WeWork default leads to discounted sale of California Street tower debt
Lone Star Funds has purchased a distressed CMBS loan tied to a 359,883-square-foot office building at 600 California St. in San Francisco’s Financial District. The debt was acquired for $130 million from WeWork Capital Advisors and Rhône Group, according to sources familiar with the deal.
The transaction equates to a debt basis of roughly $361 per square foot, reflecting a steep markdown from the building’s original $240 million loan. The price is also far below the $322.8 million — or $897 per square foot — paid by the WeWork-led ownership group when it acquired the property in August 2019, just months before the COVID-19 pandemic disrupted office markets nationwide.
The sale of the note followed a loan default triggered after WeWork stopped paying rent in March 2023 and subsequently filed for Chapter 11 bankruptcy protection. As a result, the property’s net operating income declined sharply, falling from $13.8 million in 2019 to only $1.99 million in 2024. WeWork, which previously served as the anchor tenant with 186,000 square feet, has since downsized to 43,520 square feet under a renegotiated lease featuring reduced rent and a shorter term.
Completed in 1991, the 20-story tower was approximately 26% occupied at the time the note was sold. While leasing remains a challenge, the four-star office property has benefited from notable capital investments, including modernized elevators, upgraded HVAC systems and newly refreshed, move-in-ready office suites.
With the acquisition, Lone Star Funds gains the ability to steer the property’s future through potential foreclosure, debt restructuring or a negotiated settlement. CoStar data shows the building was appraised at $124 million in early 2024 and is expected to be marketed at values in the mid-$300s per square foot, suggesting an overall valuation of around $120 million.
For the record
The sellers were represented by Steven Golubchik, Edmund Najera, Darren Hollak and Brendan Raney of Newmark.
Source: Original reporting by Zahra Ihsan, CoStar News.
