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A rendering of the planned Parcel F tower where Salesforce canceled its lease.
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Exclusive Update:Salesforce is listing part of its San Francisco offices at 350 Mission St. for sublease.Go here for the latest information.
Salesforce has canceledits 325,000-square-foot leaseat the unbuilt Parcel F tower in San Francisco’s Transbay district after the company adopted a permanent remote work policy.
Developer Hines said at a city hearing Monday that the 61-story project’s “initial lease commitment ... is no longer in hand.”
Salesforce declined to comment. The companysaid last monththat its remote work shift could lead to a reduction and reimagining of its office space, without providing specifics. Under the post-pandemic plan, the majority of its workers would stay home for at least one to three days a week.
Salesforce is San Francisco’s largest private employer with 10,000 local workers and 54,000 global employees. It has agreed to buy Slack, the work communications company, which has offices nearby in the Transbay area.
The cancellation is the latest blow to landlords and the downtown area, as tech companies have downsized and workers continue to stay home amid the pandemic. The local economy has suffered greatly, with BART ridership plummeting by 80% and numerous small businesses closing permanently. Tech companies such as Twitter, Yelp and Dropbox have listed sublease space and said many employees can work remotely beyond the pandemic, casting doubt on the speed of San Francisco’s economic recovery.
Last August, Pinterestcanceled a 490,000-square-foot leaseat the unbuilt 88 Bluxome project in South of Market, paying an $89.5 million fee, another sign that the city’s once-booming real estate market is wounded.
San Francisco Business Timesfirst reported the Parcel F news.
The project at 542-550 Howard St., one of the last tower sites in the Transbay district, has additional challenges. Chinatown activistsoppose the projectbecause of the shadows it would cast on Willie “Woo Woo” Wong Playground in that neighborhood, which has led to city hearing delays.
太平洋海恩斯,城市发展和高盛囊hs affiliatebought the site for $175 millionin 2016, and the project has undergone nearly five years of city reviews. A Board of Supervisors vote is scheduled next week.
Cameron Falconer, a Hines executive, said during Monday’s Board of Supervisors subcommittee hearing that the project has had a “very long road and a number of significant delays that have impacted the project’s economics, budget and viability,” adding “hundreds of millions of dollars” in costs.
Hines is also seeking to pay $47 million in affordable housing fees, rather than building 33 on-site affordable condos, a change that would require city approval. San Francisco has the world’s highest construction costs, which makes building affordable housing in towers a financial challenge. The fees would help finance 192 affordable homes at a nearby site on Howard Street that Hines and its partners own.
At the Monday meeting, Supervisor Aaron Peskin pressed city staffers and Falconer, suggesting that the project be redesigned to prevent it from casting a shadow on the Chinatown park for 15 minutes a day during parts of the year.
He also criticized the affordable housing fee payment schedule, which requires the developer to put up a letter of credit but not hand over the cash until the money is needed for the affordable units.
“I’m not interested in the letter of credit. I’m interested in cash. If the sponsor would like to put that cash in an account, that is better than a letter of credit,” he said.
Falconer said that paying the fee up front, rather than providing a letter of credit, would be “detrimental to the project and put the viability at risk.” But he stopped short of saying whether that would make or break the deal.
“It’s hard to say if it would be severely detrimental, as in unfeasible,” he said.
Hines also built Salesforce Tower with Boston Properties, which now fully owns the tower. Pelli Clarke Pelli Architects designed Salesforce Tower, Parcel F and Salesforce Transit Center.
A separate Transbay project, Oceanwide Center, has also struggled. A $1 billion sale of the partially built, two-tower project was canceled last year and construction has stopped. The project has no office tenant commitments.
Roland Li is a San Francisco Chronicle staff writer. Email:roland.li@sfchronicle.comTwitter:@rolandlisf
