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Market Extra: As Twitter rethinks its San Francisco footprint, a bigger $9 billion question hangs over the city’s office market


Twitter Inc. put its large San Francisco office footprint on review for downsizing on Wednesday, and has nixed the opening of an office in Oakland, Calif., a person with direct knowledge of the matter said.

The move clouds the future of the social-media site’s stylish San Francisco headquarters, a 1.1 million-square-foot trophy office complex at 1355 Market Street, where Twitter

occupies about 75% of the space, according to Trepp data.

Cutbacks by technology giants could result in painful ramifications for San Francisco, a city with a skyline and culture dramatically reshaped in recent decades by a tech boom on its home turf, but also by staggering inequality and a homelessness crisis made worse by the pandemic.

Twitter said in a statement Wednesday it was “evaluating our global office portfolio and resizing certain locations based on utilization,” but also that its decision doesn’t “impact our current head count or employee roles.”

Offices in Seoul; Wellington, New Zealand; Osaka; Madrid; Hamburg; Sydney; and Utrecht, Netherlands, were put under review for closure when leases expire, a person with knowledge of the matter said. The plan would be to resize offices in Tokyo, Mumbai, New Delhi, Dublin, New York and San Francisco, but scrap plans entirely for a downtown Oakland outpost.

Twitter has been battling Elon Musk in court after the Tesla Inc.

chief executive notified the company he was terminating his $44 billion agreement to acquire it, after raising the issue of bots and spam on the platform.

A $9 billion cloud

Beyond Twitter’s headquarters, lenders have financed some $9 billion worth of office properties in San Francisco in recent years by selling commercial mortgage bonds to investors, per a Trepp tally.

Once viewed as a relatively safe real estate bet, especially trophy buildings, office properties lately have been an acute source of worry for landlords and financiers due to the rise of hybrid work.

“There are a lot of technology companies that drive San Francisco that aren’t coming back, or aren’t coming back in the same way,” said Dan McNamara, founder of hedge fund Polpo Capital, a property debt investor focused on distress.

“San Francisco is almost a full pause for us,” he said, by phone.

While more workers have been trickling into offices relative to pandemic lows, San Francisco still lags other major American cities at 38.1% occupancy as of July 25, versus the 44.7% national average, according to Kastle System’s 10-city back-to-work barometer.

“That is just something unimaginable two to three years ago,” McNamara said of the low occupancy levels. Before founding PolPo, he made headlines at MP Securitized Credit Partners for driving lucrative bets against failing shopping malls.

A need to rethink?

The pandemic and its far-reaching repercussions weren’t on the radar 10 years ago, when the oldest loans in outstanding commercial mortgage bond deals would have been underwritten.

The carnage in high-flying tech stocks


in the first half of 2022 has made things worse, drying up M&A activity and the IPO market, but also bringing cost cuts and reductions to many technology companies that call the San Francisco Bay Area home.

Twitter shares rose 1.3% Wednesday, but were 41.7% lower from a year ago, according to FactSet.

See: It’s the end of ‘fantasyland’ for Big Tech and its workers

Daniel Herzstein, director of public policy at the San Francisco Chamber of Commerce, said more tourists, commuters and officer workers have been coming back in the past couple of months. But he also said San Francisco needs to prepare for a new way forward.

“The pandemic has fundamentally changed how we use offices, and we need to reimagine how we look at our economy, especially in downtown San Francisco,” he said, by phone.

Offices a no-go zone for lenders?

San Francisco has its own set of challenges, but finding lenders willing to take a big bet on getting paid back 10 years down the road on an office property has gotten tougher almost everywhere.

The lack of a clearer picture of the future of the office has made it “very difficult to impossible to get an office building financed,” said Robert Verrone, founder of Ironhound Management Company, a property workout firm in New York. “Most lenders don’t want to do anything.”

Before workouts, Verrone worked on Wall Street originating large loans on commercial properties for nearly two decades. He hasn’t yet been asked to help untangle office-property debt in San Francisco during the pandemic, but he has been working on retail in the city.

San Francisco, already reeling from remote and relocated office workers, took a $400 million hit in tax revenue last year, according to the city’s Office of the Controller.

While many investors expect more pain ahead for the office sector if tech companies downsize, the pain for older office buildings falling out of favor before COVID could be worse.

Tenants have been fleeing dated buildings for newer ones built since 2015 (see chart), the sole category to buck the trend of negative net absorption, or vacated space, according to Deutsche Bank.

Tenants fleeing older buildings.

Deutsche Bank, Jones Lang LaSalle

Loan maturity looms

Borrower Shorenstein Properties, a real-estate developer, owes $400 million on a senior mortgage on Twitter’s San Francisco headquarters, according to Trepp, a platform specialized in monitoring commercial mortgage bond deals.

A June update indicated the borrower has remained current, but has been seeking a refinancing before the mortgage matures in September. Shorenstein did not immediately respond to a request for comment.

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