What Are Older Office Towers Worth in the New Era? Second San Francisco Office Tower Sells for 70% Off Original Listing Price

And nearly 60% off the purchase price in 2005. Price discovery sets in. Deals are being made.

By Wolf Richter for WOLF STREET.

The burning question arose over the past two years what these largely empty older office towers in San Francisco are worth.

The market had frozen over. There were no transactions because no one knew what anything was worth as San Francisco’s office market has morphed in just a few years from being one of the hottest office markets in the US with a vacancy rate of 7% in 2019 and some of the highest rents in the US, to being put on ice by working-from-home. About 33% of all office space is now on the market for lease – worse even than Houston, which was for years the worst office market in the US.

So now there’s the second deal in about a month — though the sale hasn’t closed yet. Wells Fargo found a buyer for one of its office towers in San Francisco, the 13-story 355,000-square-foot 1960s-era tower at 550 California, across the street and around the corner from its headquarters tower on Montgomery.

Wells Fargo had purchased the tower in 2005 for $108 million. It is vacating the building. Last year, it listed it for $160 million, but then pulled the listing after receiving bids reportedly below $40 million. Earlier this year, it engaged real estate investment bank Eastdil Secured to relist the tower.

And it has now made a deal – the name of the buyer has not been disclosed – for about $42.6 million to $46 million ($120 to $130 per square foot), according to sources cited by the San Francisco Business Times. That would be 71% below the original asking price and nearly 60% below the purchase price in 2005.

The first tower to find a buyer in the new era of working-from-home and office-footprint reduction had been the Union Bank headquarters tower at 350 California, which changed hands in early May at 75% off the original listing price in 2020, at around $200 to $225 per square foot. But it had undergone $41 million in seismic upgrades and renovations recently.

The price of the Wells Fargo tower ($120 to $130 per square foot) and the price of the Union Bank tower ($200 to $225 per square foot) now serve as benchmark for other older office towers. It seems, as price discovery is beginning to take place, the door has been opened to more deals.

And maybe the buyers, who will have a much lower cost basis, can figure out what to do with those towers, such as leasing office space at lower rents that are attractive to potential tenants, which could then start bringing down the prohibitive office rents in the City.

Office-to-residential conversions are now a hot topic in San Francisco. Everyone knows that if it can happen, it should happen. Earlier this year, the mayor’s office introduced legislation that would amend the planning codes to make conversions easier.  So we’re off to the political races. But a conversion, if it even makes economic sense, will take years.

Neither the Wells Fargo tower nor the Union Bank tower involve defaults, foreclosure sales, and huge losses for creditors. There are no hapless CMBS holders involved that would lose their shirts. The towers did not serve as collateral for debt. Both properties have been owned by banks for many years to use as their offices. But the banks – like most other major companies in the area – are shrinking their office foot print. And in doing so, they’re now establishing benchmark prices.

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  125 comments for “What Are Older Office Towers Worth in the New Era? Second San Francisco Office Tower Sells for 70% Off Original Listing Price

  1. Gattopardo says:

    $120-$130/sq ft. That’s the cheapest RE in the city!

    Too bad you have to buy so many sq ft at once….

  2. OutWest says:

    I have no idea how rents are set in those buildings but it appears as though working in them is in less demand…

    • NBay says:

      The last thing we need are more small offices (damned desk jobs). I see NO NONE ZERO problem with residential. Offices are built for live load, and doesn’t anyone know what a “CHASE” is?
      They come on all sizes and shapes, run vertically or horizontally. EASY to build right over what’s there. They even lend themselves to artistic expression, or can be built that way.

      Other than code, residential conversion is no problemo.

      You could also have live in cops and firemen to get to small problems before they become big ones.

      I see far to many firetrucks here when an 80++ “chefess” leaves a pot on the stove and forgets it.

      Also, senile (or other mentally impaired) people and gas stoves DO NOT MIX….that alone is enough to ban gas stoves, not to mention help force the starting of the Comprehensive Green New Industry paid for with TAX schedules from when America was “Great”….or whatever it is they say.

      Yes you could have a church there, as well as daycare, a gym, and medical and other services, with street level entrances for first floor(s) weather proof malls….or mail services if shopping dies.

      The smaller building folks will have to walk or senior scooter to the bigger ones for some services.

      I bet the people stuck with these places in their bond funds will agree with me…..nobody rich has a 401k……they are all PE.

      • NBay says:

        Oh, I forgot light pipes and wells. Sunlight is nice, though somewhat rare in SF, last I saw…..2012?

        And you don’t HAVE to see what’s outside anytime you want without going out (for exercise, maybe?)……… they can put up a “best view of the day” camera on the very top and cheap huge LED screens….or rotate it like the one on Mt. Konocti they televise along with 20 or so channels, cheap…or used to, anyway. Think everyone has RF Internet now. Did I say this already?…..senile.

        • NBay says:

          Maybe I used wrong term..it’s what I always called an add on enclosure for pipes, elect, ducts, etc….maybe soffit, fake wall, long BOX near ceiling or up wall……added wet wall?
          Forget it.

          There is ALWAYS a cheap way and it doesn’t have to be kept FLAT or even square….ANYWHERE.
          We are just talking SHELTER….

          ..senilty is sometimes a drag…..

  3. Nadda Tyee says:

    Did Wolf check out the story about all the commercial mortgages coming due in a few years? At today’s high interest rates, probably many are discounting the price so that they won’t be stung by low valuations of their property and having to refi at a higher interest rate.

    • Wolf Richter says:

      “In a few years”? They have come due and are coming due in 2023 in large numbers, and we’re already seeing a lot of repayment defaults even as we speak. Lenders are going to become landlords, which is the last thing they want to be. So far, it has been hitting mostly CMBS holders and other investors, not banks. Banks must have securitized all their high-risk stuff to stick it into your bond fund, LOL. But their turn will come eventually.

  4. Phoenix_Ikki says:

    If only in my wildest dream residential real estate will follow this same price cut in the next couple of years in SoCal/NorCal….not holding my breadth but time will tell…

    • Whatsmynameagain says:

      I’m burning incense at this altar, too.

