($67 million) isn’t even a rounding error.

    • Bobber says:

      I’ve been wondering about US Bank as well. I recently saw them on a list of banks that had very high loan-to-deposit ratios, not too far behind some regional banks that had trouble. US Bank stock price has dropped 40% the last couple months. Plus, I thought it was peculiar to see them offering 4.7% CDs on their webpage. Most banks have been offering high CD rates via brokered CDs, but not to direct customers.

      Because of the large recent stock price drops, I took a look at buying some, but their earnings could easily be wiped out if their large loan book faces any difficulty. A lot of US Banks loans were made the last two years, and I expect a decent share of their loans will go bad.

      • Captainpeacock says:

        Us bank is terrible. Had to fight tooth and nail to get mature cds sent to me. Ignored calls, said the check was in the mail, called weeks later and no record of my calls. Avoid at all costs.

        • Bobber says:

          I had that type of experience with several banks.

          I quit buying CDs directly from banks because they would only transfer money via check, and it would take several weeks to get the money processed and delivered to you. We’re talking about two weeks or more of lost interest income.

          Many of these banks have online transfer limits of $5,000 or less per day. If you have a $100,000 CD to cash out, it will take 20 business days to get the money out electronically.

          It’s ridiculous. They say its for security reasons, but that’s an obvious excuse to trap your money.

          There really is no reason to have your money at a bank any more, aside from what you keep in a checking account.

      • phleep says:

        US Bank (and soon-to-merge Union Bank), I believe are pursuing the old business model of relationship banking based on neighborhood branches, etc. I don’t know if the plans have changed (as with this shrinking footprint), but this model has been shown fragile lately, as depositors have grown more demanding on deposit returns, and more comfortable with digital banking. A relative has a sizeable savings account there, and has been actively offered no better deal for the money. Apparently they think the customer is complacent and ignorant. That’s about to change. At least US Bank did seem to see the benefits of scaling up and diversifying regionally, as many others did not.

      • Harry Houndstooth says:

        Banks are just legalized Ponzi schemes.

        How did auto dealers sell popular vehicles for $30,000 or $40,000 over MSRP? How did people trade in their vehicle which was upside down on a new vehicle? The banks lent the money. This entire insanity is going to come crashing down.

  5. lewis says:

    What do you think will happen to NYC CRE?
    I have read out of ~ 550 million square feet about 25% would be considered class A and in good/decent condition to attract workers. The rest??? Remember NYC CRE is mostly old stock, not much has been built over the past 20 years other than a few dedicated buildings. This could get very ugly.

    • Joe says:

      I dont know the cost but buildings in nyc have been converted to residential in the past. Would be a good thing for the city’s housing stock.

      • Publius says:

        A recent Moody’s analysis estimates 3% of NYC’s office buildings qualify for residential conversion. Major changes to laws, codes, etc. – and significant price drops – are necessary for conversions to be the panacea.

      • Petunia says:

        Most of the converted NYC commercial real estate was converted in the 1970’s thru 1990’s. It was mostly downtown, old manufacturing buildings turned into loft apartments. The midtown office towers built in the 1960’s made of steel, need new skins ~30 years, and are heated with city steam, very expensive to convert to residential.

  6. MoreCreativeMatt says:

    That’s cheaper than a house in SF. A LOT cheaper.

  7. Candyman says:

    This puts S.F. ahead of the game. This will allow building owners to lower rents and make space attractive in the cities, competing with sublease space. It also, while painful, lowers assessments and tax revenue to the city. This should alert the pols how to redo their budgets. Lean years are coming. Boston….be advised! (I’m in the financial district)

    • El Katz says:

      They could lower the office rent in SF to zero and they’d still have vacancies.

    • MM says:

      I’m still waiting for the day that recession hits and 128 & the expressway aren’t gridlock at rush hour… not there yet.

      I drive by the Oak Grove T stop and its accompanying park n ride lot every day. Mondays & fridays are light but tues-thurs it’s completely full (including the overflow street spots) as was the case today.

      Still no sign of a slowdown in the bean.

