Here’s one way the price reset of a major U.S. office property could play out: The investment in the asset gets written down to zero, clearing the way to sell its debt off to a bottom feeder as a maturity date nears.
That appears to be the playbook for Paramount Group on Market Center, which takes up much of the 500 block of Market Street in San Francisco. The New York-based REIT and its lenders are in talks to sell a $402 million loan backed by the two-building, 750,000-square-foot complex, the San Francisco Business Times reported, citing “multiple people familiar” with the discussions.
Eastdil Secured has reportedly been hired as an advisor on the dea for the property at 555-575 Market Street.
The prospective sale comes as no surprise — Paramount earlier this year said it had written down to zero its investment in the property, which it bought from Blackstone for $722 million in 20019. The disclosure came in a call with analysts, and the firm also signaled that it would likely unload the building in the future.
The debt is set to mature in January, and a sale could allow a new owner to establish a new operating basis in seeking new financing for the building, which is currently about 50 percent occupied.
Paramount bought the building with an undisclosed partner just before the onset of the pandemic, when San Francisco’s office market was awash in demand. The $722 million price came to about $963 per square foot, about triple what recent sales have notched in the city’s Financial District.
The real estate investment trust did not respond to requests from the Business Times for comment.
Market Center isn’t the only asset Paramount has zeroed out. It also has completely written off its investment in a property at 111 Sutter, not far from Market Center. It’s not clear whether Paramount is anxious to sell off the building on Sutter, where a recent extension of its loan runs for another 14 months.
Wilbur Paes, chief financial officer at Paramount, acknowledged in February that the pandemic in San Francisco “dealt a terrible blow” to the values of both properties. The city is still struggling with lower return-to-office metrics compared to other major metros.
Market Center would be the largest property to go on the market in San Francisco since the pandemic. A source familiar with the market told the Business Times that a price of about $300 per square foot would be likely for the property, putting its value at around $224 million — a bit more than half of its current debt load and less than a third of its purchase price five years ago.