    • Occam says:

      WFH increased demand for SFHs and gutted demand for office towers in the urban core. SFH transactions have evaporated because sellers who can afford to wait are waiting for interest rates to drop to support the current price level; any price cuts so far are small in comparison to the huge run up in prices during Covid. Add to that the near-religious fervor associated with Cali residential real estate, and a major reset in SFH prices seems unlikely. OTOH older office towers are white elephants going on sale.

      • Bobber says:

        Listings in areas I’m looking at have gone up 100% over the last few weeks. They have priced them high, and they are sitting, some of them empty.

        Anybody sitting on an overpriced empty home is losing tons of money, considering they could put the money in a CD earning 5%, as well as eliminate the RE tax and maintenance costs. They also avoid the huge risk of price decline.

        Use your head. Common sense says prices are coming down and the acceleration is ahead of us.

      • kramartini says:

        Meanwhile builders keep building…

    • Cas127 says:

      In CA’s Aughts bubble, I believe that median residential real estate values fell 60%. And that period may have seen a smaller spread between trough and peak interest rates.

      The only thing holding up Wily Coyote and his Acme Anvil now are the amazingly low “for sale” inventories.

      But panic is a helluva thing…

      • Kernburn says:

        Statewide they dropped about 41% from peak to trough (2006-2012).
        The hardest-hit areas nationwide were in the central valley though. The worst was Merced, which dropped 65%

        • Cas127 says:

          I vaguely recall that the LA median’s fall was closer to 60% than 40% but I may be misremembering.

    • old school says:

      I saw the arithmetic on homes bought at today’s prices and interest rates and today’s rents for several cities. Needless to say the cash flow is very negative. If the prices don’t work on a buy to rent situation, it should feed over to the whole housing market.

      In a less leveraged society, population growth and productivity would be the drivers of the economy. The dominant factor today is debt expansion rate. Political advisors know it, and nearly all politicians try to goose things with added debt. It’s up to Powell now to dial interest rates up as high as needed to stop the insanity.

      • Djreef says:

        Well said.

      • Bobber says:

        If the Federal reserve is the backstop and they are unaccountable and beholden to asset holders, which are a minority, then we need a new backstop.

        The Federal Reserve has been repressing wage earners for decades, to prop up capital.

        • cas127 says:

          You may be right (and I’m no Fed fan *at all*) but I know what the Fed would say…”20 yrs of ZIRP was a necessity because the 25-54 employment to Population ratio never came close to the late 90’s peak…so we were far from full employment”.

          (Unspoken by Fed – “Turns out ZIRP can function like crack cocaine and the economy nearly died in 2008 after we tried to detox the citizen junkies we cultivated”.

          For a long, long time the Fed/DC could have used a lot more humility, incrementalism, and willingness to adjust at the margins.

          But DC’s addictions are bombast, corruption, delusions of omnipotence, and a thoroughgoing contempt for anybody who isn’t them.

        • NBay says:

          Well spun Cas. The situation calls for a REAL businessman savior, correct?

        • kramartini says:

          The high asset valuations assume that inflation will be beaten. If inflation looks likely to stay high, long-term interest rates will rise and hurt assets values regardless of the short-term interest rate.

      • Miller says:

        “The dominant factor today is debt expansion rate. Political advisors know it, and nearly all politicians try to goose things with added debt. It’s up to Powell now to dial interest rates up as high as needed to stop the insanity.”

        Bingo, that’s always been the lesson here, it’s another reason why only way out of this mess is a follow in Paul Volcker’s footsteps just as aggressive like he was, with both interest rate hikes and QT. There really is no alternative. Asset markets in the US have been high on the drug of excess debt for decades now, even since Greenspan and Bernanke led us down the dangerous path of the “wealth effect”. Leverage gives a temporary high but there ultimately has to be a pull-back for prices to be discoverable, and in-line with actual affordability.

        That’s why old boring things like the business cycle, occasional recessions and major corrections like the dot-com bubble collapse in 2000, or stock market and housing bubble collapses in the GFC are unpleasant but necessary, they help keep things in balance. And the longer the re-balancing is delayed the more painful it is when it comes.

        But somewhere the Fed got the foolish idea that the economy could just keep on with it’s leverage drug high for years and years without correction. Thus was the Everything Bubble born with debt-fueled asset bubbles in everything from housing to crypto to NFT’s, and the inevitable inflation crisis with it, made even worse by fiscal policies like the extreme over-stimulus of the pandemic, uncontrolled healthcare costs and federally guaranteed student loans regardless of tuition cost and room and board.

        Now inflation and asset extremes are so sticky that a year at a mediocre college costs close to $100K and even a year at State U. costs more than a Mercedes, P/E ratios in equities markets have gone so bonkers that price discovery is impossible, homes in even third tier US towns and cities without good jobs is approaching $400-500K, even those with homes are getting crippled with soaring insurance and property taxes costs, rent is sky-rocketing so much that homeless tent cities are appearing like mushrooms all over the USA, even those avoiding homelessness are going off the grid or cramming together in squalid apts or with family, other countries are dropping the dollar wherever they can for whatever alternative they can find, opiate use and suicide are at record levels, America has the lowest life expectancy of the developed world and now, the American birth rate is collapsing and looting and shoplifting are becoming routine across the country.

        Back when Boomers were young, a single parent without a HS degree in a factory job could get a home (buy, not just rent) for 3 years salary to start a family, now even highly trained American professionals with doctorates and high incomes can’t afford a home even in mid-tier cities with 10-20 years income and savings. All the while the rent keeps going up even more. No wonder American youth are basically hopeless right now, checking out of society and childbearing and getting hooked on opiates or committing suicide in record numbers. It isn’t even incomes themselves that matter, that’s just a number on a sheet–it’s the buying power for important goods and services, and right now the US has one of the worst in the world as inflation and asset bubbling rages on. Adam Smith himself warned that uncontrolled increasing rents strangle an economy and society, and that’s where we are.

        Jerome Powell needs to accept that only the Volcker model and his same aggressive policy will address this crisis, it won’t be easy but at some point, an economy has to come off this debt-fueled high or it completely falls apart.