  8. Random50 says:

    The logical thing would seem to be for these to get repurposed as residential. Is that viable? Is local government on board with that (you’d think they would be)

    • Arnold says:

      It would be very expensive to convert to residential.

      I doubt current home owners in the city would be too excited about it.

      • Alec says:

        People keep saying that, but folks living in a car at the moment would say otherwise. A dorm style would easily work with minor upgrades.

  9. Tex says:

    What? Nobody wanted to convert to residential /s

  10. Mike R. says:

    Office towers are going the way of the dinosaurs. They will be sold and resold just like the malls around this country. Lower prices each time; big hopes/dreams each time.

    Converting to residential is possible but somewhat expensive for all new plumbing, electrical and zoned HVAC. Still someone may figure it out. When that occurs, the floor will be reached on pricing.

    • Petunia says:

      Saw a great mall conversion a few years ago. Mall was converted to neighborhood type shops on the bottom and small apts on the second floor. Great idea.

      Also, malls in the US don’t have grocery stores, like in many other countries. It would be great to buy groceries, ship items, etc. at the mall. The collection of big box stores is not a good mix.

  11. CCCB says:

    Markets are taking back the stupid money.

  12. Fudosanya says:

    So another example of the US financial markets in trouble.

    Lockdowns, ridiculous tax policy, lack of law enforcement, out of control debt, and a central bank that screws up everything causing all sorts of problems.

    And then we have Japan, the economy and markets that were supposed to implode according to the pundit comments here, tooling along with barely a problem.

    Tokyo five wards office vacancy rate is about 3.7% with new supply coming to the market to push up the vacancy rate to around 5% in a couple of years.

    I’m sure that most of the big cities in the US will never see low vacancy such as that ever again unless they start knocking down numerous office towers.

    • Wolf Richter says:

      No, this wasn’t about the financial markets, but about the office sector of commercial real estate.

      In terms of your comparison: At least we get 5%+ on our Treasury bills and CDs, and you still get shit on your JGBs and CDs. And you get punished with negative yields on 1-month bills, and we make 5.9% on our 1-month bills 🤣

      And you’ve got inflation now too. And a far more out-of-control government debt than even the US, and a far worse central bank than the US. Ours at least raised its policy rates to 5%+. Your goons are still stomping on you with all their weight and NIRP. You’re funny.

      • Wolf Richter says:

        But yes, I love being in Japan. And Tokyo is a wonderful safe city (OK, frustrating too). And I’m getting daily life-remote updates from my wife who is there right now with her folks. My turn will eventually come, maybe next year.

      • Fudosanya says:

        Actually it is about financial markets as increases in interest rates in the markets pushed up by your central bank have caused CRE values to fall and in term causing defaults on loans.

        And as far as our inflation and interest rates are concerned until this year we have had vary low inflation.

        And even with our low to negative interest rates over the past ten, twenty, and 30 years our purchasing power has remained quite stable unlike the huge fall in the purchasing power of the dollar over that time.

        A one or two year spike in inflation will not change those numbers. We could run 10% year after year for years and still not come close to what you had in the US.

        Our debt may be large, but the central bank has managed the problem better than in the US.

        I can not recall one bank failure over the recent past. I can not recall huge foreclosures of major buildings either.

        Japanese people have lots of savings and many companies are also cash rich. Despite the BOJ policies there had been no huge and increasing wealth gap like in the US.

        Face it, markets in the US are screwed up and impact the values of both residential and commercial real estate.

        • Scott Johnson says:

          Pretty confident in your assessment considering the debt load Japan has.

          Arrogant and short signed, in my opinion.

    • JeffD says:

      I seem to remember Japan having this same attitude about their real estate vs the rest of the world in 1990. Japanese pride has an uncanny way of being punished quickly when people have this attitude. Where is the humility?

    • Jon says:

      Your name means “real estate agent”, so I assume you’re pushing real estate.

  13. raxadian says:

    If this building is half a century or close enough then of course it lost so much value. The older a building is the bigger the costs of repairs and maintenance.

  14. Swamp Creature says:

    I’d like to see a photo of a new office tower that is under construction go bankrupt right in the middle of the construction and then left half completed. What a lovely eyesore that would be.

