The parent company of the formerly Australian shopping center brand Westfield announced a year ago that it wanted to divest itself of its US mall properties. And following the Nordstrom closure announcement, they are walking away from their Market Street mall in SF and surrendering it to the lender.

The Chronicle reported Monday that the Westfield Corporation and its partner, Brookfield Properties, have stopped making payments on a $558 million loan and are in the process of transferring ownership to an eventual receiver. While this could be a negotiating tactic with the lender — which one expert surmised could be the case with a similar public announcement by the owner of the Union Square Hilton and Parc 55 hotels — Westfield has already in recent years walked away from several of its US properties, including four malls in Florida.

And in April 2022, the Wall Street Journal reported that Westfield parent company Unibail-Rodamco-Westfield had near-term plans to back out of the US market altogether and focus solely on the EU. Chief Executive Jean-Marie Tritant told investors at the time that the plan was to sell off most of its US real estate by the end of 2023.

But, much like Nordstrom, the Hilton owner, and Whole Foods in recent months, the company points to downtown San Francisco’s specific problems and not the retail climate overall.

In a statement Monday, the company said, “For more than 20 years, Westfield has proudly and successfully operated San Francisco Centre, investing significantly over that time in the vitality of the property. Given the challenging operating conditions in downtown San Francisco, which have led to declines in sales, occupancy and foot traffic, we have made the difficult decision to begin the process to transfer management of the shopping center to our lender to allow them to appoint a receiver to operate the property going forward.”

The Chronicle notes that, according to Westfield, gross sales at the Market Street mall were down by a third in 2022 as compared to 2019. And after the departure of Nordstrom, the property will be just 55% leased — compared to the average for its malls, which is 93%.

The other anchor tenant in the mall, Bloomingdale’s, is reportedly tied in to a long-term lease that doesn’t expire until 2046. But, as the SF Business Times reported, two large tenants, the Century Cinema and H&M, both have leases expiring in the next six months.

Westfield opened the grand, fully rebuilt mall in 2006 along with then partner Forest City, and it was then called the largest mall on the West Coast — connecting the pre-existing, Nordstrom-anchored shopping center, open since 1989, to the historic Emporium building next door. The renovation project, which included the preservation of the Emporium’s grand glass dome on the fourth floor, began in 2003.

While the mall is in no immediate danger of closing, it has certainly seen better days in terms of foot traffic — and even on relatively busy weekends, many stores are far from crowded.

As SFist noted several weeks ago, this follows a larger, national trend in which large-scale retail in major cities is suffering generally, with more shoppers moving online or patronizing suburban shopping centers over urban downtowns. A new research paper from the JP Morgan Chase Institute found that Los Angeles, San Diego, New York City, Seattle, Miami, and Chicago all lost more retail stores than they gained between 2017 and 2021, as did San Francisco. And the pandemic was only one of multiple factors in that trend.

Related: Nordstrom to Shutter Downtown SF Department Store, and Nordstrom Rack, This Summer

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The post EU-Based mostly Westfield Says It Is Strolling Away From San Francisco Mall Property, as It Has A number of of Its US Malls appeared first on DAILY SAN FRANCISCO BAY NEWS.

At a San Francisco Chamber of Commerce breakfast last month, Mayor London Breed made a curious pitch for the future of the troubled Westfield San Francisco Centre in Downtown.

“We have to look at Westfield mall, not as a mall losing stores, which probably most people didn’t even shop in, but as a place ripe for reimagining from science to technology to lab space,” Breed said. 

She echoed those statements during a radio interview last week, noting the potential for the property—a 1.2 million-square-foot mall in the middle of Market Street—to be used by higher education.

In retrospect, the comments read as softening the blow of Westfield’s decision, revealed days later, to give up the property because of declining sales, foot traffic and occupancy. 

READ MORE: Mayor Breed Accused of Gutting San Francisco Ethics Commission After FBI Probe

Part of Breed’s argument is that lab and research and development space have far lower vacancy rates than the broader office market. San Francisco’s 1 million square feet of lab inventory pales in comparison with traditional life science centers like the Peninsula (17 million square feet) or even Oakland (7.8 million square feet).

But is converting a major Downtown mall into a science hub feasible? The Standard consulted a number of life science brokers and developers, and the general consensus is that the concept is pretty much a nonstarter.

A employee at Westfield Mall cleans a staircase wall on the second level on Market Street in Downtown San Francisco on May 4, 2023. | RJ Mickelson/The Standard

One longtime developer of lab space said that life science companies and development thrive in specific clusters like Mission Bay and South San Francisco. Pitching a life sciences or lab space development in a notably troubled stretch of Market Street would be especially difficult, the developer said. 

There are also significant engineering and architectural barriers for life science conversions, which adds to the sheer cost of making space suitable for use as a research facility.

A life science conversions checklist put together by real estate firm Cushman & Wakefield included criteria like high load capacities for heavy equipment, specialized HVAC, plumbing and electricity capacity, as well as high floor clearances.