        • NBay says:

          “important goods and services”

          Define “important” relative to destroying the planet for our species…or most all of them.

          We have evolved fantastic bodies, but the “leaders” of our cultures have repeatedly evolved into insanity…….democracy was supposed to stop them from dragging the rest of us along……

          Currently maximum wealth is believed to be the key to “the good life” and also to survival.

          It’s NOT.

        • eg says:

          Miller, not going to argue with your description of the ills stalking the land, but if you think that they can be resolved by monetary policy alone, you’re delusional. It’s going to take massive changes in fiscal policy.

        • cb says:

          @ Miller –

          Damn you’re good …………

      • cb says:

        another crippling factor is the rent expansion rate.

        is that a result of concentrated ownership?

    • Richard says:

      For residential RE to take a significant hit, you would need inventory to rise dramatically. We have historically low inventory (around 1M active listings versus 2.5M of historical trend). Everyone had expected RE to fall when rates rise. Well, mortgage rates basically more than doubled (3% to 7%). Sure, prices are down yoy but it’s not like anyone “feels” that relief. Prices are still sky high but higher rates made affordability even worse. There is no law that says when rates go up, prices go down proportionally. I was wrong on this > I thought prices have to come down significantly so the monthly payment would stay stable or be lower with higher rates. Boy was I wrong. It was cheaper to buy last year during the peak with 3% mortgage rates compared to today (lower prices with 7% mortgage rates). One can only hope inventory rises and rates come down so that more people can afford to buy.

      • Juliab says:

        Give the sellers time to understand that they cannot sell at these prices. The last time they figured it out was 5 years.

        • Richard says:

          “Give the sellers time to understand they cannot sell at these prices”

          What?! We will have 4M home sales this year. You sound like sales Have completely stopped. Yes, sales went off a cliff but that’s because there can’t be high transaction volume during an affordability crisis and low inventory. Muted demand and low inventory is the story of this market. That doesn’t mean sellers can’t sell at current prices. Do me a favor: type in google “Zillow, (your city) and median house price”. You will get an overview of your market and at the end of the screen it will show you median days on market. That’s how long it takes to sell a house in your market. I bet you the number is below 60 days. Or, look up on Zillow houses for sale in your area. Click on the heart which bookmarks the house. If there are updates to the status you will get a notification. According to your theory none of these houses should sell unless the seller significantly reduced their asking price.

        • Miller says:

          Yeah there’s no “this time is different” here, it’s same initial hesitation to reduce home prices and price-lock desperation seen in the GFC and previous real estate bubbles, until it becomes clear that local incomes and already overstretched buyers (worsened still by constant inflation) simply can’t support those prices. Esp in the bubbliest markets, not just West Coast and New York but also places like Austin, Phoenix, Washington DC area, Boston, even Chicago and Boise and of course anywhere in Florida, where home prices have to fall something 50 to 60 percent if not more to be actually affordable for people’s incomes (not to mention soaring homeowner’s insurance and property tax costs in places like Florida and Texas).

          If anything, the downward pressure on US home prices is even harder and more sustained than in 2008 or almost anything in the past 3 decades, because we have stubbornly high inflation now that ties the Fed’s hands. Very unlike previous housing crashes where the Federal Reserve felt free to re-inflate the housing bubble.

          Bottom-line is that Americans just don’t have the incomes to support these housing prices or rent costs esp with the added budget pressure piled on from worsening inflation, and in summer 2023 they have to also start paying back student loans after a 3-year pause (a huge covid pandemic stimulus) in addition. The payments have to start no later than late August but a lot are scheduled to start up in July depending on the servicer, and grads have to start saving up now because savings are so depleted, which means less spending and even less ability to pay these outrageous rents and real estate listing prices.

          The recent birth rate crash in the US is another indication of this, even post-pandemic the US fertility rates are falling farther. Americans just can’t afford to start families when the cost of living for basics like shelter are so high, piled on high costs for other basics like healthcare, childcare and education, now piled on inflation in even more basics like cars and groceries.

        • Greg P says:

          For the record, in the last real estate bubble, median national prices peaked in June, 2006, and didn’t bottom until December, 2012. 6 1/2 years of falling prices. Otherwise… I agree with your point.

        • Arnold says:

          This is not like the GFC. There are no interest only loans and high unemployment.

          Many people are aafely locked in at mortgages below 3%. They are not going anywhere. Its much cheaper to stay where they are.

        • Sams says:

          Re #Miller.
          This time is not different, but if the prices of an item is to high to be affordable there are more than one outcome.

          Prices rebalance to where it is affordable to the purchaser. This will eventually happen to housing and other existing items where the seller then take a loss.

          If something must be produced or made and no one can make money on doing so the item will become unobtainable. At least as a new item in any quantity.

          In the housing market the order of what happens now decide the outcome. An extreme outcome is a very slowly declining prices on small volumes with construction of new housing fading away.

        • Djreef says:


        • Einhal says:

          Miller, great post. I think people have in their minds that the wealth stratification and money printing due to QE means that an ever smaller number of people can own more and more houses, removing them from the market. That might be true to a point, but unlike one billionaire who can own millions of shares of stock, there’s only so many houses a rich person can own.

          Right now, housing prices haven’t dropped THAT much because there is no forced selling. Every potential seller figures they can hold off until rates drop (they all take it as a given that rates will in fact drop). Barring getting the sale price they want, they figure they can rent the house out for a profit and make money that way.

          There simply isn’t enough income out there to support a) house prices where they are and b) rents high enough to pay carrying costs.

          Unless rates plummet, it’s a given in my opinion that prices will drop. The only question is the time frame.

        • Nick Kelly says:

          The easy part for a realtor is telling the owner he can’t get last year’s price. The harder part is telling him he won’t get this year’s price in a year. It’s also the part not to stress to the potential buyer.

        • ru82 says:


          I agree with Richard. For any asset to drop, you need more supply than demand. We had way more supply than demand from 2008 through 2012 and prices dropped.

