A San Francisco company that owns and operates office space for startups now owns a three-building stretch in one of the city's key artificial intelligence hubs with its latest purchase.
StartupHQ scooped up a six-story historic office building at 140 Second St. for $13.9 million in a deed-in-lieu of foreclosure deal. The deal gives the coworking firm ownership of all three buildings that make up the shortened block of Second Street between the alleyways of Minna and Natoma streets in the SoMa, or South of Market Street, neighborhood. The longtime tech district is enjoying a resurgence of popularity among AI startups after several years of muted activity from the pandemic.
StartupHQ, which was born in 2011, at the end of the Great Recession, is following the same playbook as some other investors who scooped up empty — or nearly empty — office properties over the last few years at bargain basement prices.
The company operates spaces for "hundreds of tenants who rent desks, private offices, and full buildings to run their startups,” it says on its website, calling itself "the most customer-centric landlord in San Francisco.”
That is StartupHQ’s pitch to the next generation of startups, which now are ambitious AI companies looking for flexible plug-and-play office space to scale up their dreams in the world headquarters of the artificial intelligence industry.
StartupHQ did not respond to requests for comment, but it has listed 140 Second St. among its other San Francisco office properties on its website. Its alumni include storied companies AirBnB, Lyft, Vungle, Tilt, Xero, KeepTruckin, Nuna, Character AI and Cognition AI, according to the firm.
Startup hotbed
At the height of San Francisco’s last tech boom, in 2014, a real estate investor called the Kivelstadt Group paid $28.3 million for 140 Second St., an approximately 37,000-square-foot, Class B building. It was then fully leased to a mix of tenants, including Apple subsidiary Topsy Labs on two of its five office floors.
A decade on, the aftereffects of the COVID-19 pandemic and remote work had decimated foot traffic, and office valuations, in downtown San Francisco. Early this year, the building passed into the hands of a receiver after the Kivelstadt Group, also known as TKG, defaulted on a nearly $20 million loan from Paris-based investment banking firm Natixis, according to bondholder notes.
That set the stage for the acquisition by StartupHQ, which had previously purchased the neighboring turn-of-the-20th-century office buildings at 144 Second St. in 2023 for $6 million and 156 Second St. in 2024 for $6.5 million, according to CoStar.
The Pelton Building at 140 Second was built in 1907, part of the first wave of rebuilding after the great earthquake and subsequent fires that leveled much of the city in 1906. The industrial property was converted to an office building in 1988.
StartupHQ founders Bardia Housman and Stephen Weir met sitting next to each other at a coworking space in San Francisco and decided to use the proceeds from the imminent sales of their own startups to launch the company, according to its website. The firm now owns and runs six buildings.
Startups are flocking to the onetime industrial neighborhood of SoMa, drawn by its proximity to freeways and its relatively cheap rents in comparison to the Class A office buildings of the Financial District, said Chris Pham, a JLL senior analyst who tracks the artificial intelligence sector.
“The neighborhood has historically been a hotbed for startups,” Pham previously told CoStar News.
AI companies have expanded their collective footprint in the city to more than 5 million square feet over the past couple of years, according to data from CBRE, and the sector has the potential to stretch beyond 21 million square feet over the next half decade.