An investor has paid off a high-priced loan tied to an iconic skyscraper in downtown San Francisco, a move that would be routine prior to the pandemic that upended the city's office market but today can be seen as a much-needed boost for the hard-hit region.
Chicago-based investor Metropolis Investment Holdings paid off the $150 million loan backed by 345 California St. in downtown San Francisco from Massachusetts Mutual Life Insurance, the landlord said in a statement.
Metropolis — the manager of a 6 million-square-foot office portfolio on behalf of the family of the late German billionaire Hugo Mann — is now the outright owner of the 35-story, 600,000-square-foot building in the heart of San Francisco’s financial district that it purchased more than 25 years ago for $200 million.
"Paying off the loan reaffirms our commitment to the San Francisco office market," Tom Dempsey, the head of asset management for Metropolis, said in a statement.
It’s a unique position for an office landlord at a moment when defaults and foreclosures on loans tied to commercial mortgage-backed securities have become the norm across the country and particularly in San Francisco, one of the nation's most distressed office markets with a record vacancy rate of 23.2%, above the national average of 13.9%. Building owners in the tech-heavy city struggled in recent years to pay off pre-pandemic loans amid drastically reduced demand for office space and persistently high interest rates.
Troubled property loans continue to cause pain nationwide as billions of dollars’ worth of commercial mortgage-backed securities loans come due, with $8.6 billion of CMBS loans slated to come due this month alone.
Signs of turnaround
Metropolis has taken a similar approach with other buildings it owns in Chicago, Dallas, Houston and Philadelphia.
“We are 100% debt free across our office portfolio,” Dempsey said. “We believe tenants will increasingly seek stable ownership such as ours, where investments in amenities continue to benefit their employees, and where they will be maintained to the highest standards during the life of their lease.”
Indeed, the difficult office environment has spurred prospective tenants to take a closer look at the financial health of property owners before they rent.
The wave of commercial property debt has put pressure on the property lending system after years in which U.S. banks essentially kicked the can down the road by granting extensions when loans mature — leading some industry professionals to predict an increase in foreclosures.
Occupancy at 345 California St. is currently 82%, according to CoStar data, with tenants including financial firms such as TPG Global, Kroll and Five Star Bank. Degenkolb Engineers recently signed a lease to occupy 17,000 square feet at the building, said Metropolis. The top 11 floors are occupied by a separately owned hotel operated by the Four Seasons, which also has its own address, 222 Sansome St.
In San Francisco, investors are watching closely for signs of an imminent turnaround. Those hopes were boosted by a handful of large leases signed in the final months of 2024, according to a CoStar analysis. Total leasing volume in the fourth quarter of 2024 topped 3.5 million square feet in the Bay Area, the second-highest quarterly amount since the onset of the COVID-19 pandemic in 2020 and the highest since the third quarter of 2021.