This Auction Was Not a Great Sign for San Francisco

One of the things San Francisco has been wanting to see ever since the downturn caused by the pandemic in 2020 is the resurgence of its commercial real estate sector. And while the situation in residential real estate has improved, commercial real estate continues to be a problem. In particular, the office vacancy rate remains above 34%.

It’s no mystery what happened. All of those white collar workers started working from home in 2020 and many of them never looked back. And that explains why the market for office space is in the dumps compared to what it was in 2019. Case in point: the office tower at 600 California St.

One of San Francisco’s notable office towers was up for auction last week, a 20-story, 360,000-square-foot Class A building on one of the most coveted corridors in the North Financial District. Nobody who showed up to the stretch of sidewalk in the shadow of City Hall where the sale was held Thursday was there to bid on the polished, quietly assertive building that was once valued at over $320 million.

It’s a bit of a reckoning for the property at 600 California St., which was tied to a distressed $240 million loan and pushed into receivership after its former anchor tenant WeWork stopped paying rent three years ago. With no contenders stepping forward to offer bids, Dallas-based Lone Star Funds became the official owner of the property, after the private equity group paid roughly $130 million to acquire the debt in January from Goldman Sachs, the original lender.

The quiet transaction felt closer to a casual curbside deal than a high-stakes transfer of a notable piece of the city’s skyline. Some market participants pointed out that 600 California’s anticlimactic sale underscores continued weakness in the office market, challenging claims of full recovery. 

Within minutes, Lone Star, which declined to comment, formally took ownership of 600 California through foreclosure, and in doing so, appeared to test the building’s perceived value. Appraised at $109 million in 2024 — a near 70% drop from 2019 — the group placed a credit bid of $216 million on the property, essentially using the debt it had already purchased at a discount to bid on the building.

So to sum that up, the building was once valued at $320 million. Then it was valued at $109 million and it was bought for $130 million last week. As even the SF Chronicle admits, claims of a “full recovery” seem pretty silly. 

Also this week, eBay announced it was moving 200 employees out of the city and closing its office in San Francisco.

Online auction giant eBay is closing its San Francisco office at 300 Mission St., according to a notice filed with state officials.

The company said 198 San Francisco workers are expected to be reassigned to eBay’s headquarters at 2025 Hamilton Ave. in San Jose. Its lease at 300 Mission St. is expiring and the office closure is expected on Sept. 30.

The company had a round of layoffs in February, cutting about 800 jobs at the time. These 198 employees are not getting laid off but they will be moving to offices in nearby San Jose. Why move them to San Jose and close the SF office? Well, apparently a lease was expiring. But why not renew it? 

I don’t see eBay offering any explanation for that decision but I can guess. The building in San Francisco is located in the Mission corridor which is known to have a lot of problems with “urban disorder.” So maybe eBay decided it was cheaper and safer to just consolidate.

Between the office vacancy issue and the fact that the office vacancy issue could soon drive BART to close stations and cut service, you have several pieces of the predicted “doom loop” still on the city’s agenda. I’ve said before that SF will eventually recover and I’m sure it will, but it may not have hit rock bottom just yet.

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