R
eports of a new political climate in San Francisco boosting Union Square's property market have been dampened by the default on two office buildings. Chicago-based Gem Realty Capital and local firm Flynn Properties defaulted on 222 Kearny Street and 180 Sutter Street, which saw their appraised value plummet 76% over five years from $74.75 million to $18.3 million. The properties were purchased in 2019 for $516 per square foot but now fetch only $126 per square foot.

    The decline is part of a broader trend as office values across San Francisco have fallen due to the shift to remote work during the pandemic, with Union Square's vacancy rate reaching 29.2% in the third quarter. However, the election of a moderate mayor and city leaders has encouraged luxury retailers like Goyard to expand in the area.

    Despite this, Gem and Flynn Properties' office buildings are struggling, with occupancy falling from 91% in 2019 to 28% in June. The building on Sutter Street may face further losses as medical startup Forward shuts down its flagship clinic. Lenders have served notice of default for a $47.5 million loan linked to the two buildings and are targeting foreclosure early next year.