    • Ross says:

      There’s an Instagram account “developmentfails” that has this exact kind of stuff from around the world.

    • Wolf Richter says:

      Swamp Creature,

      Your wish is my command.

      This is the biggest CRE project in San Francisco, and it went bankrupt after it reached grade, so maybe a little less than in “the middle of the construction.” It was a project by a Chinese property developer Oceanwide. It has been an eyesore for years and will be an eyesore for years. In the background is the Salesforce Tower. The photo (which I took) only shows part of it:



      • Enlightened Libertarian says:

        I wonder what any future buyer is going to do with all that rusted steel?
        Tear it down and start over from scratch?
        That is even more expensive than buying raw land.
        Almost like buying a contaminated building lot.
        Good luck with that.

        • Wolf Richter says:

          Yes, but you cannot buy “raw land” on California, or anywhere in the Financial District. So if you want that location, it makes sense to tear down the tower if it cannot be converted cost effectively.

          Residential towers would work great. The Financial District is close to the Waterfront. It’s a beautiful place. The BART is right there, Muni is there, Caltrain isn’t too far away for the occasional office visit in Silicon Valley. A ferry terminal is close by for trips across the Bay. It’s easy to get on I-80 to go skiing or hiking in the Sierra Nevada. There are already some residential towers in the area.

        • RickV says:

          You didn’t mention the cable car running into the Financial District on California St. I used to commute to work daily on it in the 70’s. Back then, a monthly bus pass worked to ride the cable cars too. The good old days.

        • Occam says:

          San Francisco has tremendous natural and economic advantages which is why it was booming. Its population is declining recently because its political class has assumed that people who live there will put up with anything because the city is indispensable; the same attitude shared by New York’s political class. There is an old saying: “cemeteries are full of indispensable people.” American cities don’t die in the 21st century but their downtowns do; the Rust Belt experience proves the point. Near-worthless commercial buildings and population decline should be a wake up call; don’t let rot set in.

        • Wolf Richter says:

          The primary reason why people are leaving is because they can get equivalent housing in another city for half or less. If you’re working from home — a huge thing in SF — and you can keep your SF income but cut your housing costs in half, that is quite a motivator to move!

      • Jj says:

        Looks like some of the public artwork I have seen in SF. 😉

      • Swamp Creature says:


        Priceless photo. What is missing is some tent cities and squatters on the site.

    • Nissanfan says:

      I invite you to Google “Chicago Spire”. A failed child of HB1, while not the commercial, but still was supposed to be a high riser in Chicago that ended up looking like a decommissioned missile silo.

  15. The Falcon says:

    So the aggregate CRE market is comprised generally of equity, loans and CMBS depending on the property? How many trillions in the aggregate are we talking about? 10, 20, more? So even a moderate devaluation = multiple trillions in losses?

    • Wolf Richter says:

      In terms of overall CRE debt (=loans), it shows up everywhere. Less than half of the debt is held by banks. The majority is held by investors including CMBS, by insurance companies, mortgage REITS, bond funds, PE funds, etc.

      This particular property didn’t have any debt. It its a bank asset.

      Here are some numbers about CRE debt and banks.


      • Harry Houndstooth says:

        Not only the banks are in trouble. The pension funds and insurance companies are also going to be the bag holders in this crash.

        • longstreet says:

          Agreed. The big pension funds like CALPERS have a history of owning these big buildings in these big cities.
          Will this beg another federal bailout?
          Recall, Biden’s $36 billion for the Central States Pension Fund in December of 2022.
          More examples of entities being protected from the risks of markets……just like bailing banks.
          IMO, this can all be traced back to the fake economics we have seen courtesy of central bankers….from 2008 (and before)

        • Chris says:

          Yes and no.
          There is an interesting effect currently in Asset-Liability- Management at play in insurance companies and pension funds. Yes, asset have been valued down a bit (in Europe around 5-10% in office, less than the “real” movement), but liabilties are longer-term (higher duration) und discount rates to calculate liabilities have doubled or tripled (showing the real effect). So long-term insurance liabilities have decreased much more than asset values have decreased. In fact, we have a number of insurance companies in Europe, who should (at least accountingwise) sell assets to get their ALM even again. (In the long run I agree, but at least in the short term, there are no obvious answers here).

