Warren Buffett's disciple joins outside investors betting on downtown San Francisco

A good place to buy office space in San Francisco, at least for well-capitalized and patient investors who believe that San Francisco's downtown business ecosystem will recover in a meaningful and ultimately profitable way. It's time.

Some local owners, working with wealthy funders such as Presidio Bay Ventures, SKS Partners and San Mateo-based investor Roger Fields, are already taking the plunge to buy mostly vacant buildings in prime locations. at a fraction of the highest price: discounts of up to 70% are the norm.

Investors from outside the Bay Area are currently considering an acquisition. It's a sign that long-term views on a city buffeted by drug and quality-of-life crises and emblematic of a technology-dependent economy may be shattered. The post-pandemic commercial real estate crash may be shaping up to be unique. In the latter camp is Ian Jacobs, a real estate heir and protégé of Warren Buffett, who is reportedly looking for a good deal.

The Wall Street Journal reported on Jacobs' plans to acquire about 3 million square feet of office real estate in San Francisco. This is equivalent to more than two Salesforce towers.

It is unclear what kind of property Mr. Jacobs, a stock investor, is targeting. But given that San Francisco office buildings are trading in the $200 to $300 per square foot range these days, that much real estate would have cost him $600 million to $900 million. It turns out.

Mr. Jacobs, who founded investment management firm 402 Capital in 2009 and is a scion of the Toronto-based real estate mogul Reichman family, has previously struggled to raise funds to implement his big plan, dubbed “Project Ulysse.” It is reported that it took a year. This name comes from his family history. The wealthy Reichmann family built a real estate empire by purchasing dilapidated Manhattan office buildings from the Ulys Building Company.

Jacobs is already planning to raise about $75 million, the magazine reported, citing unnamed sources and marketing materials obtained. However, he predicted that it would take 10 years for the San Francisco market to recover.

Jacobs has not closed any deals in the city and has not yet begun discussions with local market participants, sources say, but the news certainly leaves the city's real estate community cautiously optimistic. You are welcome.

“Many people think San Francisco's valuations are at rock bottom right now,” said Scott Harper, managing director at real estate brokerage Colliers. “Office buildings are at deep discounts compared to pre-coronavirus levels and compared to renewal costs. Most investors say now is a good time to buy in San Francisco.”

In September, Mr. Fields, who runs Peninsula Land & Capital, sold 550 California Street, a vacant 13-story building in the heart of the financial district that once housed Wells Fargo, for about $40 million. In other words, I bought it for less than half the price of Wells. Fargo paid for it in 2005.

The deal marks the third office building to sell at a deep discount in two months, and several others have followed since then.

Downtown's office vacancy rate is near 36%, and Fields said there are plenty of distressed buildings available for purchase at the moment, like 33 New Montgomery, which went on the market last month at a 50% discount. . Steve Golubczyk, president of western capital markets for publicly traded real estate brokerage firm Newmark, said interest has been strong and his team has already completed about 70 property viewings with interested buyers. .

Still, “it's really difficult to buy a building,” Fields said. “I think it would be a little difficult to buy so many.”

Fields of Jacobs' Project Uris said, “Can he do what he wants to do?”

So far, only a few individual investors like Mr. Fields have made moves. But Mr. Fields said he was increasingly hearing about “distress funds” being raised by institutional capital.

When he signed the contract to buy 550 California, the market was rapidly deteriorating due to rising interest rates and other factors, and institutional investors were not ready to act. But that will change, he said.

“At the time, no one was raising money at an institutional level to buy distressed properties,” he said. “There is always a lag between when an event takes place and when institutions start operating and are able to attract foreign capital and make investments. It is a natural part of the cycle.”

But Fields said “the establishment of a relief fund is in progress.”

“Once fully funded, within the next 90 to 120 days, there will be talk of one of these funds actually pulling the trigger and buying something.”

Contact Laura Waxmann: [email protected]