          During HB1, houses dropped in prices because between 2009 and 2012, 20% to 30% of houses were underwater. Home owners were doing jingle mail. Even owners that could have afforded the payments which added supply. I am not sure if the same scenario will play out this time because there are not the same magnitude of subprime home owners who cannot weather a recession.

          Affordability is dropping because the middle class is shrinking. Affordability will be for households that have higher than the median income. The number of families below the median household income who own a home has been dropping for 20 years.

          It is what it is. It is basically the Walmart effect and how a few large companies control every industry. You have some people at the top getting really rich and the people at the bottom making minimum wage and will not be able to afford a home. The middle class mom-and-pop store owners have been disappearing for 30 years.

          just my opinion

        • Wolf Richter says:

          Demand has dropped more than supply has. So days on the market are up, active listings are up, etc.

        • Gattopardo says:

          Replying Richard, about the Zillow check. North County Coastal San Diego, -3.1% YOY pricing, median $1.7 million. Days on market to pending….13. I would have guessed 30+ at least.

        • Miller says:

          @Arnold @ru82
          No two housing crashes or asset bubble collapses are alike, and circumstances of the GFC housing bubble plunge aren’t a template–if anything they were more exception than a rule, previous housing crashes had very different characteristics, without the kinds of zero-interest or subprime loans we saw in 2008. The one common feature all the crashes have is that prices of even basics soared way beyond American’s incomes, it makes a collapse inevitable even if the specific path of the crash varies from one time to another. The low rates of recent purchases aren’t an obstacle to that–the same was true there of purchases leading up to the GFC and previous housing crashes, very low rates locked in, but life happens and people have to move. Sometimes it’s new jobs, or layoffs (bad in many sectors even if lower-wage service jobs were net positive in the last report), and uniquely in the US divorce is a homeownership wrecker. In fact was talking to an old professional friend in Florida who bought a lot of properties with his wife in recent years at the low rates, she filed for divorce (ironically because he was too busy), now they’re both going to be having to force sell a lot of those properties while he’ll also be struggling with sky-high alimony and child support. (divorce courts can basically impute anything from a prior banner year of earnings, and if anything high earners are especially vulnerable to financial disaster in the family courts of common law countries like the USA)

          As our econ prof once said to keep it simple, when asset, goods and services prices soar to out-strip what incomes can support, it’s always a bubble by definition, propped only by excessive debt, and the longer that reckoning is postponed by leverage, the more painful the reckoning eventually is.

          With the Everything Bubble now it’s not just housing, if anything the equities bubble is even worse. S&P stocks have P/E valuations up in the 20’s and 30’s and the NASDAQ is filled with companies that will never turn a profit valued at billions of dollars (makes the dot-com bubble of 1999-2000 look almost rational), even the DJIA valuations are bonkers–the difference though is that since shelter is a basic necessity, the soaring rents and mortgage prices have an economy-wrecking effect to the point of ruining whole communities. And the main culprit on all this is disastrous failed Fed policies that have fueled these bubbles and are now strangling millions of American households with worsening inflation and crippling rent, healthcare and other basics costs. We were on the way to a necessary correction in 2020, but the insanity of the super-stimulus of ZIRP, QE and $10-12 trillion in fiscal stimulus put that off so that the eventual return to reality is going to be even more painful.

          That’s also why I’m not sure the Walmart effect is the best analogy here. It’s not something to trivialize even in it’s original form–Walmart’s wrecking of small businesses was a contributor to the social break-down that’s led to the USA’s opiate crisis, itself a big reason why the United States has by a huge margin the worst life expectancy and general health in the Western world (and getting worse, even after the pandemic). But as bad as the Walmart effect was for small businesses, it’s a financial weapon of mass destruction for whole nations if applied at a societal level, for things like housing.

          If the US is moving towards that kind of extreme feudal situation with a tiny (and probably self-cannibalizing) aristocracy of a few oligarchs and masses of impoverished Americans, even skilled professionals, unable to secure good housing and constantly in fear of homelessness, crime and becoming destitute–then the USA doesn’t have much time left as a nation. Massive inequality has long been a nation-wrecker but on that kind of scale, with the huge majority of the population having nothing to lose, it means the guillotines and nooses on lamp-posts start coming out. And in the US, that metaphor takes a literal sort of form in 400 million firearms. A very scary prospect, and another reason that Powell and the Fed need to get a lot tougher and more ruthless in choking off inflation and these dangerous valuation and asset bubbles.

        • Miller says:

          @Einhal @Sams
          Right, that’s heart of the issue with the Fed and stimulus-induced economic distortions behind all these asset bubbles (including commercial real estate as much as residential housing). It’s the sort of thing Adam Smith would of had a heart attack over, a huge mis-allocation of resources and gaping inequalities that hollow out communities and chip away at the huge majority of people’s ability to afford basic goods, even shelter. The “wealth effect” from the ridiculous QE and ZIRP policies esp over the past decade, and then covid over-stimulus has led to such extreme asset overvaluation and debt-fueled bubbling that prices have gotten totally out of whack with actual incomes and savings.

          Smith himself warned these sorts of rent seeking distortions utterly destroy capitalistic economies if they aren’t brought in check–that’s ultimately why Volcker acted with such determined urgency. And Powell and the Fed board despite some increasing urgency of their own (after the initial delusion about “inflation is transitory”) still don’t seem to grasp how dire the effects on American society or buying power are when these imbalances and asset bubbles get further out of hand, or they’d be a lot more aggressive with the rates hikes and QT. The overleverage continues until Wile E Coyote finally looks down and realizes he’s run off the cliff, for us that soon may be happening with the student loan repayment pause expiration. It’s been the biggest pandemic stimulus over the longest time and now there’s a sudden withdrawal coming in the summer, would have been far better for the Fed to put the brakes on this debt-fueled high much earlier.

      • Swamp Creature says:

        “One can only hope inventory rises and rates come down so that more people can afford to buy.”

        Inventory will not rise and rates will not come down. I agree with Lawrence Yun. If you want to own a home waiting will not benefit you. If anything, rates will go higher.