  16. Lune says:

    But Wolf, this building had multiple offers (over 30!) And probably went like… A million dollars over asking, so obviously the market is still hot!

    For commercial real estate buyers, you better buy now or be priced out forever!

  17. JeffD says:

    When office space cost per square foot is 1/4 the cost of housing, how long can that imbalance last?

    • Wolf Richter says:

      You mean, when will housing costs come down to meet the cost of office CRE? Good question. Housing is coming down pretty hard in San Francisco — but at snail’s pace compared to office CRE.

      Office CRE just jumped off a cliff and landed 75% lower in no time.

      • Whitney says:

        Wolf, are residential and commercial RE prices correlated? If anything I see the demand for larger houses due to WFH reduce demand for CRE. I was hoping that a CRE crash would trigger a decline in residential but I’m not sure the two move together?

      • SK says:

        Not sure why would residential housing go down significantly. Commercial CRE I get, a lot of companies are laying off and cutting costs while work from home is still keeping commercial RE vacancies high. Knowing that this is cyclical, and not enough residential real estate is being generated, residential mortgage May bottom out soon.

        • Jon W says:

          Because the yields on residential at 2022 prices are rubbish. They barely made sense relative to treasuries at 2%, but now you’re having to do all the work of managing and maintaining a rental for far less than you can get on a treasury.

          Any intelligent FTB can also work out that despite rents increasing it’s still significantly cheaper to rent most places then buy them at 2022 prices and current mortgage rates. Just because renting sucks doesn’t mean buying doesn’t suck even more.

          Also, what do you imagine is going to happen to the massive commercial building industry if CRE remains depressed, but residential prices magically hold up? If that capacity is unleashed on the housing market (especially with the increased availability of land due to WFH policies) then over the next few years any supply issues could be quickly resolved.

          FWIW, I doubt the latter will happen because I don’t believe any investors would give them money to build houses on the basis that residential prices are magical and immune to yield arbitrage.

  18. SnotFroth says:

    I’d buy a patch and sleep on the floor for $200/sqft.

    $60 million seems like pocket change after years of reading about everything measured in billions.

    • JeffD says:

      Or you have an “office” dedicated to “furniture testing” for select furniture pieces sold on your dropship ecommerce site.

      PS I browsed loopnet office space for sale in orange county, and purchase price per square foot in older buildings is very very close to that of housing.

  19. fred flintstone says:

    One of my sons is in Texas….he says that Houston and Dallas have more construction cranes than he can count working round the clock building new towers.
    Both cities are fighting for the lead in office vacancies.
    Oh brother.
    Could be some billionaires are going to be regular folks pretty soon.

    • Kernburn says:

      I wonder how much of it has to do with these “opportunity zones” where developers are just going after the most generous tax rebates and abatements and such, regardless of demand. Driving through Houston it seems like they already have plenty of office parks as it is. They’re everywhere you look

    • Petunia says:

      Austin looks the same, from the highway, cranes everywhere.

  20. cresus says:

    Incredible. The land alone is worth (was worth) more than 200$/sqft. Maybe worth it to turn it into low income housing. A big chunk of city taxes are commercial RE taxes. A sinkhole will develop on top of the disappearing jobs and their linked taxes. A vicious circle.

  21. old school says:

    Creative destruction. Technology made going to the office obsolete for many professions.

    Druckenmiller is out with some sober talk on US debt. A lot of high IQ financial folks are really expecting a financial crisis.

    • Jon W says:

      They can’t keep kicking the can. Either they inflate away the debt (probably the least worse solution) or they will just cause a huge insolvency wave.

      At a fundamental level, they just aren’t going to be able to milk as much out of current and future workers as they planned to with their megacity people farming thing. After moving out of a London, we basically don’t even need a second income any more. Among friends who were smart enough to move before us, there are loads on 3 or 4 day weeks and one who tried retiring at 45 but got bored. They have a home, decent savings, and just enjoy life doing hobbies and things so really don’t spend much either.

