The former Union Bank building, situated in San Francisco’s financial district at 350 California Street, was recently sold at an auction for $65 million.

This winning bid, which equates to a per-square-foot price significantly lower than pre-pandemic levels, has sent shockwaves through the city.

The sale sets a new market-rate benchmark for downtown commercial buildings and reflects the grim outlook investors hold for San Francisco’s downtown area.

Not long ago, it was hard to find a major tech company that didn’t have a foothold or aspirations in San Francisco.

However, today, businesses, particularly tech firms, are turning their backs on the city.

The downtown vacancy rate has skyrocketed from a mere 4 percent in 2019 to nearly 30 percent at present.

The surplus of empty office space combined with San Francisco’s exorbitant housing costs has prompted discussions about converting commercial properties into residential units.

Surprisingly, no residential development firm showed interest in bidding on this particular property.

One such group, Emerald Fund, previously converted a downtown office tower into apartments but found the potential residential conversion too risky due to high fees and the requirement to allocate a significant portion of units for low-to-moderate-income tenants.

Presently, the city mandates that 23 percent of units in large developments be reserved for these tenants, necessitating a substantial premium on market-rate units to make the project economically viable.

According to San Francisco commercial broker Tony Crossley, the cost of converting this property to residential use would be nearly $1,000 per square foot per unit, making it an economically unfeasible venture. “The numbers just don’t add up,” Crossley stated, highlighting the significant financial obstacles.

Developer Eric Tao further emphasized the prohibitive expenses tied to permits, city fees, and affordable housing requirements.

He explained that to justify a residential conversion, the purchase price of the building would need to drop below $100 per square foot, a considerable decrease from the $225 per square foot paid for 350 California.

San Francisco’s economic challenges extend beyond empty office spaces.

Retailers, including prominent names like Walgreens, CVS pharmacies, Whole Foods, Williams-Sonoma, Abercrombie & Fitch, Nordstrom, Anthropologie, and Crate and Barrel, have been forced to close their doors.

The vacancy rate in the renowned Union Square shopping area stands at 25 percent.

Most businesses shutting down cite rampant theft and concerns about safety for both customers and employees as the primary reasons.

In fact, a MetroPCS store near City Hall may soon join the list of closures as it experiences shoplifting incidents twice a week, with stolen items including phones, charging cords, and other merchandise.

Store employees fear for their well-being.

These economic setbacks plaguing San Francisco stem from a city that appears politically dysfunctional and is widely perceived as dangerous and unmanageable by both individuals and businesses.

The decline will persist until the city’s governing bodies make different choices regarding the interconnected problems of drug abuse, homelessness, and crime.

The absence of significant policy reforms is deeply concerning, and the staggering 75 percent drop in value of the 22-story office building at 350 California Street serves as a stark reminder that business investors and entrepreneurs have lost faith in San Francisco’s political leadership to make sound decisions.

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