A downtown San Francisco office building that once served as the headquarters for Wells Fargo Bank could soon house a major tech firm thanks to a major renovation planned by the new owner.
Family-owned local real estate firm Redco Development paid about $55 million for 420 Montgomery St. and plans to turn the 1959 building into a sleek, 21st-century office space by adding a fitness center, a mediation room, a martini bar and a bowling alley, among other amenities.
Redco plans to rebrand the property as 450 California St. and lease the upper four floors of the 12-story building, including the penthouse, to a single tenant, according to plans published on its website. The old bank vault in the basement is set to become a speakeasy, with dim lighting and swanky chairs.
The approximately 409,000-square-foot property, which famously housed a historic 19th-century stagecoach that was part of the Wells Fargo History Museum, is mostly vacant after the bank moved most of its operations to 333 Market St. last year and announced it was selling the building. While the bank remains headquartered in San Francisco, it has gradually shed space in the city in recent years and shifted its operations to other financial hubs such as New York City and Charlotte, North Carolina.
The office building at 420 Montgomery stands on the same spot where the bank was founded in 1852, according to Wells Fargo marketing materials. The bank did some $90 million worth of renovations to the building in the past decade.
The sale price of around $150 per square foot for the building on one of the city’s most eminent blocks is well below what office buildings in the area sold for in pre-COVID times. But the climate is dramatically shifting in San Francisco, as artificial intelligence companies flood the city, leasing office space and driving up rents.
Last month, San Francisco counted its third office sale this year above $100 million, signaling investor confidence in a long-awaited real estate rebound for the city.
Renovation push
Landlords across the country are investing in office overhauls as a means to boost occupancy, as corporate tenants prioritize the nicest and newest properties for their post-pandemic office space.
In New York, JPMorgan Chase is adding a roster of perks to its new 2.5 million-square-foot skyscraper including a food hall with Michelin-starred restaurant concepts and so-called well-being performance coaches, or individuals who can provide stress management and other wellness techniques for employees.
In Philadelphia, the landlord behind a Center City office tower has landed a loan extension to invest in upgrades to the 523,500-square-foot building to help make it more competitive.
Elsewhere in San Francisco, landlords are racing to outdo each other by outfitting their office buildings with the newest and nicest extras to lure big-ticket tenants. Earlier this year, the owners of 525 Market St. held a splashy cocktail party with an appearance by San Francisco Mayor Daniel Lurie to unveil the Cove, a $22.5 million “amenity floor” with a tenant lounge and fitness center. Extras there include celebrity chef catering, massage facilities and an infrared sauna. The owners are shelling out $2.3 million a year to staff the Cove with six full-time workers.
The ugrades worth millions of dollars planned by Redco include a full facelift for the lobby, a coffee shop, a step-up martini bar and restaurant with outdoor dining in an adjacent alley, and a private entrance for a“big block” tenant. The building’s upper floors will get a library, a meditation room and a podcast studio in addition to the existing roof deck and a Japanese garden.
The focus on amenities in office properties across the country arrives as it has become clearer that improving demand will not be enough to return some markets to a pre-pandemic state of affairs. While San Francisco’s office market is finally rebounding thanks to the AI boom, the city remains saddled with millions of square feet of empty office buildings and a record high vacancy rate of 23.1%.
Office comeback
Redco, run by brothers Chris and Jason Freise since 2019, has emerged as a prolific buyer of post-pandemic Bay Area real estate, taking advantage of relative bargains on properties ranging from industrial properties in Silicon Valley to a former NFL training facility in the East Bay.
This latest purchase makes Redco the landlord overseeing most of two prime downtown blocks in San Francisco’s Financial District. Last year, the company purchased 400 Montgomery St. right next door for $25 million and nearby 300 California St. for $28.5 million. Earlier this year, it bought a four-story brick-and-timber office building in Showplace Square, an area some real estate professionals have taken to calling “Area AI,” for $15 million.
“Office leasing has increased more than in any other city, apartment rents are rising at the fastest rate in the nation, and retailers and restaurants are planning to open new locations,” said CoStar Senior Director of Market Analytics Nigel Hughes.
The return of big-ticket deals comes as office leasing volumes in San Francisco recently hit their highest levels since 2019, led by the fast-growing artificial intelligence sector, according to CoStar research.
Only two office buildings sold for above $100 million in the city during all of 2024, and those sales were part of a bulk portfolio deal between Norges Bank Investment Management and Nuveen rather than independent purchases.
This year, however, a growing pool of private buyers is stepping up to invest in the city’s office market after years of stalled activity largely caused by the shift to remote work. Redco is one of several firms — along with Peninsula Land & Capital, Flynn Properties, DivcoWest and Bridges Capital — that have bet on the imminent recovery of San Francisco’s office market by acquiring area real estate at bargain prices, even as institutional investors have continued to mostly hang back.
Analysts and planners have widely acknowledged that San Francisco’s commercial center has suffered from being solely populated by office buildings, making for an area that emptied after 5 p.m. Officials have sought to address this by encouraging more residential development and conversions of some of the city’s millions of square feet of empty office space into housing. Earlier this year, housing developer Forge Development Partners was reportedly on the verge of purchasing 420 Montgomery St., with an eye to converting it into apartments, but the deal fell through.
The city’s multifamily vacancy rate has dropped to 4.4%, the lowest level in the past 10 years and well below the national rate of 8.1%, as the city posts the highest rate of rent growth in the nation with the average rent above $3,300 per month.