This week the owners of the 1.2 million-square-foot Westfield San Francisco Centre announced they were giving the mall back to their lenders. The center’s anchor since it opened, Nordstrom, has announced its closing the store permanently when its lease expires at the end of July. Once Nordstrom closes, only about half of the center will be leased compared to more than 90% in Westfield’s other U.S. malls.
The news got worse on Wednesday when Century Cinemark disclosed it is closing its theater complex after today. The lease for more than 52,000 square feet expires in September.
News outlets have reported that other tenants are likely re-evaluating their presence in the center given these closures so don’t be surprised to learn of more closures because the foot traffic magnets will be gone.
The numbers that Westfield disclosed showed just how poorly downtown San Francisco is faring versus other markets. Westfield also owns Valley Fair in Santa Clara and San Jose. San Francisco Centre totaled sales of about $455 million in 2019 compared to $298 million in 2022.
By contrast, Valley Fair sales, helped along by the opening of the Italian-themed food hall, Etaly, soared 66%.
The San Francisco Centre surrender to the lender fits with the broader strategy of the corporate owner, Unibail-Rodamco-Westfield, to exit the United States market and focus on Europe. The Westfield-Brookfield partnership owes $558 on a mortgage that was originated in 2016 when the center was valued at $1.2 billion.
It’s anyone’s guess what it would sell for today.
Salesforce CEO Marc Benioff put the San Francisco situation in perspective when he observed that downtown San Francisco real estate had been tightly focused on the knowledge workers in the class A office buildings and it needed to diversify if it is going to recover.
Ken Rosen, chairman of the UC Berkeley Haas Fisher Center for Real Estate and Urban Economics, was blunt, “We’re not even close to the bottom yet.”
Numbers in this post come from articles in the San Francisco Chronicle and the San Francisco Business Times.
Today is the deadline for the state Legislature to submit a budget if it wants to get paid for its “services.” Not surprisingly, legislative leaders cut a deal over the weekend and the budget bill is scheduled for a final vote today.
One key element that made transit advocates happy was tapping into the “cap and trade” funds to pull them into the budget picture for transit. Agencies such as BART and AC Transit have warned they could be in a “death spiral” if they have to reduce service to cut costs because ridership hasn’t recovered to pre-lockdown numbers. It’s also worth nothing that ridership already had started to slip before the pandemic.
The deal taps $3 billion for 19 agencies and gives operators the flexibility to spend it on operations. Halting capital expenditures until the downtown situations become clearer is necessary. Spending more than $6 billion to tunnel into downtown San Jose or spending billions to connect CalTrain to the Salesforce Transit Center in San Francisco is foolhardy in today’s uncertain environment.
The model of moving thousands of workers into downtown San Francisco office buildings may well be obsolete. It’s time to move slowly, particularly on capital expenditures.