One of the hardest-hit cities in America after the pandemic has been San Francisco.
The city, which is world-renowned for its shopping, food culture, brilliant tech minds and stunning architecture is now associated with open air drug markets and a growing homelessness problem.
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"You look around, the city is not vibrant anymore. It's really collapsed because of leftist policies," 2024 presidential candidate Ron DeSantis said of San Francisco in June.
Both sides of the aisle agree that the city is in dire need of help.
"The needs that our city has right now really call for me to stay another term," former House Speaker Nancy Pelosi, who represents the 11th Congressional District that includes San Francisco, said in early September announcing her bid for re-election.
And things are bad in the city. It's been likened to New York City after 9/11. Others have identified a so-called doom loop, when a city spirals further into decay thanks to unhelpful policies and softness on crime.
Office vacancy rates are about 30% across the Bay Area since many of its workers are able to work remotely. A high cost of living paired with a housing shortage has thus contributed to homelessness, and reports of open-air drug markets in the city are rampant.
"During the last three months, both local and state law enforcement agencies combined have made hundreds of arrests under drug laws and for outstanding warrants, and seized 103 kilos of narcotic, including 56 kilos of fentanyl," a San Francisco update on its efforts to close open-air drug markets reads.
With a decrease in both corporate and tourist foot traffic, retail has been hit hard, too.
Nearly two dozen stores have said they plan to pull up stakes and leave San Francisco as the crime issue remains unresolved. Some of these retailers include Old Navy, Banana Republic, Crate & Barrel, AmazonGo, Saks Off Fifth, Anthropologie and Office Depot. Walgreens has been chaining up some of its most stolen goods from heavily shoplifted stores to prevent theft from further cutting into its bottom line.
San Francisco retail struggle opens lots for other businesses
But as dozens of companies rush for the exits, others have sought opportunity. IKEA announced in August it would move into the city at the high-end Union Square shopping hub. The space will span 52,000 square feet and three stories.
And an application filed with the San Francisco Planning Department in September indicates a new arcade will fill a huge Nordstrom space in the city.
The application was filed by Round One Entertainment, Inc., which is the U.S. arm of the Japan-based gaming and entertainment arcade company. It details plans for a 50,000 square foot facility which will include "bowling, redemption arcade, billiards, party rooms, a snack bar and bar, and other support areas."
The project will cost approximately $4.5 million.
The application was filed at the notable 285 Winston Dr., San Francisco, CA 94132 address, which is where a massive Nordstrom (JWN) -) used to be. The former 160,000-square-foot area was located in the Stonestown Galleria Mall just north of San Francisco State University. The retailer had announced designs to vacate the area in 2019.
Relatedly, Nordstrom's flagship store announced plans to abandon its space after nearly 30 years in August. The store was a part of San Francisco's biggest mall – the former Westfield Mall, now San Francisco Centre – near the South of Market neighborhood of the city.
Stonestown, where the arcade is planning to move in, is San Francisco's second largest mall. In August, maturing loans for the mall worth $180 million were placed on the CMBS servicer watchlists as their Oct. 1 maturity date looms. One loan, worth $150 million is from Morgan Stanley (MS) -). The second loan is also via Morgan Stanley and is worth $30 million. Both have 4.39% interest rates.
"Net cash flow for the mall in 2022 was 16.2 percent lower than the underwritten level and the servicer also reported that occupancy is 66 percent, rather than the 94.5 percent occupancy when the loan was issued 10 years ago," The Real Deal points out.
Brookfield Properties (BPY) -), which owns Stonestown, said it planned to refinance in Q3 2023.
