Remarkable price. 6.5 million is only the price of 3 San Francisco homes for 90,000 sqft.

If you fund the purchase with debt and assume a interest rate of 5%, you are talking 325k/year for the building.

I wonder what the upkeep costs are? I wonder what the depreciation schedule looks like for office buildings.

Thats not how I read it. LNR was the lender of the old mortgage, and the purchaser of the property.

This is like a Bank foreclosing on a home-owner and then buying the house.

A bank foreclosing and auctioning to themselves at a fire sale price.

It really doesn't look arms length, but perhaps it will still be appraised at some higher price.

I guess that depends on if it was an open auction and if the bank placed the top bid.

Sales dont have to be at arms length. It is just that if they aren't, it opens price and sale process to scrutiny for self dealing. it doesnt mean that self dealing occurred.

This is simply a move by the seller, who is also the buyer, to reassess the property tax at the lower base price. Don't try this with your home or the IRS will come after you.

don't know about CA but where I live, sale price has nothing to do with assessed value and therefore property tax. Sure, if everyone was selling their property for 10 cents on the dollar that could cause a decrease in assessed value, but assessed value is based on proprty value not a specific sale price. (I work for county government and have a significant experience in how the assessor process works.)

IRS or your county assessor? Does the IRS have anything to do with property taxes?

> Does the IRS have anything to do with property taxes?

No, but if the bank somehow tries to claim an investment loss (perhaps by acquiring the middleman along with its losses) then the IRS would probably scrutinize.

Why is the city buying up properties?

And this is a smart investment if you can afford to hold for a while. SF will come back eventually, it always does. The weather is too nice and the location too good not to.

This property will jump in value at some point.

If the property is under private control, the city can only make requests. If they own the property, they have direct control over its use, incentives, etc. Lower rent could translate to a more vibrant distribution of businesses leasing space (versus only businesses who can afford market rate rent). Non market public housing is very common, and while I can only speculate on the motives of the City of SF based on publicly available information, I could see why they would do it. As you said, values will jump at some point, so acquiring these properties at the bottom is somewhat savvy. Could they issue muni bonds to fund these purchases perhaps (if needed, issuing debt at reasonable interest rates to pick CRE up while on a fire sale)? Wouldn't be the worst way to spend borrowed money as a city.

Call and ask? Genuinely, not snarky. I'm sure someone at the city is willing to share the motives, and I too am curious.

Would you expect them to do any better than they did with the trash cans?

I try to assume positive intent and continue to believe change is possible. I understand that hope is not a strategy.

Change isn't merely possible. It's inevitable. And looking at public housing in United States through the decades, the most likely change is going to be spending a lot of money to do very little good.

These stories seem to always exaggerate the losses on these types of commercial properties. Inevitably, the buyer is paying off a big outstanding loan and possibly a tax bill, but the headline purchase amount is just the winning bid to pay for the privilege to settle the outstanding debt. No doubt the value of these properties struggling to find tenants is lower than it was, but not nearly what they're trying to show in these stories.

> Given the remarkable discount, some will wonder why the City of San Francisco didn’t just scoop it up. But given that they buyer LNR Partners effectively auctioned it to themselves, it's not certain that low $6.5 million price would have been available to other buyers.

Doesn't that make this a tax scam then?

I dont think so because there was a middle man, Bridgeton Holdings. They were the the prior owner, and now their bank owns it.

IF you buy a house for $1M, default, and your bank buys it at open auction for $100k, I dont think that is a tax scam either.

But it doesn't sound like it was an open auction since it says "given that they buyer LNR Partners effectively auctioned it to themselves, it's not certain that low $6.5 million price would have been available to other buyers."

I don't think they were definitive or detailed enough to draw that conclusion.

The article insinuates it, but uses weasel words like "essentially" and claims they simply don't know if it was an open auction.

Articles generally hype things up, and claim anything they can get away with. Therefore, if they won't make a clear statement, why would I ever assume more than they will.

They already owned $45M of the building through being the lender. When you add the $6.5M, they paid about $52M total. The middleman then took a $10M loss (16%).

That's a significant loss, but the valuation of the building is nowhere near $6.5M, and the tax assessor knows that (i.e. from comparables), so the new title holder won't be able to claim that as a property tax basis.

That would explain a lot! Do commercial re lenders typically have to buy out the mortgage holders when they foreclose?

I don't know if they usually do that, but I could see it as some kind of deal that preserves good will for future business they might do together.

My guess is that there's quite a fuzzy distinction between commercial real estate lenders and investors, and that the roles are often reversed depending on the situation.

That is in contrast with home mortgage lending, where the borrowers are very unlikely to be lenders.