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After nearly a year of gauging the health of the San Francisco office market, Wells Fargo is finalizing a deal to sell off a downtown property for just a fraction of its initial asking price.
The San Francisco-based bank has chosen a buyer for its building at 550 California St., according to people with direct knowledge of the deal. The sale is expected to close for less than half of what Wells Fargo paid for the 355,000-square-foot building nearly two decades ago, the latest sign of San Francisco’s mounting office woes and plummeting valuations.
The prospective buyer, the identity of which is not yet known, is expected to pay between $42.6 million to $46 million, or $120 to $130 a square foot. That compares to the $160 million Wells Fargo originally asked for the property when it brought on JLL to help market it for sale last year. The bank pulled the listing several months later, after receiving less-than-expected bids, but relaunched it at the beginning of the year with help from Eastdil Secured.
Wells Fargo did not respond to CoStar News’ request for comment on the status of the listing.
The financial giant purchased the downtown property, complete with a parking garage, in mid-2005 for $110 million, according to CoStar data. It has been its sole occupant ever since, and a Wells Fargo spokesperson previously told CoStar News that employees of 550 California St. would be relocated to “existing, available workspace in other nearby buildings.”
The company has been trimming its real estate footprint across the country and plans to reduce its 46 million square feet of office real estate by 15% to 20% by the end of 2024.
“As part of our multiyear effort to build a stronger, more efficient Wells Fargo, we continually assess our real estate portfolio to ensure we are best meeting the needs of employees and customers, responding to consumer and economic trends and managing our costs responsibly,” the spokesperson previously said, adding that the company’s headquarters would remain in San Francisco. “We will continue to have a major employee presence in San Francisco, but we have more real estate than we need to support these employees.”
The pending California Street sale cements San Francisco’s new standing as a market in turmoil after years of pre-pandemic rent growth and seemingly infallible leasing activity. A troublesome combination of widespread layoffs across the tech industry, a flight to top-tier properties and hybrid work arrangements, among other pandemic-related factors, have collided to push demand for office space in the city to levels not seen since the dot-com bust in the early 2000s.
The sales environment in the city has been especially pressured as investors, already contending with rising interest rates and a challenging financial climate, have been spooked by plummeting valuations and falling rental rates. No major acquisitions have closed since 2020 and less than $7.75 million of office deals have completed in the past year, according to CoStar data.
By comparison, more than $1.5 billion of office deals closed in all of 2019.
Elsewhere in the city, CBRE Global Investors is trying to offload 123 Townsend for $90 million, also for a price far lower than what the investment management company paid when it acquired the nearly 137,000-square-foot office property about three years ago. The firm, which has enlisted Newmark to help market the building, paid $140 million for it in mid 2020.
New York investment firm Clarion Partners is hunting for buyers interested in snapping up its 11-story 60 Spear St. property for $55 million, about half of what the global asset manager paid for the 157,500-square-foot building nearly a decade ago. The firm has enlisted JLL to market the downtown San Francisco property, which it acquired in late 2014 for $107 million, according to CoStar data.
Several blocks away from Clarion Partner’s Spear Street tower is 350 California St., a fellow office building that is expected to trade for a deeply discounted price. Three years after the nearly 300,000-square-foot property hit the market, a San Francisco-based developer is expected to close on the building for about $70 million, a roughly 75% discount compared to the price Union Bank had hoped to command when it listed the downtown tower at the height of the pandemic in mid-2020.