Out-of-State Capital Returns to San Francisco’s Office Market
Florida-based 1754 Properties closed on a six-story office building at 40 Jessie Street in late October for nearly $28 million, marking the firm’s first San Francisco acquisition and first office purchase in a portfolio otherwise concentrated in Florida and Mexico hotels. The company partnered with Vander Capital Partners on the deal, which values the property roughly $10 million above the $17.6 million Long Market Property Partners paid Golden Gate University in 2023. Google occupies the entire building under a lease that runs through 2030, following its 2021 acquisition of previous tenant Fitbit. About 60% of the space is configured as lab area.
1754 Properties CEO Joe Smith said the firm plans to build a larger Bay Area office portfolio and is seeking local partners for additional deals. He cited the city’s AI-driven leasing momentum and office vacancy falling below 30% as evidence the market has turned. Smith called current conditions “probably the best it’s been in 12 years” and expects single-digit vacancy rates within four to five years. The firm is passing on hotel investments in San Francisco despite its specialty in that sector, citing high union concentration and labor costs.
San Francisco has drawn a wave of out-of-state buyers over the past year as AI growth has shifted investor sentiment. A Texas investor began acquiring Union Square properties in 2023, while East Coast investors launched Project Uris in the same neighborhood. Foreign capital entered the market this year with purchases of the Transamerica Pyramid and Ghirardelli Square, and a New York investor is set to buy a downtown retail property. Smith described the shift as a reversal of the prior five years, when capital flowed from California to Florida rather than the opposite direction.
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