Foreclosure Looms for Gem Realty and Flynn’s SF Offices

Gem Realty and Flynn Properties stand on the brink of losing a two-building office complex in San Francisco’s Union Square to foreclosure.

The Chicago- and locally based investors may soon flip the keys to their lender after defaulting on $47 million in loans linked to the buildings at 222 Kearny Street and 180 Sutter Street, the San Francisco Business Times reported.

The originator of the loans in 2019 was New York-based Goldman Sachs, which then repackaged them into commercial mortgage-backed securities sold to bondholders.

The loans went into special servicing in August, according to The Real Deal. The buildings have two loans of $23.75 million associated with them, totaling $47 million.

In April, an affiliate of Gem Realty and Flynn Properties defaulted on $2.2 million in mortgage payments. The loan’s beneficiary had said it intends to put the buildings up for sale via a foreclosure auction if the outstanding debt wasn’t paid.

A report this month describes the loan status as “in foreclosure” and “foreclosure (is) expected in August 2024,” according to the Business Times.

Gem Realty and Flynn Properties acquired the buildings in 2019 for $75 million. LBA Realty was the seller of the 121,000-square-foot building at 222 Kearny and the 24,000-square-foot building at 180 Sutter.

As of September, the occupancy of both office buildings was 65 percent, according to the latest bondholder report.

The default came after former tenant WeWork admitted “substantial doubt” about whether it could continue operations in light of a cash shortage. WeWork was the complex’s second-largest tenant, occupying about 18,000 square feet at the 145,000-square-foot complex, but rejected the lease as part of its bankruptcy proceedings.

Despite not paying its bills in Union Square, Flynn Properties has been in acquisition mode.

Last month, the Business Times reported that the firm led by restaurant and hotel mogul Greg Flynn was in talks with locally based Ellis Partners to buy a 108,000-square-foot office building at 631 Howard Street.

Earlier, Flynn was in talks with Tokyo-based Toda about buying a 210,000-square-foot office building at 600 Townsend Street, though the deal fizzled.

— Dana Bartholomew