The building at 415 Natoma is part of the 5M development in San Francisco’s SoMa neighborhood.
Yalonda M. James/The Chronicle
Downtown San Francisco’s newest office tower is a hulking, glass-clad 25-story high-rise disguised as two — twin forms rising side by side in a SoMa neighborhood in need of re-energizing. Yet, it also might be the city’s least successful top tier building.
The 415 Natoma St. tower that opened in 2022 is mostly empty despite improving market conditions. And Thumbtack, its sole tenant, is said to be eyeing a departure to a nearby office.
Now, Brookfield Properties, the developer that built the first phase of the $1 billion 5M development, is in the process of turning over the Natoma tower to new owners, according to sources who asked not to be identified because they are not authorized to speak on the subject.
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A partnership involving the Meridian Group and Fenway Capital Advisors, real estate investment and management firms headquartered in Bethesda, Md., and Solano Beach, Calif., respectively, on Wednesday purchased the outstanding debt associated with roughly $400 million construction loan for 415 Natoma, according to those sources. They said that Brookfield will continue to own The George, a 302-unit apartment complex that was also part of 5M’s first phase and has been a recent leasing success for the developer, unlike the Natoma office tower, which is a case of a “great building, a great project, an ill-timed delivery,” as one source put it.
The public park at the center of the 5M project is owned by an HOA that includes Brookfield, Hearst Corp. — owner of the Chronicle and SFGATE — and now, Meridian and Fenway.
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Hearst, which is the sole owner and developer of 5M’s second phase, a fully entitled but yet-to-be-constructed residential tower at 110 Fifth St., was not involved in the recent property transfer. Hearst continues to own the residential site, as well as 901 Mission St., the historic office building next door to 415 Natoma where its news organizations are headquartered, said Marty Cepkauskas, Hearst’s head of real estate.
Meridian and Brookfield declined to comment on their 415 Natoma deal. The Chronicle also reached out to Fenway, but did not hear back.
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The sources said the deal involved the purchase of the loan associated with the development of the office tower from Brookfield’s lender, though what the groups paid for debt is not known. Meridian and Fenway are expected to take full ownership of the Natoma tower within the next month, through an out-of-court process known as a “deed in lieu of foreclosure.”
Public records show that Brookfield received a $393 million loan in 2020 from United Overseas Bank Limited, a leading Asian bank based in Singapore, for the construction of the Natoma tower. It is unclear how much of that loan was outstanding when Meridian and Fenway purchased it this week.
Thumbtack, the Natoma tower’s only tenant, also declined to comment on its real estate plans. Sources told the Chronicle that the company’s lease in the building, which spans about 20,000 square feet on the 13th floor, expires this year.
Meridian and Fenway are said to have plans to refresh marketing and investment in the office tower to capture burgeoning demand in the market from artificial intelligence startups and other companies, and therefore would benefit from receiving the building fully vacant, market participants told the Chronicle. The tower’s appeal lies in its big blocks of newly constructed, contiguous space — which is a rarity in San Francisco, even as roughly one-third of downtown’s offices sit vacant.
Their bid underscores the continued bifurcation of the city’s office market in the wake of the pandemic, with downtown’s newest, most coveted office buildings outshining older buildings both in terms of leasing activity and rental rates. While 415 Natoma has not performed as expected, a handful of large leases signed in recent years appear to be changing its outlook. And, with four proposals for new skyscrapers now on the books, the tower could meet demand from growing companies sooner than any planned new construction.
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Whether Meridian and Fenway’s bet on 5M can boost the project — and the surrounding neighborhood — remains to be seen. Hearst has signaled that it plans to revive its stalled residential tower, an effort that means relocating the Chronicle and SFGate from their longtime home at 5th and Mission to new offices north of Market Street. The media company is still hopeful about eventually leasing the newspapers’ current home out as a university campus, after negotiations with Vanderbilt University, which had considered taking over 901 Mission, fizzled out late last year.
Across the street from 5M, the San Francisco Centre, which for decades was the city’s largest shopping mall, shuttered its doors earlier this year, ending a drawn-out chapter of decline and tenant departures. The mall — which was long owned by Brookfield in partnership with Unibail‑Rodamco‑Westfield, before lenders foreclosed on the property in 2023 — encountered some of the same challenges as Brookfield’s Natoma office tower: high vacancy, declining foot traffic, difficulty attracting tenants and broader quality-of-life issues in the Fifth and Mission area, ranging from homelessness and street cleanliness to safety concerns that continue to complicate post-pandemic recovery for both retail and office spaces.
Earlier this month, two local developers were selected to purchase the 1.5 million-square-foot mall to reimagine it with a focus on mixed-use activity that reflects the city’s changing patterns of work, shopping and public life.