News

Even as shoppers flock to the new IKEA on the 900 block of Market Street, the most prominent building on the block is headed for foreclosure, a cautionary tale of San Francisco’s famously topsy-turvy rush-in and rush-out economy.

Having bought the building for $62 million at the height of Mid-Market Street’s tech-fired renaissance, the owners Bridgeton Holdings have defaulted on a $45 million loan tied to 995 Market St., a 16-story, 90,000 square foot office building that anchors the corner of Sixth and Market, according to market sources.

The investor is more than 30 days delinquent on a $45 million loan, according to Morningstar, which cited servicer commentary. The loan, originated by LStar Capital Finance, is now under special servicing.

“The borrower has stated they will not be making any more payments,” special servicer Hudson Advisors said in an August note, according to Morningstar.

For those who have followed the ups and downs of Central Market Street over the past two decades, the trajectory of 995 Market St. is especially heart-wrenching.

In 2002 the tower was mostly vacant and its exterior was falling apart, with so many heavy, metal panels crashing down to the sidewalk below that the Department of Building Inspection issued a half dozen notices of violation.

By 2013, however, as companies like Twitter started moving into Mid-Market, the building had attracted Burning Man parent company Black Rock City as an anchor tenant and had sold for $16.4 million to Long Market Property Partners, who put another $18 million into it during a full renovation.

The investment paid off: Long Market leased 75% of the building to WeWork, inked a deal with CVS for the groundfloor, and in February of 2012 sold it for $62 million.

Now WeWork has terminated its lease and CVS is long gone, having closed its shop because of rampant theft and unsafe conditions of the street.

The imminent foreclosure means that it’s likely that the building will remain mostly vacant — which will make it hard for the numerous shuttered storefronts on the block to attract tenants, even with IKEA drawing lines of shoppers, according to Tenderloin Housing Clinic Executive Randy Shaw.

“The vacancy of that 16 story building is killing retail in the entire geographical area,” said Shaw. “It’s devastating to the entire Mid-Market recovery.”

Given that buildings in the heart of the financial district have sold for about $200 a square foot in recent months, it’s likely that 995 Market St. is worth less than $100, or 80% less than the 2013 price, according to some brokers.

CBRE commercial real estate broker Kyle Kovac, who was part of the team that brokered the sale of the building in 2016, said the fate of 995 Market will be shaped by whether the city is able to get a grip on the drug dealing and trash-strewn encampments that tend to proliferate in the alleys and on the corners in that neighborhood.

“The Mid-Market has faced more challenges than any other submarket in the city since the arrival of the pandemic,” said Kovac. “Significant policy changes from City Hall will be necessary from City Hall in order to fuel its recovery.”

While the departure of WeWork has left it more than 80% vacant, the structure itself is in great shape. Long Market, the group that sold it in 2016, put about $200 a square foot into its renovation and tenant improvements. It’s also possible that the 16-story tower — which has 4,000 square foot floor plates, great views and ample natural light — could be a candidate for a residential conversion.

“The building looks better now than it has since I have been in San Francisco,” said Shaw, who has worked in the Tenderloin since 1980. “The question is: How do we get it occupied?”

Long Market Property partner Justin Shapiro, who renovated the building and brought in WeWork, said he wouldn’t write off the structure — or the neighborhood. He and his partners recently paid $17.6 million for 40 Jessie St. — a 50,000 square foot historic building a block from 995 Market St. — and “continue to look for similar buying opportunities as believers in the San Francisco office market long term.”

He said, “The news about struggling assets in this downturn is unfortunate but we feel this is the moment now for patient capital to reinvest in the City.”

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