A degree of valuation uncertainty appears to be returning to the troubled San Francisco office market, after the persistence of remote working and weak demand for commercial space prompted a hiatus in transactions.

The latest in a recent spate of office deals in the city saw Blackstone sell the 294,000sqft North Park office to Gaw Capital at a price well below what Blackstone paid for it five years ago.

Hong Kong-based Gaw Capital sold the building to Blackstone in 2018 for $245m (€233m) and is now buying it back at $82m, according to sources familiar with the property.

Industry commentators observe that transactions have picked up again now that property owners are more willing to accept market-level pricing.

Kyle Kovac, executive vice president and senior partner for the Northern California capital markets team at CBRE, said: “Many sellers have become more realistic with their pricing over the past few months. The previous couple of years there was a large bid-to-ask spread in the selling of assets.”

As reported in IPE Real Assets, US cities whose office markets are very dependent on the tech sector, like San Francisco, have been notably affected by post-pandemic working practices. Capital Economics had forecast a 40% fall in capital values in the San Francisco office market between 2023 and 2025.

This summer, global property group Lendlease said it had “paused” construction on a major office and condominium complex in San Francisco, as it sought to de-risk the project.

The exchange of North Park for $82m would price the asset at $279 per sqft – within the range of current market pricing of $200-299 per sqft, according to sources.

When Blackstone acquired the property in 2018 it was 97% occupied. The primary tenant for the property left due to a downsizing and the building is now around 60% leased. This puts it close to the overall vacancy for the San Francisco office market which now stands at around 33%, according to data compiled by CBRE.

Blackstone commented: “We effectively wrote this investment down to zero last year given the well-known headwinds facing US traditional office buildings and the downsizing of the property’s primary tenant in a market with historically high vacancy.”

ING Capital has a $150m mortgage on the property and has launched a note sale. Blackstone is working with ING on the sale, according to sources tracking the San Francisco office market.

Blackstone recently sold another property in San Francisco, selling the 650 7th Street building for $27.35m to LBA Realty. Blackstone paid $50.4m for the property seven years ago.