https://www.costar.com/article/438366701/redco-development-makes-latest-san-francisco-real-estate-play-with-deal-for-vacant-office
Redco Development has further cemented its reputation as a prolific investor in post-pandemic San Francisco real estate, closing its bid to buy an empty office building in a neighborhood some real estate professionals have taken to calling “Area AI.”
Redco, run by brothers Chris and Jason Freise since 2019, paid $15.1 million to acquire a nonperforming $25 million loan backed by a more-than-century-old former industrial building at 208 Utah St. The four-story brick-and-timber building is in a part of Potrero Hill known as Showplace Square, or more recently, the Design District. Redco took ownership of the nearly 80,000-square-foot office building through a deed-in-lieu-of-foreclosure transaction requiring the cooperation of the building’s previous owner, San Francisco investor Shorenstein.
Redco said on its website that the building was “100% vacant at acquisition” and had benefited from “substantial shell improvements,” including new systems and tenant improvements.
Back in 2012 — in a much different climate when mobile internet start-ups in particular were on the upswing in San Francisco — the Shorenstein family paid about $25 million for the property, which was then around 80% leased by tech startups such as Strava, Trullia, Mode Analytics and WeddingChannel.com, according to prior CoStar data. The sellers in that deal, TMG Partners and Farrallon Capital Management, bought the building in 2010 for just under $8 million and spent another $2.5 million on renovations.
This spring, Shorenstein’s lender, Capital One, began marketing the debt on the property as a path to ownership, and Redco stepped up. The purchase marks the company’s fourth big acquisition in San Francisco in the past year or so, with all properties bought at steep discounts as office buildings in the city have come on the market for valuations not seen in decades.
Last spring, the firm partnered with San Francisco-based GCI General Contractors to buy 300 California St., a downtown office building. In November, Redco partnered with Bridges Capital, a family-owned outfit also based in the city, to acquire another historic financial district office building at 400 Montgomery St. The value-add investor and developer also teamed up with several other parties to buy Harrington’s, a nearly century-old waterfront pub that shut down in 2020 but has since reopened.
Once-in-a-lifetime bargains
The Freise brothers, like a handful of other San Francisco investors, have jumped on once-in-a-lifetime bargains in the city’s office market, insisting that San Francisco will soon boom again. In a blurb on its website, Redco said that 208 Utah St. "benefits from substantial shell improvements completed in 2012 including new buildings systems, seismic and tenant improvements making it available for immediate plug and play leasing."
The firm did not respond to a request for further comment on the deal.
San Francisco has seen its office vacancy rate rise from the lowest in the nation in 2019 to the highest, as a perfect storm of COVID-19 pandemic lockdowns, remote work and layoffs among technology companies caused tenants to downsize at record levels.
A gradual recovery is now taking hold, however, with high-profile investors making discounted deals for offices in downtown San Francisco.
In a bid to compete for a smaller pool of tenants, landlords are increasingly outfitting offices with amenities that in some cases range from climbing walls and pickleball courts to cafes, lounges and yoga studios.