        • Miller says:

          Rates will indeed go higher, but Americans can only afford the housing costs they can realistically afford, so home prices and rents simply have to come down or the already record homelessness rates and worsening crime will only get worse. That huge $10-12 trillion in pandemic stimulus is now just about running out as American’s savings get depleted and credit card debt goes past $1 trillion with higher interest rates. And now the biggest pandemic stimulus of all, the student loan pause for more than 3 years, is about to expire this summer. And all this on top of even more financial stress piled on from sticky inflation and higher costs for healthcare, cars, schooling and food. Shop owners and big chains are literally having to change their policies now because there’s such a big increase in theft and shoplifting with people just trying to smuggle out basic items, and things like the writer’s strike are a direct result of all this inflation and the soaring costs of rent and mortgages in the cities and suburbs.

          Americans just don’t have the incomes or savings as it is to afford one of the most basic needs in the US, just having a roof over their heads. It’s a big reason the US birth rate collapsed to a new record low last year, Americans just aren’t going to start families when they have to cram 5 roommates into a dingy apartment or move back home when even professionals can’t afford the housing near their jobs. Or even wind up homeless, again that’s getting worse every month almost everywhere in the US and there are tent cities sprouting up all over, not only in the big cities but now even in the suburbs, smaller towns and medium sized cities. The US fertility rate was already heading fast in a Japan direction and now even more going that way.

          In fact if we try to look at apples vs apples, looking for example at the birth rate of Americans born in the country esp grouped out like for professionals, the US TFR already is right around Japan–it’s inflated by higher birth rates of for ex. some immigrant communities with traditional cultures, but for Americans born within the United States, we’re not far off from Japan. That’s just another indication the USA is becoming way too expensive in it’s cost of living to sustain itself. So the only solution is for housing costs and other major expenses to come down, a lot. Esp in the bubbliest markets. This is the harsh price of ZIRP and misguided QE policies, and with inflation as sticky as it is, the Fed has no choice but to step on the afterburner even more with interest rates and QT to fight it.

        • Juliab says:

          You know, you sound like a broker. And I have to say, brokers all over the world sound that way.

          The Wolf has repeatedly said that this market is not a crypto market. He is 50 percent psychology. It is difficult for any seller to accept that his wealth, on paper, is no longer the wealth on paper that he had a year or two ago. Therefore, he needs time to accept this fact. When that happens it’s too late. That is why the wolf says that the first panicked sellers are profitable.

          This is not just about a lack of inventory, but above all about a lack of accessibility.

        • Herpderp says:

          RE: Miller
          “the Fed has no choice but to step on the afterburner even more with interest rates and QT to fight it.”
          This implies the fed actually cares about fighting inflation, it does not. I suspect we will have ZIRP and trillions in more QE later this year once “the recession” is confirmed by some datapoint to help “stimulate the economy” aka pump more wealth up to the top.

    • Enlightened Libertarian says:

      I know many people are rooting for real estate prices to collapse but what would the economy look like for a 25% drop?
      25% unemployment? 20% interest rates?
      Be careful what you wish for.

      • Bobber says:

        The secondary effects of an asset price drop are definitely positive.

        People would be willing to make real long-term productive investments again. Economic growth would return. Moral hazards would be reduced. Unproductive ventures and excessive speculation would reduce. Jobs would be created in other areas such as infrastructure, energy, and Healthcare, etc. Blue collar workers could afford to live near their work. Savers would get a decent return on their savings. Education costs would reduce.

        The vague warnings you hear about are complete bull propagated by Wall Street. Don’t parrot them. These fear spinsters are the same folks that said we needed to bail out Goldman Sachs in 2009.Recessions are not to be feared. They are productive and serve great purpose. See the big long-term picture.

        • Arnold says:

          Savers are already getting 5%, how high do you want it to go?

          Mass unemployment would horrible. It would effect everyone.

          Even cutbacks in Social Security and Medicare would happen as tax revenue disappears.

        • Einhal says:

          15% APR seems reasonable given the past 15 years.

          And no, mass unemployment would only be horrible in the short run. In the long run, we’d be better off.

        • Bobber says:

          Arnold, if the Fed is unwilling to sell MBS in sufficient quantity to eliminate excess liquidity, the Fed must raise rates much higher.

          The easy solution is for the Fed to reverse out all the money it printed, and lower rates, but the Fed wants to keep asset prices elevated for illegitimate reasons.

        • Ty says:

          Bobber, your statements are spot on! Most people don’t understand these economic phenomena; thus they can only think as deeply about this subject as the typical bumper-sticker platitude.

        • Gattopardo says:

          “The secondary effects of an asset price drop are definitely positive. People would be willing to make real long-term productive investments again.”

          Maybe, maybe not. Last crash definitely didn’t work out that way. Neighborhoods rotted because interest in improving, or even maintaining, property dropped sharply. America may have an obsession with housing, but it’s only when we think we have equity, the more the better.

        • Enlightened Libertarian says:

          Recessions are great….look at how much money property investors who had cash made back in 2008-2012 and then how much more money they made off of 3% interest rates.
          Yep, the rich made out very very well in the last recession and afterwards.
          Middle class, young people and the poor…not so well.
          I wasn’t rich and yet I made out very well. My extended family not so well.
          Overall the real estate run up, crash, then run up again and aftermath was terrible.
          Why in the world would you want to do it again?

      • rojogrande says:

        The outcome you suggest is highly unlikely. The US experienced a real estate price crash 10 to 15 years ago and the result was 10% unemployment and 0% interest rates. Besides, inflation will have to be spiraling out of control to hit 20% interest rates, at which point housing will be a secondary concern. I think it’s OK to wish for greater housing affordability.

      • MarkinSF says:

        Nothing destroys an economy like high real estate (land) prices. The US (and many others I presume) has basically priced itself out of it’s own market.
        A significant portion of the country’s housing stock is either sitting empty and/or are AirBnB/ST Vacation rentals or are owned by “investors” in it for price appreciation. There is also a significant amount of CRE that are 2nd (or 3rd or…) homes and the wealthy (foreign) parking cash (illegal?)
        I wouldn’t be surprised if 20-25% of the entire US housing stock is owned by these buyers. I’m sure Wolf has the numbers.
        These are the properties that will ultimately be released once the dam cracks.
        The trajectory of the CRE housing market is impossible to sustain. Now it’s stopped dead in it’s tracks and the pressure is slowly building.

