New York Life Real Estate Investors Targets San Francisco Office Tower

New York Life Real Estate Investors, the investment management division of New York Life Insurance Company, is engaged in discussions with Lincoln Property Company regarding the acquisition of a delinquent loan tied to a significant office building located at 353 Sacramento Street in San Francisco’s Financial District.

Details of the Acquisition

The loan being pursued, originally issued by German lender Aareal Capital, is secured by the 23-story tower which encompasses approximately 284,750 square feet of office space. Reports suggest that the loan could be acquired at a price in the low $200-per-square-foot range, potentially amounting to around $57 million.

Historical Context

Aareal Capital had previously sought to divest itself of this troubled $101.6 million loan as part of a strategy to reduce its involvement in non-performing U.S. office debt. At the time the loan was put on the market, it carried an outstanding balance of $89.6 million.

In a notable prior attempt, George Mersho, CEO of Shoe Palace based in San Jose, had initially agreed to purchase this loan for $76.9 million (or $270 per square foot), but that deal did not finalize.

Ownership and Valuation

The office tower is currently owned by affiliates of Pacific Oak Capital Markets and the Israeli insurance company Migdal. The building was acquired in 2016 for nearly $170 million, equating to approximately $595 per square foot, by an affiliate of KBC Realty Advisors. In the following year, KBC sold a 45 percent stake in the property to Migdal.

Subsequent management responsibilities were transferred to Pacific Oak, which separated from KBS Realty Advisors in 2019. As of April 2023, the Pacific Oak affiliate estimated the fair market value of the building at $98.8 million, roughly $347 per square foot. If New York Life successfully closes the loan purchase, it could secure the property at a discount, potentially 42% below the assessed value and 66% below its last trading price.

Market Trends and Recent Investments

This prospective acquisition marks the third investment in San Francisco’s office market by New York Life since spring 2023, signaling a strategic reinvestment into the sector following pandemic-related disruptions. The firm was the first institutional investor to resume purchasing office properties in the city.

Previously, New York Life, in partnership with Bridgeton, acquired a 78,000-square-foot building at 410 Townsend Street for $22 million (about $282 per square foot) last April. They are also under contract to purchase an additional building located at 600 Townsend Street West, which spans 210,000 square feet, for around $63 million (approximately $300 per square foot).

About New York Life Real Estate Investors

New York Life Real Estate Investors, established in 2013, manages a portfolio consisting of $69.7 billion in assets, reflecting its significant presence in the real estate investment sector.

For further details and updates on this developing story, stay tuned.