Institutional Investors Back in Play for San Francisco Office Towers

With momentum building for an office recovery in San Francisco and downtown properties available at bargain-basement prices, institutional investors are getting off the sidelines.

New York Life Real Estate Investors is aiming to acquire a loan backed by a building that will become its third recent San Francisco office investment, a binge that started last year for the Manhattan-based real estate investment arm of insurance giant New York Life.

New York Life and its partner, Dallas-based Lincoln Property Co., are in talks to acquire non-performing debt tied to 353 Sacramento Street, a 23-story, 285K square foot office tower in the Financial District, the San Francisco Business Times reported.

The partners are expected to purchase the loan backed by 353 Sacramento from its lender, Wiesbaden, Germany-based Aareal, for a price in the low $200 per square foot range, translating to about $60M, the report said. Last spring, Aareal tapped Newmark to list a $102M loan tied to 353 Sacramento for sale at a time when the outstanding debt on the loan was about $90M.

Distressed office properties in downtown San Francisco have been trading in the $200 per square foot to $300 per square foot range in recent months.

New York Life also is partnering with Lincoln to acquire 600 Townsend Street West, a 210K square foot building in Showplace Square, a deal that is expected to close later this year.

In April of last year, New York Life became the first institutional investor to re-enter the San Francisco office market in the post-pandemic era when it partnered with another NY-based investor, Bridgeton, to acquire 410 Townsend Street, a 78K square foot building in the South of Market neighborhood.

At the end of last year, global asset management firm Barings partnered with San Francisco-based Brick & Timber Collective to acquire 500 Washington Street for $33M, or about $326 per square foot.

San Francisco’s beleaguered downtown office market, where the vacancy rate peaked at nearly 37% at the end of last year, is signaling a recovery in 2025 driven by rapidly expanding AI firms and growing momentum for return-to-office mandates.

Another deal emerged last week in the downtown office market with cloud-based platform provider Databricks taking 150K square feet at One Sansome, a Financial District tower located at 1 Sansome Street.

Databricks announced in December it raised nearly $9B in a Series J round valuing the company at $62B, saying it has seen 60% year-over-year growth due to the artificial intelligence boom. The company’s deal at One Sansome will give it the option of increasing its footprint in the building to 200K square feet.

In January, JPMorgan Chase, which has told its workers to return to the office five days per week, committed to a renewal and expansion at 560 Mission Street that will grow the financial services giant’s footprint to 280K square feet in the 31-story tower, the San Francisco Chronicle reported.

San Francisco-based business leaders in a recent survey of 100 companies each with $50M or more of annual revenue said most of their firms are planning to increase their office footprints in the city during the next 12 to 18 months.

Three-quarters of the execs surveyed by KPMG, all of whom are at the vice president level or higher, said they would expand their offices in San Francisco as they push for more in-person work and grow headcount.

Nearly 80% of the respondents said they are aiming to bring employees back to the office more frequently, and 66% said they plan to increase headcount this year. KPMG said that 91% of the surveyed business leaders expressed “high levels of confidence” in the city's growth prospects.