NY Life in Talks to Take Back Another SF Office Tower

New York Life Real Estate Investors wants another chunk of San Francisco offices.

The real estate arm of New York Life and Dallas-based Lincoln Property are negotiating to buy a delinquent loan secured by the 23-story office tower at 353 Sacramento Street, in the Financial District, the San Francisco Business Times reported, citing an unidentified source.

The loan purchase from German-based Aareal Capital for the 284,750-square-foot building would be priced in the low $200-per-square-foot range, or as low as $57 million, according to the market source.

Last spring, Aareal tapped Newmark to list the troubled $101.6 million loan to pare back its exposure to non-performing U.S. office loans. At the time, the outstanding debt was $89.6 million.

In November, footwear mogul George Mersho, CEO of San Jose-based Shoe Palace, had cut a deal to buy the loan from Aareal for $270 per square foot, or $76.9 million. The deal fell through.

The building is owned by affiliates of Pacific Oak Capital Markets, based in Costa Mesa, and Migdal, an insurance company based in Israel.

An affiliate of KBC Realty Advisors, based in Seattle, bought the building in 2016 for nearly $170 million, or $595 per square foot. The next year, the firm sold a 45 percent stake to Migdal.

KBS then transferred management of the affiliate that owned the building to Pacific Oak, which spun out of KBS in 2019. The Pacific Oak affiliate reported in April that it believed the fair market value for the building at the end of 2023 was $98.8 million, or $347 per square foot.

If the sale to New York Life closes, the firm could snag it for up to 42 percent less than that, and 66 percent less than its last traded price. The loan purchase would then allow it to take control of the building.

It would also make it the third San Francisco office property picked up by the firm since last spring, when it became the first institutional investor to reenter the city’s office market after the pandemic.

Last April, the investor partnered with New York-based investor Bridgeton to buy a 78,000-square-foot building at 410 Townsend Street in South of Market for $22 million, or $282 per square foot.

New York Life is also under contract with Lincoln to buy a 210,000-square-foot office building at 600 Townsend Street West in Showplace Square for around $300 per square foot, or $63 million.

New York Life Real Estate Investors, founded in 2013, has $69.7 billion in assets under management, according to its website.

— Dana Bartholomew