With the closure of its last anchor store, Bloomingdales, the San Francisco Centre shopping mall is in its final death throes. The mall still has some smaller stores, but these are drawing little foot traffic.
While Union Square may recover, it is less likely that the mall will. Nationally, the retail footprint is shrinking. And in the Bay Area, mall shoppers have more attractive options at Stonestown Galleria and in the suburbs where car access is easier and quality of life issues are fewer.
For the property and the immediate neighborhood to recover, the mall will have to be repurposed. But San Francisco Centre’s current ownership is unlikely to reposition the mall because they are bond investors who lack both the necessary expertise and the incentive.
The mall’s previous owners, Unibail-Rodamco-Westfield and Brookfield Properties, gave up the property in 2023 after determining that it was no longer worth their while to service their $558 million mortgage.
If the mortgage were held by a single bank, the lender may have had the incentive and expertise to turn the mall around. But, instead, the mortgage is now owned by a collection of institutional bond investors.
When the San Francisco Mortgage was underwritten in 2016, it was divided across five Commercial Mortgage-Backed Securities (CMBS) deals. Four of these deals are conduit transactions in which the collateral is a collection of properties that include San Francisco Centre. The largest portion of the mortgage, $309 million, was securitized into a Single Asset Single Borrower deal named DBJPM 2016-SFC.
Each of these CMBS deals were then marketed to mutual funds and other large investors. Those who bought into the conduit deals will have little interest in the fate of San Francisco Centre because its nonperforming mortgage is offset by other mortgages in each deal’s collateral pool — individually, each of their holdings in the mall is not a large enough portion of the overall portfolio to demand their attention.
Holders of DBJPM 2016-SFC may have more interest, but many of them have already been wiped out by the mall’s declining value and have written off their bonds. Only the holders of the most senior Class A securities, which originally sported AAA ratings from Standard & Poor’s and Kroll Bond Ratings, have a reasonable chance of recovery. But institutional investors who manage portfolios of AAA securities have do not have the expertise or experience needed to manage nonperforming loans because they rarely face such defaults.
Bond investors use professionals to represent their interests, but these players lack the authority and motivation to transform defaulted properties. The special servicer of the CMBS deal, who represents bondholder interests when a CMBS loan gets into trouble, receives monthly fees, as does the receiver, and the interim property managers. Attorneys handling the foreclosure are typically paid based on the number of hours worked. This compensation model leaves them with no “skin in the game” and thus no incentive to envision or accelerate the re-purposing of the asset.
Bondholder representatives have scheduled and postponed auctions since November 2024. There is reason to believe that the latest auction date of June 17, 2025, will pass without a sale.
The mall can only begin to turn around once it is in the hands of a sophisticated, well-capitalized owner who can make radical changes. And given Union Square’s diminished prospects as a shopping destination, that will require converting the property from a mall into something else, perhaps housing.
The city and state governments could help by offering to exempt a future owner from land use regulations and approval processes. The mall property does enjoy liberal zoning, but it does appear that there is a requirement for ground floor retail. In addition, Westfield was required to preserve the Emporium Dome and offer privately owned public open space on the roof of 835 Market Street. The city should exempt a new owner from all regulations to create an incentive for a new buyer to step up.
Any extensive redevelopment of the site would be complicated by California’s Environmental Quality Act (CEQA) process, which obliges developers to file mountains of paperwork and address objections from a wide array of potential complainants. In 2024, State Senator Scott Wiener proposed to exempt projects throughout downtown San Francisco from CEQA review for 10 years, but set numerous conditions on the exemptions including a requirement to use union labor. The bill passed several committees before being placed on the legislature’s suspense file. A similar exemption but targeted at a smaller area around San Francisco Centre with fewer conditions could make it all the way through the legislative process.
The 800 block of Market Street, where the San Francisco Centre is located, across the street from the Powell Street cable car terminus and above the Powell Street BART and Muni stations, is at the very heart of San Francisco’s tourist, shopping, and business districts and its revitalization is key to the city’s recovery. Mayor Lurie and other officials should recruit a creative real estate investor to reimagine San Francisco Centre and give that investor the freedom to implement an innovative solution at the lowest possible cost.
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