Super-rich are once again betting on the San Francisco real estate sector…

Bloomberg — Goodwin Gaw is convinced that people must think he is “idiots” after he bought for $82 million a foreclosed office complex in San Francisco that formerly belonged to Blackstone Inc. (BX).

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Roger Fields, who recently purchased a former Wells Fargo & Co. (WFC) office at 550 California Street for $40.5 million, says it takes an “iron stomach” to buy in this market.

But for all the concerns about a vicious cycle fueled by post-pandemic hybrid work, persistent homelessness and a fentanyl epidemic, San Francisco is attracting money again. Driven by the rise of artificial intelligence and the rebound in real estate demand, the city has halted years of demographic decline and is creating jobs.

Investors who believe that the real estate sector has hit bottom are not the only ones betting on recovery. Visa Inc. (V) will open luxurious offices this week near Oracle Park, the baseball stadium of the San Francisco Giants.

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Nintendo has just chosen the Union Square neighborhood as the site of its second store in the United States, a sign of optimism in a commercial district so depressed that the owners of its largest shopping center gave the property to the banks.

Anchor Brewing Co. is reopening its doors in its hometown, a year after its former owners blamed the pandemic and declining sales for the closure of the oldest craft brewery in the U.S. The new owner — the billionaire New Yorker and founder of yogurt maker Chobani, Hamdi Ulukaya, says he is not only betting on the company, but also on San Francisco.

“Both are experiencing the magic of rebirth,” Ulukaya said in a statement last week announcing the acquisition.

Recovery has its limits. It is slow and uneven, while the city’s structural problems run deep. Closing a projected budget deficit of nearly $800 million over the next two years has required cuts to some city services. San Francisco had a record 806 fentanyl deaths last year. There are still pockets of crime and desolation around Union Square and the Moscone Convention Center, deterring business travelers.

But there are growing reasons for optimism, starting with the underlying riches of the San Francisco Bay area.

The region has more billionaires than any metropolitan area in the world and ranks second only to New York in the number of residents with at least $100 million in “investable wealth”, according to Henley & Partners. Even for the wealthy alone, rising stocks have helped fuel prosperity in the world’s technology hub.

The city saw a net increase of about 850 residents in 2023, keeping its population at just over 840,000, according to state estimates. While the growth is minuscule, it represents a psychological turning point after population declines during the pandemic.

“People don’t move to a place if they think they’re in a vicious cycle,” said Ted Egan, chief economist in San Francisco.

The city continues to lead the US in office vacancy, with more than 36%, which represents a significant economic burden. But the crisis has begun to stabilize as AI startups fill some gaps for tech companies.

Last year, OpenAI leased 500,000 square feet at the headquarters of Uber Technologies Inc. (UBER). In May, Scale AI subleased about 16,257 square meters from Airbnb Inc. (ABNB). Software company Rippling quadrupled its office space by occupying nine floors in a California Street building formerly occupied by WeWork.

In a sign that the market has been absorbing excess capacity, Subleased space decreased to 798,966 square meters in the first quarter from a high of 891,869 square meters in mid-2023according to brokerage Newmark Group Inc. (NMRK).

Traditional tenants, such as financial and legal firms, are returning to the market. Non-tech companies make up two-thirds of the tenants on the market these daysas lawyers and other professional services workers return to the office and their employers take advantage of deals created by excess vacancies.

“Now only 33% of demand is from the technology sector, almost exactly the opposite of before covid,” says Roman Adler, an agent at Newmark in San Francisco.

Fields acquired the former Wells Fargo office building at a 63% discount to its asking price in 2005, according to property records. It is now offering space at $3.7 a square meter ($40 a square foot), about half the asking rents elsewhere in the financial district, and signing a new lease every week.

“We are moving forward in this process,” he says. “As we digest the pain, healing will come.”

Gaw’s firm had previously owned the office complex, which it obtained in a loan sale in December for about a third of the $245 million price in 2018, when it sold the Jackson Square campus to Blackstone.

The bargain price and location in the district with the lowest office vacancy rate in San Francisco made it feel like a safe betsaid Gaw, president of Gaw Capital Partners, a Hong Kong-based real estate firm.

“I’m sure people think I’m an idiot,” he said. “But it’s Jackson Square, low-rise, in front of a park.”

Visa Offices

Visa’s new offices are located in a 13-story tower that is the centerpiece of the new $1.5 billion Mission Rock development.

Designed to draw people back to the office, the new building overlooks a waterfront park, a white sand beach and the baseball stadium. Common areas have views of the team’s field, while an outdoor gazebo features sofas and a fire pit.

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“People have lived in San Francisco their entire lives and have never experienced a view of the city from this angle,” said Herb Canada, chief investment officer of the San Francisco Giants, co-developers of Mission Rock along with Tishman Speyer and the Port of San Francisco, ahead of the project’s ribbon cutting on June 6.

Despite its difficulties, San Francisco has not lost its festive instinct. This past weekend, superstar DJ Skrillex performed a concert for 25,000 fans, including Mayor London Breed, in the Civic Center Plaza in front of City Hall, a place that had become notorious for drug trafficking. Tickets were sold out within an hour.

In Chinatown, new night markets with outdoor food stalls, music and dancing under traditional red lanterns are drawing crowds to a neighborhood hard hit by the pandemic and a surge in anti-Asian hate crimes.

The concept, which was launched last year during the Asia-Pacific Economic Cooperation Summit to welcome international dignitaries, has proven so popular that it is now held monthly. Merchants struggling to recover are earning up to $10,000 per event and are hiring new workers, said Lily Lo, co-founder of BeChinatown, which organized the event.

“I never expected the food to be gone within an hour,” he said in an interview. “We are seeing a lot of young people from all over the bay. “This is breathing new life into Chinatown.”

Manny Yekutiel, a community activist who helped fund the night markets, has raised $10 million from private and corporate donors, including Michael Moritz, Chris Larsen, Salesforce Inc (CRM), Gap Inc (GPS) and Levi Strauss & Co ( LEVI), to organize street activities in neighborhoods throughout the city.

Last month, at a street party called First Thursday in the financial district, Yekutiel said organizers had anticipated 10,000 people, but stopped counting at 15,000 after their monitors were damaged.

“The atmosphere is electric,” says Yekutiel. “People love this city and we had had a lot of negative press. There is renewed interest in returning. “People are ready for this.”

Read more at Bloomberg.com