      • Herpderp says:

        25% unemployment…
        No one would be able to afford rent, housing, families, healthcare, education….
        Oh wait.

        • Random guy 62 says:

          Working people keep the resources flowing upward. Unemployed people aren’t much good for that. I think that’s the main difference.

      • MM says:

        If you bought your home for a roof over your head, that roof will still be over your head even if your home is “worth 25% less” than before.

        If you bought for investment purposes, different story.

        • Enlightened Libertarian says:

          Can you make the payments and pay the property taxes if you don’t have a job?

  5. tannin says:

    the implication is that a foreclosure sale or from an owner under financial pressure, will bring an even lower sq ft price. Assume latest building did not have seismic upgrades…..hugely expensive, and lack of, places buildings at real disadvantage in SF.
    Going to be interesting.

    • Wolf Richter says:

      The Union Bank tower had $41 million in seismic upgrades and renovations done recently, hence its higher per-square foot price. So the buyer of the Wells Fargo tower is likely expecting to have to invest a bunch of money.

  6. Gary Fredrickson says:

    These commercial loans are at the banks and wrre part if the last Federal Reserve “stress test.” However, the Federal Reserve used only a 40% decline. Wonder if the Federal Reserve could somehow backstop the banks in order to stop price discovery. These must be short sales so the bank could refuse the short sale, get a real estate company to manage the leasing, and then get some “liquidity” pumped into their vault to cover the loss in rents versus mortgage payment. There must be some program to remove the risk from the banks, maybe some program that was done in the Great Financial Crisis could be restarted. Couldn’t be more than a couple trillion dollars.

    • SoCalBeachDude says:

      The best solution is to increase bank capital requirements to 20% which is what is already being implemented.

  7. CCCB says:

    The fed confused real eatate with the economy and chose to try to crash the real estate market rather than slow the overall economy.

    Unfortunately the market they crashed wasn’t the one they aimed at. Powell specifically stated he wanted home prices lower – something about affordability.

    The only problem is his interest rate hikes now made housing completely unaffordable for a lot more folks. They also insured that anyone who doesnt absolutely have to, won’t sell. Add to this the fact that builders have slowed or stopped building because of higher costs – mainly borrowing costs.

    Meanwhile the fed bomb is blowing up the office and multifamily markets. Now we’ll not only have fewer homes for sale, we’ll have fewer rentals available also.

    • Wolf Richter says:

      What’s happening in the office market is a godsend for companies that, instead of wasting their resources on fattening up landlords — which doesn’t do anything for the economy — can now invest the money in new products or services and other expansion projects that will add to the economy. High rents strangle the economy. The yoke of high rents needs to be broken. That’s a good thing for the economy. Investors/lenders/landlords were well paid to take those risks.

      • Seneca's Cliff says:

        I agree, high rents add no value to the economy and are essentially a parasite around the necks of productive business. The only thing they do is encourage investors to build more space ( in a situation where that is needed). Now that the need for space is stable or declining high, rents have no purpose. The argument that if rents are too low landlords won’t create more space becomes null and void. At a certain point there is no difference between landlords with excessive rents and the mob forcing you to pay protection fees. Good riddance I say.

        • 91B20 1stCav (AUS) says:

          …rentier society ultimately revealed as anti-societal?

          may we all find a better day.

        • kramartini says:

          High rents also cause companies to economize on scarce office space. Not a problem at the present moment…

        • cb says:

          Seneca’s Cliff said – “high rents add no value to the economy and are essentially a parasite around the necks of productive business”
          high rents are a parasite around all producers, namely workers, but are good for the uppity parasitic rentier class …..

      • IN says:

        >>(…) can now invest the money in new products or services and other expansion projects that will add to the economy

        To be fair, nothing prevented many organizations from going fully/mainly remote between 2010 and 2020. The tech was mostly there already. I worked for one such company between 2015 and 2021 – if not for the pandemic, it would’ve probably kept wasting millions every year on a prime office space in Manhattan. When the pandemic hit, it took the company less than 2 months to go fully remote and from what I’ve heard from folks who stayed there, it never returned even to hybrid.
        My main point here is that while the pandemic was certainly a catalyst for the change and sort of cornered the management to act asap, literally nothing prevented the company from doing the same, let’s say, in 2018, to be able to rather “invest in new products/expansion”, than to feed commercial RE moguls in NYC. Failure to spot an opportunity is totally on them. On the bright side, now everyone down to the last financial accounting clerk saw how it feels like to have a flexible wfh schedule, so good luck trying to squeeze folks back into crowded offices (if they are even still in NYC metro area and have not moved to FL/SC/NC)

        • Enlightened Libertarian says:

          Work from home was probably inevitable.
          The COVID epidemic was just a trigger.

      • eg says:

        That’s some good old fashioned Henry George right there, Wolf!

  8. alx west says:

    purchased the tower in 2005 for $108 million.

    That would be 71% below the original asking price and nearly 60% below the purchase price in 2005.

    you should mention it is NOT INFLATION ADJUSTED!
    -economists- love to put here and there this term.

    $108 mil in 2005 is probably $ 200 mil today in 2023!

    thus it is even worse than it appears.

    • MoreCreativeMatt says:

      $108 million in June 2005 is $168 million in April 2023, inflated by CPI.

      So 168m down to 45m is -73%.

      But that’s just based on CPI. Based on overall asset price inflation since then — which is probably the better gauge as an office building is, after all, an asset, and the opportunity cost would be to invest in other assets — it’s even worse than that.

      In mid-2005, S&P 500 was around 1200, so I’ll use that. For today I’ll use 4200. The math is (45/108) / (4200/1200), which is 0.119. Or an 88% haircut versus investing it in the S&P.

      That’s not a perfect comparison, as the S&P had dividends and the building had maintenance costs and mortgage payments, and Wells Fargo presumably derived some utility from having that space over the years. But… wow. A 90% bath on owning that thing compared to the most obvious alternative.