      I mean, compared to when we were in London where people were working like crazy to pay rent, I think they have a serious problem in how they fund those future debt obligations at a societal level.

      And Gen Z seems even more reluctant to get into the sow crate.

      20 years ago we needed to have a proper conversation about how we would fund future pension obligations. Instead the politicians and financial sector created huge promises to the workers at the time, and now those who are meant to pay it are saying nah.

      FWIW, as a millennial I don’t expect Gen Z/A to support me in my retirement. It would be great if they would, but I can fully understand if they say they don’t want to, since they’re getting pretty much nothing right now (and probably another GFC to boot). I hope they just make it easier for me to be able to work when I’m older by winding back the dog-eat-dog labour policies that have developed over the last few decades, and at least keep the backstop of some sort of welfare net for those who genuinely fall on hard times.

      • Lili Von Schtupp says:

        More than a few Millenials and Gen Z skipping on having kids (or marrying at all) saying they plan on getting a degree from Dr. Kevorkian’s Medical School instead of depending on the next gen to care for them in their old age.

        How is CRE going to find value again when employers plan on replacing workers with AI?

        Already claims of AI replacing nurses some day. Surely my dirt nap will come laughing and aspirating popcorn watching a robot smoking at its joints trying to do a nurse’s job.

  22. Harvey Mushman says:

    I went to the dentist today. When I was leaving the girl at the front desk told me that she thought they were going to be moving to a new location. The office building was being sold… but the deal fell through. Now they don’t have to move. She said that most of the other offices in the building are empty. She said that ever since the WFH, most workers continue working from home. She said that the land was going to be converted to residential. This isn’t a big office tower, it would have been demolished. I would say the office building is about 30 years old. It’s in So. Cal.

  23. Carlos Leiro says:

    Those buildings will end up being shelters for those poor people who are today Zombies courtesy of Purdue Pharma, heroin, fentanyl, etc…

    and it´s not a joke

  24. IanCad says:

    Can’t help but wonder how long it will take for the new buyers of the Union Bank Tower to start getting buyers remorse.

  25. Nemo300BLK says:

    That’s mind-blowing that a defunct office tower in SF will sell for $200-225 sq ft. Here in the rural south, $225 an sq ft is a good custom home; at $250 an sq ft, it’s a charming custom home.

    • Wolf Richter says:

      It’s NOT a “defunct” office tower, LOL. It’s a Class A office tower that had $41 million in upgrades and renovations recently.

  26. CreditGB says:

    I keep reading about commercial properties are left vacant in large cities, NYC in particular, asking outrageous rents. They sit “for lease” literally for years. Sometimes while adjacent properties also become vacant, exacerbating the problem.

    What must taxes, maintenance, and security cost these land lords as their properties sit unoccupied and not producing a penny of income.

    At some point do these money pits exceed the rented properties in the landlord’s portfolio? Isn’t “some income” better than “no income”??

  27. CreditGB says:

    Do I understand Wolf Richter is based in SF?

    We hear dire things about SF downtown, latest I hear is T-Mobile “reimaginging” their office positions and left. Myopic or not???

    Are these just some isolated areas of SF that are scaring away businesses or is it in a wider spread area. It is getting tough to figure out what is true and what is embellished

    • MarkinSF says:

      It is really bad. There are some areas (blocks) throughout the northern half of the city that are bustling with overflowing restaurants but outside of these there are numerous signs of stress (shuttered storefronts, for lease signs).
      Downtown SF (in which I’ll include the Financial District, Union Square & SOMA) is a ghost of what it was 3-4 years ago. There are blocks along the 2 main corridors (Market & Mission) where not a single retail space is open. Union Square is still vibrant (not too many empty storefronts) the immediate adjacent blocks show deteriorating occupancy.
      In the financial district there is a very large amount of retail space available where multiple Walgreens, CVSs, restaurants used to flourish.
      I could go on as I pretty much explore most of the city and notice a lot of for lease signs and emptied store fronts.
      In addition, many areas that were totally walkable have actually become dangerous (used to neighborhoods from back East in my youth and we’re nowhere near that yet).

    • Wolf Richter says:


      “Are these just some isolated areas of SF that are scaring away businesses or is it in a wider spread area.”

