The developer behind a stalled effort to build a 40-story building in downtown San Francisco has turned over the property to its lender in a sign of growing distress in the city’s real estate market.
Developer Build Inc. has filed a deed in lieu of foreclosure for its One Oak development at 1500 Market St. at the corner of Market and Oak streets, according to city property records.
Homeowners can sometimes choose to give up their properties through this process as an alternative to foreclosure when they are not paying off their mortgages. News about One Oak was reported for the first time by the San Francisco Business Times.
According to city records, Build Inc. owed more than $44 million in debt to lender Washington Capital Management Inc. and disposed of the property for a nominal fee of $100. Build Inc. and Washington Capital Management did not respond to a request for comment.
One Oak had a little troubled development history as it sought to start construction in a difficult financing environment and rising interest rates. Build Inc. initially won approval to build 304 condos for sale in 2017 before pivoting plans to 460 rental units last year.
The developer also tried to unload the site in 2018, blaming rising costs and fees as major barriers to construction. Build Inc. is also behind the 469 Stevenson St. project which became a flash point in housing debates in San Francisco after the board of supervisors decided to block the project.
The middle market the neighborhood is struggling after the pandemic drastically reduced the area’s pre-pandemic daytime office worker population, increasing job vacancies and heightening concerns about public safety and street conditions. A number of companies such as Block, Uber and Reddit have walked away or waived leases in the neighborhood.
In the final blow to the neighborhooda Whole Foods grocery store announced its closure just a year after its grand opening citing safety concerns.
Commercial vacancies in San Francisco are approaching 30% and show small signs of slowing down. Real estate insiders predict that a wave of homeowners will decide that owning real estate in San Francisco isn’t worth it anymore.
One Oak is the latest example of an owner doing just that. Another example, Redco Development and its investment partner AEW Capital Management decided to get away from the historic building at 1 Montgomery St. which they bought for $84 million in 2019.
“Commercial real estate is in the eye of a perfect storm,” Dan McNamara of Polpo Capital, a hedge fund that has a short position in the commercial mortgage-backed securities market, said in a recent interview.
Kevin Truong can be attached to [email protected]