San Francisco’s first office-to-home conversion project has fizzled for lack of financing. Group I, which defaulted on a $26 million loan, has traded the building to two nonprofits for $7.3 million.
The locally based developer led by Joy Ou sold the century-old Warfield Building at 988 Market Street to the Community Arts Stabilization Trust and KALW Public Media, which runs a local NPR-member radio station, the San Francisco Chronicle and SFYimby reported.
The nonprofits plan to turn the nine-story office building into a hub for media, journalism and literature called Warfield Commons. The San Francisco Community Investment Fund, a non-profit run by the city and county of San Francisco, has committed $17 million.
The sale marks a major flop in a campaign by San Francisco officials to convert empty offices across the city into needed housing. Office vacancy in the city, among the highest in the nation, has climbed to 36.5 percent after a pandemic shift to remote work, according to CBRE.
Group I bought the then-vacant 48,300-square-foot Warfield Building in 2011 for $6 million, or $124 per square foot. The firm then poured $9 million into a restoration, landing tech firms Match.com, Benchmark and Spotify as tenants. By 2017, the building was fully occupied.
Then crime and public safety put a dent in leasing ahead of the pandemic hammer, Ou told the Chronicle.
In 2022, Group I filed plans to convert the building into 45 apartments, winning approval for 53 units the following year.
The $16 million conversion, the first in response to soaring office vacancies after the pandemic, was expected to open the floodgates for more adaptive reuse projects, according to the Chronicle.
Instead, Group I defaulted on a $26 million loan in March secured by its historic offices. The reason: the “financing market just isn’t there,” Ou told the newspaper. “I was waiting for the equity market to come back.
“And I’m at a point where the value has plummeted and I have to exit to pay my lender.”
Community Arts Stabilization Trust, now a majority owner of the building, will take up one floor and serve as property manager.
KALW will occupy 11,000 square feet across two floors for broadcast studios, offices, classrooms and training areas for teachers, ex-convicts and journalists, according to SFYimby. The rest of the building is expected to be leased to local media and literary organizations.
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