Discussions of how to transform the declining mall had been in the works for years. The owners previously proposed a plan to turn around 50,000 square feet of retail space into offices, but those plans stalled due to Covid. 

When it comes to conversions into lab space, though, developers are often hunting for low-rise office buildings rather than a vertical shopping mall. 

“The quantities of hazardous materials allowed in a building decreases as the building height increases, which makes a life sciences conversion difficult in a high-rise office building,” said Gregg Domanico, who helps lead the life sciences practice for real estate firm CBRE in the Bay Area.

There’s also the fact that the economics of San Francisco’s real estate market are still not particularly favorable for developers interested in conversions. 

“There have not yet been any sellers of highly vacant office buildings in downtown San Francisco at a low enough price to make a conversion financially feasible for a developer,” Domanico said.

A proposal from Breed and Supervisor Aaron Peskin to lower the planning and zoning barriers for conversions in the city’s Downtown is still going through the legislative process. 

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Jason James, a former industrial and office broker with TRI Commercial who is now the president of Context Commercial Real Estate, said there are a number of properties in San Francisco currently struggling to garner interest as potential life science conversion projects. Turning a shopping mall into a lab space would be an even more significant challenge with a huge price tag.

James said the types of properties most in demand by tenants are new ground-up developments that “have all the bells and whistles a lab user would want. 

“I don’t want to be the guy telling the mayor she’s wrong, but I think she’s reaching for straws,” James said.

Editor’s Note: A previous version of this article stated Jason James was still working as a broker for TRI Commercial. He recently left to start his own company Context Commercial Real Estate.

The post San Francisco Mayor’s Reply to Downtown Mall’s Woes: Lab House appeared first on DAILY SAN FRANCISCO BAY NEWS.

At a San Francisco Chamber of Commerce breakfast last month, Mayor London Breed made an odd proposition for the future of downtown’s troubled Westfield San Francisco Center.

“We need to think of Westfield Mall not as a mall that’s losing stores that probably most people haven’t even shopped in, but as a place ripe for a reinterpretation from science to technology to lab space,” said breed

She repeated those statements in a radio interview last week, citing the potential of the property — a 1.2-million-square-foot mall in the middle of Market Street — for college use.

In hindsight, the comments seemed to soften the blow of Westfield’s decision, revealed days later, to abandon the property due to declining sales, foot traffic, and occupancy.

Part of Breed’s reasoning is that laboratory, research and development space has far lower vacancy rates than the broader office market. San Francisco’s 1 million square foot lab inventory pales in comparison to traditional life science centers like the Peninsula (17 million square feet) or even Oakland (7.8 million square feet).

But is converting a large downtown mall into a science center feasible? The standard has consulted a number of life sciences brokers and developers and the general consensus is that the concept is hardly new.

A Westfield Mall employee cleans a stair wall on the second level of Market Street in downtown San Francisco on Thursday, May 4, 2023. | RJ Mickelson/The Standard

A longtime lab space developer said life sciences businesses and development are thriving in certain clusters like Mission Bay and South San Francisco. Planning a life sciences or laboratory space development in a particularly troubled part of Market Street is particularly difficult, the developer said.

Additionally, there are significant engineering and architectural hurdles to life sciences conversions, increasing the sheer cost of repurposing space for use as a research facility.

A life science remodel checklist compiled by real estate firm Cushman & Wakefield included criteria such as high loading capacities for heavy equipment, special HVAC, plumbing and power capacities, and high ground clearances.

For years there has been discussion about how the run-down shopping center can be redesigned. The owners had previously proposed a plan to convert around 50,000 square meters of retail space into offices but those plans fell through due to Covid.

However, when it comes to converting into laboratory space, developers often look for low-rise office buildings rather than a vertical mall.

“The levels of hazardous materials allowed in a building decrease as the building rises, making the life sciences transition in a high-rise office building more difficult,” said Gregg Domanico, who heads the life sciences practice at real estate company CBRE in the Bay Area.

In addition, the economic situation in the real estate market in San Francisco is still not particularly favorable for developers interested in remodeling.

“There have never been sellers of heavily vacant downtown San Francisco office buildings at a price low enough to make a remodel financially feasible for a developer,” Domanico said.

A proposal by Breed and Supervisor Aaron Peskin to lower planning and zoning barriers for downtown redevelopments is still in the legislative process.

Jason James, a veteran industrial and office broker at TRI Commercial, said there are a number of properties in San Francisco right now that are struggling to generate interest as potential life science conversion projects. Converting a mall into a lab space would be even more of a challenge, and at a huge cost.

James said the property types most sought after by renters are new, built from the ground up buildings that “have all the bells and whistles a lab user would want.”

“I don’t want to be the guy who tells the mayor she’s wrong, but I think she’s grasping at straws,” James said.

The post San Francisco Mayor’s Reply to Downtown Mall’s Woes: Lab Area appeared first on DAILY SAN FRANCISCO BAY NEWS.