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San Francisco investor Tidewater Capital has returned a downtown Oakland office building to its lender in a transaction observers say highlights the struggle of Oakland’s office market in the post-pandemic era.
Tidewater's New York-based lender, BrightSpire Capital (NYSE: BRSP), took control of the 10-story, 83,000-square-foot office building at 1440 Broadway July 24, according to a deed-in-lieu of foreclosure filed with Alameda County.
Tidewater acquired 1440 Broadway with joint venture partner AXA for $43.5 million in 2018 and refinanced the property using a floating-rate loan from BrightSpire in 2021, property records show. Tidewater’s outstanding debt on 1440 Broadway was more than $25.5 million when the building changed hands last week, according to the filing.
The firm’s loan for the property was not slated to mature until the end of 2026, according to regulatory documents filed by BrightSpire earlier this year. It was not clear Monday what might have prompted Tidewater to turn 1440 Broadway back to BrightSpire ahead of that time; both parties declined to comment.
Several market sources who requested anonymity to preserve working relationships said many downtown Oakland landlords are finding themselves running into regulatory trouble with their lenders as building valuations decline, sinking their loan-to-value ratio below acceptable levels. Others are simply finding themselves unable to services their loans, and more still, given the current environment, are balking at the prospect of having to put more capital into increasingly vacant office buildings in order to lure or retain tenants.
Three sources said BrightSpire had actively been interviewing various brokerage firms to help it market 1440 Broadway to new tenants in the weeks leading up to the transaction, suggesting the firm is considering retaining the building in lieu of attempting to sell it immediately.
New York-based CIT Bank chose that path earlier this year when it took back Plaza 360, a 116,000-square-foot office property at 360 22nd St. in Uptown Oakland, from New York investor Brickman. CIT hired Newmark this spring to handle the building’s leasing.
1440 Broadway, which is roughly 60% leased, is among the downtown Oakland office properties that traded hands several times in the years leading up to the pandemic, the sales price escalating each time.
The building’s market value ballooned more than 250% in just three years. Miami-based Market Street Real Estate Partners bought the building for $15.75 million in 2015 before selling it, roughly a year later, to San Francisco investor Sansome Street Advisors for $25.35 million. Sansome Street ultimately sold the property to Tidewater roughly three years later for some 70% more than it had paid.
Investors were drawn to Oakland’s office market in the late 2010s by low vacancies and significant tenant activity; the city even boasted the hottest office market in the entire country in early 2018, according to data from real estate services firm CBRE. But demand has deflated substantially over the past three years, and vacancy in Oakland’s core business district has continued to climb since the pandemic’s onset, reaching 35.7% in the second quarter of this year.