  9. Undisclosed buyer means straw buyer just as it did after the 2006-2007 real estate crash. These banks and their lenders are playing footsie to take “losses” as write downs with cash buyer shell corporations working with banks and commercial properties to rig sales without letting price discovery really happen. They did the same with residential homes back in 2006-2007 to keep market inflated above discovery and then reflated mere years later. Same modus operandi. Same method.

    • Wolf Richter says:

      Always making up stuff to turn an interesting deal into a conspiracy? Do that on twitter, not here. The deal hasn’t closed yet and isn’t in the public record yet. By the time it closes, the buyer’s name will become public record. It will be an investor with cash, because no one can get loans on office buildings right now.

    • Madison 1782 says:

      Zeus Y: Interesting comment. I’m not certain I completely understand it beyond the bottomline at screening/obfuscating price discovery.

      Any references you can point me to so I can better understand the detail?

      Thanks In Advance!

  10. Happy Jack says:

    Looking forward to the same occurring in the residential market.

  11. longstreet says:

    “Office-to-residential conversions are now a hot topic in San Francisco. Everyone knows that if it can happen, it should happen.”

    Plumbing, running water…..how?

    And likely this will end up with governmental assistance which will lead to low income housing, which will lead to …….what?

    • Wolf Richter says:

      It will be higher-end condos and apartments. That’s the only thing that makes economic sense in a conversion downtown. They may have some “affordable” units in them, though. That’s how it has been done in new-builds in the area.

      • VintageVNvet says:

        Nah, GUV MINT will take them over, eventually, and turn them into worker housing,,, or SHOULD DO.
        Pine Ellas county is doing exactly that right now, and I applaud them for doing so.
        Other areas of FL are working that way fast, especially the wealthier places where the rich folks ”can’t get no satisfaction” as in maids, chauffeurs, etc….
        Back in the day, the help usually lived in, or at least on the premises, but not so much these days with all the social mayhem.

        • NBay says:

          I saved a post hurricane photo that shows all the rich island home people’s boats high and dry in the middle of the mainland cheap apt complex where their servants worked. Ironic.

        • cb says:

          @ VintageVNvet –

          turn them into the highest end the use the market will support, without government subsidy. Better housing opens up housing right down the line.

      • MoreCreativeMatt says:

        Wolf, any idea how much it would cost to tear down and rebuild as condos? Residential RE in downtown SF has to be at least $1000/sf by now (google says it’s around $1000 for the whole city), so that’s a HUGE spread. Even assuming a drop in residential to say $600/sf, why wouldn’t this start happening?

    • yield_curve_believer says:

      I agree, office-to-residential is a monumental overhaul.

      However, hotel-to-condo conversion is much more straightforward, and a major hotel chain just sent in jingle mail to it’s lender for a significant (albeit outdated) SF property.

      Check out this article in sfist.com

      Owner of SF’s Largest Hotel, the Hilton Union Square, Is Walking Away, Surrendering It to Lender.

      • Wolf Richter says:


        I told you in Oct 2020 that these Hilton mortgages would default. This was a slow-moving wreck. There were lots of warning signs:


        The landlord that is walking away (a hotel property REIT) is a spinoff from Hilton Hotels, which was taken private in a huge LBO by PE firm Blackstone in 2017. A few years later, it went public via IPO at a huge profit to Blackstone. A few years later, Hilton Hotels spun off their hotel properties into a REIT, which then cash-out refinanced the properties with mortgages that were securitized into CMBS and sold to investors (such as your bond mutual fund). Those CMBS were designed from day one to screw investors (your bond mutual fund), and now those investors (your bond mutual fund) get to hold the bag. These people are something close to gangsters.

    • Joe says:

      Do offices not have bathrooms ?

      • Nick Kelly says:

        The C suite yes. The cubicles share others. The C also has windows. These are a bigger prob than a few more bathrooms. because they are holes in the outer wall and can’t just be hacked out without engineering, approvals etc.

  12. Swamp Creature says:

    Now I see why Wells Fargo is closing so many branches around here. They lost so much on that office tower in SFO they have to cut corners elsewhere. Financial engineering is more important than customer service.

    • Wolf Richter says:

      LOL. WF had $13 BILLION in net income last year.

      WF did not lose a lot of money on the deal: they depreciated the building’s value (not the land value) every year, since 2005, at a rate of 3.3% per year, to reach zero after 30 years. So accumulated depreciation on the building is about 56% of the building’s cost so far. So maybe they lost $40 million on the entire property, minuscule for a bank that had $13 BILLION in net income last year.

      • Occam says:

        Great response. Until CRE transactions are fully examined through tax, cash flow and inflation adjustments you really don’t know who is holding the bag (if anyone). I worked in a flyover city that is enjoying a bit of a renaissance now, but not all that long ago older CRE was being abandoned at a scary rate. That’s when you know capital flight and population loss has taken hold. Extremely unlikely in Cali unless a black swan event occurs.

        • Flea says:

          In Omaha they raised my valuation 45 k on a 255 k home in one year.Will be taxed and insurances out of my paid for house in 5 years.

  13. SocalJimObjects says:

    Will Big Tech ride to the rescue of Commercial Real Estate? All the talk about how unproductive WFH is has to be driven by real estate valuation and not productivity.

  14. BobbleheadLincoln says:


  15. longstreet says:

    It is my understanding that many of these large office buildings are owned by pensions and insurance companies.
    If the “right” people start to suffer, look for more Federal bailouts….

    It was only in Dec of 2022 that Biden sent $36 Billion to bail Central States Pension Fund.
    File that precedent with Yellen covering all deposits.

    • Wolf Richter says:

      These two buildings were own by banks. If a pension fund owns a building outright — rather than the debt on the building — they can just maintain it, keep it fully occupied by lowering rents, and take the lower income. If they own the debt, they may end up with a big loss.