      T-Mobile has been closing lots of stores across the US since 2020 — “rationalization of retail stores,” is what T-Mobile has been calling this in its financial reports. And when it finally closes a store in San Francisco, it makes the national clickbait moron headlines because they can stick “San Francisco” in it, knowing that a bunch of morons are going to click on it and spread it.

      Walgreens closed over 600 of its stores across the US over the past few years, and only when it closed a few of its 60+ (!) stores in San Francisco does it make the national headlines because the media can stick “San Francisco” into it, knowing that a bunch of morons are going to click on it and spread it. It still has about 53 stores left in SF.

      These companies are the SURVIVORS! Hundreds of retail chains have gone bankrupt since 2017, most recently Bed Bath & Beyond and David’s Bridal.

      Defaulted debt of retailers and retail CRE has been a huge problem for years, and investors have lost their shirts on it. There are dead malls everywhere. There are shuttered stores everywhere.

      I have been writing about the “brick-and-mortar meltdown” in the US since 2017. About 30,000 retail stores have closed since then nationwide.


      And you suddenly wake up when a store in San Francisco closes in 2023??

      Do people who click on this shit and/or spread it even have a brain left? Are these people really that stupid, or are they just having fun playing that stupid????

      I am so sick of people abusing my website to spread this kind of utter ignorant stupidity.

      Adios. Blacklisted. I’m done.

    • Petunia says:

      Whole Foods, Nordstrom, Nordstrom Rack and Anthropolie are also closing in downtown SF. They noted crime and nobody wanting to work in the area as reasons.

  28. NARmageddon says:

    How much did Union Bank pay for 350 California and when? Article says $41M in upgrades. so with a sale price of $60-67M it seems UB is selling at at loss. Amazing how bad their timing is. Maybe the bank is hard up for cash?

    I wonder how much parking underneath (entrance from back alley)? With , say 4 condos per floor, this might be a good conversion project?

  29. longstreet says:

    Another time bomb are these projects that are funded by floating bonds with the promise of the taxes from the project servicing that debt. TIF
    A very popular and formerly clever way to regentrify and create things private enterprise would not choose to do.

  30. TerraHawk says:

    I wonder if younger folks would be open to a different living experience at a discount. If they would accept communal cooking areas and bathroom areas, would that make residential conversion more cost efficient?

    • M says:

      Yes, this. Why aren’t contractors even considering that idea?

      • JeffD says:

        There are a lot of laws (i.e. barriers) surrounding condo conversions in California, and it can be very costly *if* you can get the permits. I would guess that the regulations *could* be even steeper in SF, but on the other hand, the mayor doesn’t want a lot of empty buildings, so who knows?

  31. R. Seckler says:

    I wonder if the cartels would like some office space…

  32. Dan Farrand says:

    Id say the price still is not low enough. What is the future of these buildings ? Seems like they will need to be repurposed from commercial into residential or something. What will the rework cost be ? $200/SF ? to be a deal in the liquidation sense that allows new owners to recreate a profitable structure, it seems like the liquidation price should be $100/SF

    This is capitalism at it’s finest. Purge the system of 20 year of mal-investment. Wipe out those who guessed wrong and enrich those who will rebuild.

  33. Uncle Bob says:

    I fondly remember the early 80’s when I lived in Hong Kong. Booms and busts of all sorts. There was one 20 storey commercial building that was completed just as the market turned against commercial and towards residential. What did the developers do? Knock it down and build a residential block of course. lol

  34. Kevin W says:

    It’s a key benchmark in another respect: comparable properties can now petition to have their property tax assessment dramatically lowered.

    The analysis of the haircuts suffered by CMBS and equity holders are fascinating too. And if you’re a budget analyst in a US metro area with lots of skyscrapers, your job is about to get a lot harder. Now there is actual price discovery, and you can better believe the tax attorneys for every other comparable building are about to be calling your office, demanding re-appraisals be done.

  35. H A says:

    Wolf, I only read the NYT and your posts, everything else I read is randomness off Google news.

    In the mobile website format, can you move the reply button closer to the center? It’s constantly being misclicked as I scroll down

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