Brookfield Doubles Down on Troubled Office Building in SF

Brookfield Properties wants to sink millions more into a distressed office building in San Francisco by buying out its primary loan.

The New York-based investor is poised to buy a $93.2 million delinquent loan to Vanbarton Group that would allow the firm to take control of a 22-story office tower at 101 Mission Street, in the Financial District, the San Francisco Business Times reported, citing unidentified sources.

The seller of the non-performing loan is ING Group. Financial terms of the pending deal were not disclosed. Last fall, ING had marketed the troubled loan for $80 million.

Vanbarton, based in New York, bought the 213,700-square-foot building in 2018 for $163 million, or $763 per square foot.

A Brookfield Properties loan purchase could allow it to take control of the Class A building for $374 per square foot.

It would also allow the unit of Toronto-based Brookfield to recoup its stake. An affiliated fund provided a $23 million mezzanine loan to Vanbarton when it bought the building, according to the Business Times.

Rather than write off the loan as a total loss, Brookfield aims to acquire the senior debt and take possession.

The LEED Gold tower at Mission and Spear streets near the Embarcadero, once considered prime real estate in the city’s Transbay District, is 78 percent leased, according to a marketing brochure by CBRE.

The brown granite building, built in 1984, has multiple roof decks. Since its purchase seven years ago, Vanbarton has sunk more than $29 million into common areas and tenant suites, including a penthouse on the 22nd floor. The firm spent $8 million to upgrade the lobby and elevators.

Commercial real estate mortgages are coming due across San Francisco, where office vacancy hovers around 37 percent after a tech-driven shift to remote work.

The empty offices and higher interest rates have led to a collapse in the office market, with loan delinquencies, building foreclosures and fire-sale discounts, often to daring local investors. A purchase by Brookfield may signal a return by institutional investors.

Brookfield owns 80 million square feet of offices across the U.S. and Canada, according to its website.

In San Francisco, the company has the 219,800-square-foot Monadnock building at 685 Market Street; the 489,000-square-foot building at 1 Post Street; and the 648,000-square-foot building at 415 Natoma Street, which it developed during the first phase of the 5M project, according to the Business Times.

In the summer of 2023, Brookfield and Paris-based Unibail-Rodamco-Westfield surrendered the Westfield San Francisco Centre mall to its lenders after they quit making payments on a $558 million loan.

— Dana Bartholomew