CrossHarbor Capital Buys SF Office Building at Auction

CrossHarbor Capital Partners, the lender for a 111-year-old office building in San Francisco’s South of Market, has taken control of the property after a foreclosure sale.

The Boston-based investor bought the 100,200-square-foot building at 55 New Montgomery Street for $15 million after Swift Real Estate Partners defaulted on a $71.4 million loan, the San Francisco Business Times reported.

Swift, based in the city, bought the building in 2018 for $64.25 million, or $641 per square foot. It was served a notice of default in June after failing to pay $62.3 million on the loan.

CrossHarbor, the latest lender to seize an office property in San Francisco’s troubled market, had a winning bid that works out to $150 per square foot. Swift’s remaining loan balance was more than $65 million.

The eight-story Beaux-Arts building, which sits vacant, became mired in lawsuits after Swift began to renovate the building, then allegedly didn’t pay the construction bill.

In March, locally based Skyline Construction, which led the renovation, sent Swift a demand letter for $1.6 million worth of work, according to the Business Times.

Skyline sued Swift for breach of contract in late April, later adding CrossHarbor to its list of defendants. Skyline, in turn, was sued by a half-dozen unpaid subcontractors.

The construction firm said it couldn’t pay the subs until it received a check of $4.75 million for its renovation work at 55 New Montgomery, its attorneys said in court papers.

It’s not clear what CrossHarbor Capital plans to do with the building.

A lender may try to recover the lost value of a loan on a foreclosed building by turning the building around, then selling it, Gary Kaplan, a San Francisco-based partner at Farella Braun + Martel, told the Business Times.

He said the foreclosure could also affect Skyline’s breach-of-contract lawsuit.

Foreclosure sales generally wipe out liens that are “lower priority” to the lien of the lender foreclosing, Kaplan said, though sometimes lower-priority lien holders negotiate different terms with priority lien holders.

The office market in San Francisco, where a third of the offices are empty, has been hammered by higher interest rates and a shift to remote work.

In September, New York-based Bridgeton Holdings defaulted on a $45 million loan tied to a mostly vacant office building at 995 Market Street. The 91,000-square-foot building was once a major WeWork hub.

In August, loans linked to towers at 222 Kearny Street, 995 Market Street and 1045 Bryant Street went into special servicing, indicating a lack of payment or imminent default, according to DBRS Morningstar.

In July, a special servicer sued the New York-based WeWork Capital Advisors to foreclose on a 20-story office building at 600 California Street after the co-working firm fell behind on a $240 million loan.

In February, New York-based Columbia Property Trust defaulted on a $1.7 billion loan backed by a seven-building portfolio, including two office buildings at 650 California Street and 201 California Street.

Some of San Francisco’s most valuable office towers face mortgage maturity deadlines in the coming months, though owners were bullish they could refinance their debt.

— Dana Bartholomew