Colliers, a prominent real estate firm, is relocating its San Francisco headquarters to One Market Plaza. This move positions the company at the waterfront, offering Bay Bridge views from the 13th floor of the Steuart Street tower. The relocation is set for next year and aims to align Colliers with more high-profile competitors in the city.
The decision to move comes as One Market Plaza faces significant changes. The 1.6 million-square-foot complex is currently over 50% vacant. Its owner, Paramount Group, is experiencing financial difficulties and has agreed to sell to Rithm Capital. This transaction introduces complexities for new tenants like Colliers, requiring specific assurances regarding lease agreements and building operations.
Key Takeaways
- Colliers is moving its headquarters to One Market Plaza for a more prominent location.
- One Market Plaza is over 50% vacant, and its current owner, Paramount Group, is selling the property.
- Colliers secured assurances for its lease amid the ownership transition and financial challenges.
- The building faces an $850 million loan maturity next year, adding financial pressure.
- An SNDA agreement protects tenants in case of foreclosure or ownership changes.
Colliers Secures Waterfront Location Amid Ownership Shift
Colliers' new office space at One Market Plaza offers unobstructed views of the Bay Bridge. This move is strategic for the firm, aiming to enhance its market presence. The building, once a top-tier destination, attracted major companies such as Google, Morgan Lewis, and Visa in the past decade.
However, the current landscape of One Market Plaza is different. The property is struggling with high vacancy rates. More than half of its office space remains empty. This situation has led to financial challenges for Paramount Group, the current owner.
The firm's decision to relocate required careful consideration of the ongoing sale of Paramount Group to Rithm Capital. Colliers needed guarantees that its lease would be upheld regardless of the acquisition's outcome. This was crucial to prevent potential disruption to their operations.
Fact Check
- One Market Plaza is a 1.6 million-square-foot office complex.
- It currently has over 50% vacancy.
- The building faces an $850 million loan maturity in the coming year.
- Asking rents for the leased floor were between $100 and $115 per square foot.
Financial Hurdles and Tenant Protections
A significant financial hurdle for One Market Plaza is an $850 million loan that matures next year. If Paramount Group or Rithm Capital default on this loan, it could impact tenants. Reduced operational staffing or janitorial services are potential consequences, depending on the building's cash flow.
Such a default could also halt new leasing for neighboring offices. A lender or receiver controlling the property might lack funds for improvements. These improvements are often necessary to attract new tenants to a struggling market.
"Vacancy combined with a maturing loan is a ticking time bomb," stated one San Francisco office broker, who requested anonymity to protect professional relationships. "That’s when the lender starts to get involved in every aspect of negotiations, and can override promises made by the borrower."
Real estate experts advise tenants to seek properties with stable ownership. This helps avoid buildings that might sell at a steep discount due to financial distress. However, if a tenant desires a specific building with an uncertain future, they can negotiate protective agreements.
Understanding SNDA Agreements
A Subordination, Non-Disturbance, and Attornment (SNDA) Agreement is a three-party contract. It involves the tenant, the landlord, and the landlord's lender. In this agreement, the lender agrees to recognize the tenant's lease even if the property goes into foreclosure. This recognition is contingent on the tenant continuing to pay rent as agreed.
Tenant brokers note that SNDA agreements vary significantly. They can sometimes be longer than the actual lease document due to the need for three parties to agree on terms. Some agreements may include clauses for early termination or rent reduction, but these are rare and apply only in extreme situations where a landlord fails to provide basic services.
Ensuring Lease Security: The SNDA Agreement
To safeguard their interests, Colliers likely negotiated an SNDA Agreement. This ensures that their lease remains valid even if the building's ownership changes or faces foreclosure. This type of agreement is critical in volatile real estate markets.
San Francisco's office market currently shows more sublease space than usual. This indicates a broader trend of companies reconsidering their office needs. The challenges at One Market Plaza reflect this wider market condition.
Paramount Group and Colliers did not respond to requests for comment regarding the specifics of their agreement. However, sources familiar with the deal confirmed Colliers agreed to pay within the market rate for their floor.
Market Value and Future Outlook
Loan documents indicate the asking rent for the floor leased by Colliers was between $100 and $115 per square foot. This pricing is comparable to other premium San Francisco properties like Salesforce Tower, 555 California, and One Maritime Plaza. Such an investment requires strong assurances for the tenant.
Colliers needed confidence that its lease would be protected and that the property would not deteriorate. The involvement of Rithm Capital appears to offer some stability. Michael Nierenberg, CEO of Rithm Capital, expressed conviction in the recovery of office market fundamentals in cities where they invest.
Rithm Capital's interest in turning the property around is a positive sign. This suggests an institutional player remains committed to the San Francisco market.
Blackstone's Continued Investment
Paramount Group had partnered with global investment firm Blackstone to acquire One Market Plaza in 2007. In February of the previous year, they jointly paid $125 million to lenders. This payment secured an extension on their loan, demonstrating a commitment to the property.
Blackstone's continued presence in San Francisco is notable. This year, the firm acquired another office building nearby for $111.3 million. It also foreclosed on a 459-room hotel in Mid-Market. These actions suggest Blackstone maintains a long-term interest in the city's real estate sector.
These combined factors likely provided Colliers with enough comfort to finalize its lease agreement at One Market Plaza. The relocation marks a significant step for Colliers, moving to a prominent location while navigating a complex real estate transaction.
