Efforts to sell the famed 555 California St. in San Francisco have been put on hold amid an uncertain market, a move that could at least temporarily hurt the finances of the cash-strapped Trump family, which owns 30% of the property, according to the Wall Street Journal.
Vornado Realty Trust, which owns 70% of 555 California St., the former Bank of America headquarters, has decided to suspend efforts to unload both the tower and 1290 Avenue of the Americas building in Manhattan, the Journal reported. The sales of the two buildings were expected to fetch as much as $5 billion, with about $1.5 billion going to the Trump family.
Doug Harmon, a Cushman & Wakefield chairman who was handling the New York sale for Vornado, said the company now plans to refinance its loans on the buildings and would look at a new sales effort or recapitalization next year.
“Now with the election uncertainty behind us and with much more clarity and positive news surrounding the vaccine’s efficacy and speed to market, we are now focusing more on refinancing both assets and are leaning toward re-offering and/or recapitalizing the package in 2021, when the durability of the cash flows is even more valued, when international investors can travel with less restrictions, and the path back to normal is underway,” he said in a statement.
The decision to forego the sale comes just three weeks after Vornado executives expressed cautious optimism that a deal in properties would come to fruition. In a Nov. 4 earnings call with analysts, Vornado Chief Executive Officer Steven Roth said that his company and the Trump Organization were still marketing the two buildings.
“There is active interest from investors and the widespread appreciation for quality of these assets. But given investor caution, it does not look like we’re going to achieve our original top tick pricing objective,” he said. “Nevertheless, we continue to actively pursue a transaction involving these assets, which may take the form of a sale, a partial sale, a joint venture or a refinancing.”
San Francisco and New York have both seen commercial rents drop during the coronavirus pandemic and the once-hot office sales market has cooled off significantly. Several San Francisco office buildings, including 350 California St. and 123 Mission St., have been pulled from the sales block after eliciting scant interest. The landmark Transamerica Pyramid building sold in late October for $650 million, $50 million less than it was in contract for before the pandemic hit.
Robert Sammons, research director at Cushman & Wakefield who was not involved in the effort to sell the Bank of America Building, said he doesn’t expect to see a robust sales market until the middle of 2021. He is forecasting that rents will bottom out at the end of 2020 and the first quarter of 2021 before starting to recover next spring and summer. Given that context, he said, it made sense for Vornado to hold off on a sale at 555 California St.
“Everyone can see the market improving in 2021 and 2022, so why wouldn’t you wait a year or two until some sense of normalcy returns?” he said.
Average asking rents in the second quarter were $78.55 per square foot, a 5.5% decrease over the first quarter. He said he expects office rents to drop 25% from the highs in the fourth quarter of 2019 before starting to climb again.
“It’s similar to what happened in the financial crisis but not as steep as we saw in the dot-com recession,” he said.
The pandemic has led to a plunge in both office-leasing activity and commercial real estate sales. San Francisco properties worth $2.5 million or more sold for a combined $2 billion between January and September, according to Real Capital Analytics, a real estate data firm. That’s far less than in the first three quarters of 2019, when properties worth $2.5 million or more sold for a combined $8 billion.
The two buildings are perhaps the most valuable assets in the Trump family portfolio. The family has $400 million in debt coming due in 2021 and 2022 and has looked into selling other properties, including its Seven Springs estate outside of New York City, and Trump International Hotel in Washington, D.C., according to the Journal.
As minority owner, the Trump family doesn’t have any control over whether the San Francisco and New York office towers are sold.
Representatives for Vornado and the Trump Organization didn’t immediately reply to requests for comment.
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