- Flynn Holdings, the world’s largest franchise operator, has invested $40M in a fully leased office building in downtown San Francisco, betting on the city’s office recovery.
- San Francisco’s office market faces serious challenges, with a vacancy rate of 24% and office values plummeting over 50% from pre-pandemic highs.
- Despite these hurdles, Flynn remains optimistic about the city’s long-term prospects, attributing San Francisco’s history of cyclical booms and busts as a sign of future recovery.
Real estate veteran Greg Flynn, CEO of Flynn Holdings, is making a $40M bet on San Francisco’s office market, as reported in CoStar.
Big, Bold Bet
In partnership with Ellis Partners, Flynn acquired 631 Howard St., a fully leased, 108.75 KSF office building in downtown San Francisco.
Flynn’s investment in 631 Howard St. was made without the pressure of a loan, allowing him to hold the property as the market recovers. The building features a mix of historic architecture and modern finishes, requiring minimal capital investment.
Despite record-high vacancy rates and plummeting office values, Flynn is confident in the city’s long-term recovery, seeing the current downturn as an ideal time to invest. He believes that when the time comes to take it back to market, it will be well-positioned to attract tenants.
Zooming Out
San Francisco’s office market has been among the hardest hit by the pandemic. Remote work policies and the shift toward flexible office arrangements have left many downtown office buildings underutilized.
Vacancy rates in the city have soared to 24%, the highest in the country, as property values dropped by more than 50% from their pre-pandemic highs.
Despite these headwinds, Flynn sees opportunity. “You can get everything right in investing in office, but if you get the timing wrong, it will likely derail the whole return,” he told CoStar News. “Conversely, you can get many things wrong with an investment, but if you get the timing right, it’s the most important determinant of success.”
Market in Crisis
San Francisco’s office market has been in freefall since the pandemic, with office attendance still less than half of pre-pandemic levels, according to data from Kastle Systems.
Numerous office buildings have been sold at deep discounts, and some owners have handed over properties to lenders through foreclosures or ownership transfers. Recent sales include 795 Folsom for $48.3M and 255 California St., both at steep discounts compared to pre-pandemic valuations.
Cautious Optimism
Flynn believes San Francisco’s history of boom-and-bust cycles indicates that a recovery is inevitable, even if it takes longer than in previous cycles. He’s prepared for a long-term hold, confident that the city’s unique strengths will eventually drive a resurgence in demand for office space.
“We’re prepared for it being a long haul just because of the amount of vacancies,” Flynn said. “But I’m a long-term investor, and San Francisco is going to come back in a big way for all of the right reasons.”
His enthusiasm is also shared by other investors, both local and national, who see plenty of long-term potential in the city’s distressed office market.