  16. patrick says:

    I am amazed by how quickly homes sell in our neighborhood- most don’t make it to mls- realtor’s claim waiting lists ! and though I am very skeptical of realtors the evidence supports their claims- big fixer upper – it needed everything – sold in 3 days for over list ( asked 625- got 644) I thought the higher rates would chill things down but it not red hot its white hot! not just here but places we visit – we were in chattanooga last weekend at at vrbo – house next door was putting up a realtor sign – it was already under contract and had sold over list !

    • Jon says:

      AI generated comment, LOL.

      • Miller says:

        lol that was first thought for us reading that too. Obvious real estate shilling, overuse of exclamation points, full of hype and “selling over asking” jargon. Another “gift” of chatGPT and all the generative AI hype (overhype), making it easier for shills and scammers to auto-generate inaccuracies and sheer junk to clog up discussions with all their misinformation.

        • Whitten says:

          Miller I agree with your posts above – I’m a person that can’t afford the variance between buy vs rent right now in Charlotte, especially considering the opportunity cost of my down payment earning 4.5%. I am also looking at the Miami area for real estate (have a job offer there) and am seeing places I had on my saved list on Zillow sell above ask once in a while. Is there an underground realtor-only pre-market like there was in 2021/2022? No idea. It’s infuriating but above ask is still happening in some places where the list price wasn’t out of wack based on my review.

          Not a bot.

        • IN says:

          Whiten, if Charlotte market is anything like Raleigh market, it probably never really reached an “absolutely insane” kind of hype, except for maybe a few months some time in 2022 when rates started to climb quickly, and even then it still was in some reasonable “price per sqft” universe, unlike Cali, Miami or some other historically hyper-attractive areas.

    • Swamp Creature says:

      A 1 bedroom Condo in Chinatown DC just sold for full price. Right across the street is SFO Tenderloin 2.0

      Because there are no listings, any piece of crap sells around here if priced right. Lawrence Yun is right on the money.

      Back in 1999 I sold my home and moved into my current house. At the time there were no properties for sale. I got full price, and the highest price in the neighborhood at the time.

    • bulfinch says:

      Last gaspers; lambs, jumping for the knife. You saw this in 2009, too. These are the buyers with dents in their butts from sitting on the fence so long. They’re tired of the staring contest and capitulate with a starved vigor fueled by too many hours of HGTV and pushy family members.

      As for Chattanooga—it probably looks like a bargain shoppers dream to any members of the Lucky Club scouting out spots to create their poor man’s California. You see it in Knoxville (!!!) of all places, too. Nashville, Asheville & Austin are all spent where that action goes.

  17. David S says:

    Breaking news has Hilton walking away from their SF properties also

  18. Joancohn says:

    These sales make lower valuations for TAX purposes inevitable . That means less revenue for the city and a further cutback in city services .

  19. RedRaider says:

    Since the 60s real wages increased 12%. Over the same period real home prices increased 160%. In relative terms, Home prices have increased 135%.

    This isn’t a matter of mean Boomers shafting Xers/Millennials/Zers. It’s a systemic problem of living in an inflationary age.

    And I think we can all guess who’s responsible for all that inflation.

    Does the SHTF moment begin in commercial real estate? Maybe. After all, CRE involves both real estate and wages doesn’t it? Double whammie time!

  20. kiers says:

    Same shenanigans happening in New York City market; take, for example, the tourist attraction “Flatiron Building” (google image search the quote for pics) : some unknown buyer bids, then decides “nah”, doesn’t pony up the deposit, leaves it floating.
    Flatiron Bldg: Last [failed] bid = $160mn; 255,000 square feet.

    Of note, Jon Corzine, used to have an office there; (likely just an advertisement favor for the owners, prob never went there…)

    • Shiloh1 says:

      The federal prison in downtown Chicago has the same shape, with smaller windows. Perhaps Corzine is still in there.

      • bulfinch says:

        How long before they’re converting prisons into condos with a baked-in minimalist aesthetic: “Hoosegow Heights”

  21. Phil says:

    The facade looks 1980s. Not 1960. I’m guessing there was a major renovation/retrofit in the 80 or 90s. I could be wrong.

  22. Jackson Y says:

    How is this possible when corporate executives appear to be decisively winning the war against work-from-home, despite the low unemployment rate?

    Amazon & Facebook are now mandating 3 days per week in the office, joining the rest of Big Tech. Starbucks, Disney, Walmart, and pretty much the rest of the Fortune 100 are now hybrid or mostly in-person.

    Where are all these permanent-WFH, remote-forever jobs that are pulling down office values?

  23. William Leake says:

    Wolf, your article is re-posted on ZeroHedge. Not sure if that is good or bad.

    • Wolf Richter says:

      All good. They have my permission. ZH was very good to me back in 2011 and 2012. I’m grateful for that.

      • phil says:

        I look at ZH every day. For years. Much BS, but it stirs the pot, and I’m grateful for that. Like I’m going to go to the NY Times for reality, or WAPO? I’ll stop there. I won’t add suggestions for reality. There are many. Rudyard said it: If you can keep your head when all about you
        are losing theirs…….
        Tip from Phil: Read his books and short stories.

  24. eg says:

    Didn’t we already see this office CRE story play out already once before with US malls?

  25. Zard says:

    Wonder with all the earthquake technology, how high can they build? If someone buying this for 40M and build a new building with 3x area, they might make some money out of this debacle.

    I guess real estate in SF is probably closer to $1000/ft^2. They might fetch better than that since this is very prime location.

    355K (sq ft) x 3 x 1000 = $1 Billion. Just need to subtract out the cost of the new building, 500M(?). Not bad if you have the money.

  26. cresus says:

    It’s shocking. No other words. Isn’t the land more valuable than that?
    If not then the whole US valuations are a sand castle and banks are all insolvent.

  27. NotMe says:

    SF sounds like startup heaven. Tons of first class office space at bargain rates. Startups are the only firms that seem to require attendance at a place of work. Biotech startups have the highest need for floorspace per employee. They will need support for wet labs so ventilation and special plumbing will be required.

    We have seen repurposing with Twitter and others who occupied former merchandise market space. The building owners will have to come to grips with fact that there is no need for faces in front of screens. Mission Bay, South SF and Alameda biotech firms could easily expand into Embarcadero office buildings en masse.

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