KPMG Considers Exit From Namesake Constructing in San Francisco

Accounting giant KPMG may be pulling out of its namesake 26-story office tower in San Francisco.

The Netherlands-based company wants to move to a smaller office after its lease for 125,000 square feet at 55 2nd Street in the South Financial District expires at the end of the year, the San Francisco Chronicle reported, also citing a new listing as unidentified sources.

KPMG currently occupies eight floors of the 35,000-square-foot granite and green-tinted glass building, which is managed and partially owned by New York-based Paramount Group.

A year after the Art Deco-inspired building was constructed in 2002, the accounting firm signed a 10-year lease for 90,000 square feet of office space while also securing naming rights. It then increased its footprint and took up a third of the tower.

With nearly two decades of occupancy nearing expiration, the offices are on the market for direct lease.

According to the Chronicle, people with knowledge of the listing confirmed that KPMG was looking for a new, smaller office in San Francisco last year.

They told the newspaper that KPMG is seeking around 75,000 square meters of office space, 40 percent less than the current office space. It's not clear if it has found a new location.

It is also unknown whether the company is negotiating to keep all or some of its offices on 2nd Street.

His exit would impact San Francisco's office market, which currently has 35.9 vacancies following a general shift to remote work. This would also impact the building's landlords as they would be pressured to reduce rents.

According to the San Francisco Business Times, Israel-based Paramount Group and Harel Insurance purchased the building in August 2019 for $408 million, or $1,054 per square foot. The occupancy rate was 95.7 percent.

The joint venture assumed an existing $137 million mortgage associated with the acquisition and “increased that by an additional $50 million,” Paramount said in a 2019 annual report to its investors.

That $187 million mortgage is due in 2026, according to the Chronicle.

The tower, which is now 86.7 percent occupied, has tenants such as software companies Intercom and Rippling.

So far, Paramount has averted the fate of other landlords who abandoned properties after defaulting on loans on increasingly hollow office buildings.

Last week, Paramount and Blackstone reached an agreement to extend a $975 million loan tied to the 1.6 million-square-foot One Market Plaza at 1 Market Street in the Financial District.

In October, Paramount was in danger of defaulting on a $273 million loan tied to a 60,000-square-foot tower at 300 Mission Street in the South Financial District. However, he managed to land financing, which is now due in 2026, according to a regulatory filing.

—Dana Bartholomew

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