Turnaround: Inside San Francisco’s Office Revival

Nothing but love.

Nothing but love there.

Cyrus, you were going to add

something.

I'd say let's take a step back and sort of set a baseline as to what our office market looks like, which shockingly for the amount of talent, the amount of capital that exists in San Francisco, we have some structural issues limiting sort of what's happened here over the last series of cycles.

And the fact that we are such a boom and bust town with such drastic spikes and troughs, that we haven't seen a sustained amount of investment in the office sector.

So when you look at our top tier buildings and you think about what those are, I would go so far as to say that, and as much as I love San Francisco, that they pale in comparison to a lot of the great product you would get in New York City or in Chicago or really in London or any of the other major cities around the world.

Let me pause on

that point for a second, because I think one of the beauties and the unusual natures of San Francisco is, and that's when I did this two-mile walk, and I've walked through San Francisco many times before.

And I don't mean this in a negative way.

It has an eclectic mix of real estate.

It does.

A lot of old real estate, different styles.

And that's before you even talk residential.

Totally agreed.

And part of it is that we have this structural issue with respect to this limit, a legislative limit on office, square footage.

So we have this thing called Prop M.

And Prop M doesn't allow you, it's not like TDRs in any other market where you could actually sell or trade your square footage.

It's this central pot, think of it.

And if you were to demolish an office building, unless you're rebuilding the exact same thing, it's very difficult for you to retain that same amount of square footage.

So what's ended up happening is, A, we have a relatively old stock.

And this is pertinent to this conversation because that's what's gonna end up leading to these structural vacancies that we have, right? Is that until we have some policy change that allows us to actually think more entrepreneurially.

But what's interesting is when you look at our top five or top 10 buildings, they're not all the brand new glassy towers.

And in fact, those very towers don't even really have amenities.

So that's reflective of the broader fact that when this market turns on and by virtue of the limits that we have on Prop M, there's only so much office space to go around.