Struggling high-rise signs spate of leases
New tenants bring downtown tower’s occupancy rate to 90%
A 33-story downtown San Francisco office tower that last year was part of one of the largest office loan defaults seen since the pandemic is seeing a rarity in the city’s struggling office sector — new leases for space.
Columbia Property Trust Inc. announced on Monday that it has entered into long-term and expanded agreements with four tenants who previously subleased space in the 483,000-square-foot tower at 650 California St. — which is owned by one of its affiliates, Columbia REIT — 650 California LLC — or faced expiring contracts there.
Taken together, the new leases total just under 79,000 square feet of office space, and bring the building’s occupancy to “approximately 90%,” Columbia said in a statement.
The deals give 650 California a welcomed financial boost — the tower was among a collection of seven Columbia properties that saw their valuations slashed by 30% after the office landlord last spring defaulted on a $1.7 billion loan tied to the office portfolio.
The massive default is emblematic of the pain spreading among property owners in the wake of the pandemic, particularly in San Francisco, where office vacancy reached 37% last quarter.
Earlier this year, Columbia, which was acquired by funds managed by global investment management firm PIMCO in 2021, managed to negotiate new terms for the distressed debt collateralized by 650 California and six other buildings with its lenders. The agreed-upon modifications included bumping the maturity date to July 2025, cutting interest rates and deferring payments on portions of the debt.
And according to Columbia, the newly signed contracts at 650 California involve an expanded lease with law firm Debevoise & Plimpton LLP, which recommitted to the tower through at least 2037 and added another floor to its current office, bringing its total occupied space at the top of the building to 31,619 square feet.
Another law firm, Cleary Gottlieb Steen & Hamilton LLP, converted a roughly 7,000-square-foot sublease to a direct contract for 23,758 square feet. Per its agreement, the firm will now occupy the building’s 25th floor and a portion of the 24th floor for 11 and a half years.
Global investment firm HPS Investment Partners has been subleasing about 4,400 square feet at 650 California, but in recent weeks committed to an 11year direct lease for a portion of the 28th floor, where it will occupy about 8,000 square feet. And Analysis Group Inc., which has been located in the tower since 2008, signed a lease extension for the 23rd floor.
“650 California’s leasing momentum and strong occupancy rate are proof that the highest quality office product continues to perform well, even in today’s current market,” said Ted Koltis, Columbia’s head of real estate, about the 60year-old tower.
“The tower’s timeless views, as well as its connectivity, comfort and convenience, give forward-looking companies the ideal environment to service clients and to attract and retain top talent.”
Other tenants in the building include fintech Affirm, oil and gas company Shell, and global financial services firm Credit Suisse. Ahead of the loan default last year, Columbia made headlines for suing another tenant in the building, X Corp. (formerly known as Twitter), for allegedly failing to pay rent.
The company occupies about 8% of 650 California’s footprint, and has since sublet its office in the building to Japanese advertising firm Dentsu, according to reporting by the Real Deal. Last week, X CEO Elon Musk announced that he plans to relocate the company’s headquarters, currently located at 1355 Market St. in San Francisco, to Austin.