A
potential price reset for a significant US office property might involve writing down its investment to zero, allowing its debt to be sold off to a bottom feeder as its maturity date approaches. This strategy seems to be in play for Paramount Group's Market Center, which occupies much of the 500 block of Market Street in San Francisco. According to sources familiar with the discussions, New York-based REIT Paramount Group and its lenders are reportedly in talks to sell a $402 million loan backed by the two-building, 750,000-square-foot complex. Eastdil Secured has reportedly been hired as an advisor on this deal for the property at 555-575 Market Street.

    This prospective sale comes as no surprise, as Paramount earlier disclosed in an analyst call that they had written down their investment in the property to zero. They also hinted at their intention to sell the building in the future. The debt is set to mature in January, and selling the building could allow a new owner to establish a new operating basis in seeking new financing for the building, which is currently only about 50% occupied.

    Paramount purchased the building in partnership just before the pandemic hit, when San Francisco's office market was booming. The $722 million purchase price equated to approximately $963 per square foot, more than triple what recent sales have fetched in the city's Financial District.

    Paramount did not respond to requests for comment from the San Francisco Business Times regarding this matter. Market Center isn't the only asset Paramount has written off completely; they have also done so for a property at 111 Sutter, located nearby Market Center. It's unclear whether Paramount is eager to sell off this building on Sutter, where a recent loan extension extends for another 14 months.

    In February, Paramount's Chief Financial Officer Wilbur Paes acknowledged that the pandemic had dealt a significant blow to the values of both properties in San Francisco. The city is still grappling with lower return-to-office metrics compared to other major metropolitan areas.

    If sold, Market Center would be the largest property to hit the market in San Francisco since the pandemic began. A market source speculated to the Business Times that a price of about $300 per square foot would be likely for the property, which would value it at approximately $224 million - less than half its current debt load and about one-third of its purchase price five years ago.