Last Retailer To Leave San Francisco Please Turn Out The Lights

This week Mall powerhouse Westfield finally had enough of San Francisco’s imploding downtown and handed back the keys to its San Francisco Centre in the city’s Union Square mall.

Rather than limp on amid plummeting footfall, shuttering stores and a drug abuse and lawlessness epidemic, it chose to default on its $558 million loan and give up its property.

The impending departure of department store Nordstrom
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appears to have been the final straw and the mall giant ceased loan payments and, along with partner Brookfield Properties, has begun the process of transferring control of the mall.

Anchor Nordstrom, which occupies a huge 312,000 sq. ft. of the 1.2 million sq. ft. mall, is closing August after 35 years when its lease expires (and is closing a second store in the city center). The mall will be only 55% leased following Nordstrom’s departure, far below the 93% average occupancy level for U.S. Westfield malls nationally.

Westfield will transfer management of the 865 Market Street mall to its lender, and cited “challenging operating conditions in downtown San Francisco,” which have led to a steep decline in sales, occupancy and foot traffic.

The mall group is in doubt who is to blame and previously issued a stinging rebuke to the City Authorities who have presided over the CBD’s disastrous decline during and post-pandemic.

While what happens next is not completely clear, normally retail properties in foreclosure continue to operate, in this case while Westfield unwinds the mall’s commercial mortgage-backed securities loan, which has multiple lenders.

Future mall operations will be determined by the receiver, with Westfield saying in a statement:

“For more than 20 years, Westfield has proudly and successfully operated San Francisco Centre, investing significantly over that time in the vitality of the property. Given the challenging operating conditions in downtown San Francisco, which have led to declines in sales, occupancy and foot traffic, we have made the difficult decision to begin the process to transfer management of the shopping center to our lender to allow them to appoint a receiver to operate the property going forward.”

Retail And Hotels Desert City

As for San Francisco, if it wasn’t for bad luck it would have no luck at all.

Park Hotels & Resorts
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has also stopped payments on its $725 million commercial mortgage for the nearby Hilton San Francisco Union Square and Parc 55 hotels. These are two of the largest hotels in the city and it plans to surrender both.

A who’s who of American retailers have already shuttered their stores and Old Navy, adjacent to Westfield, will follow suit shortly. Century Theaters’ 52,000 sq. ft. lease at the mall expires September, and H&M’s 25,000 sq. ft. lease expires January 2024.

Meantime, California lawmakers have proposed a $1.1 billion bail out over three years for state transit agencies, including BART and Muni.

The mall’s performance in the city is in stark contrast to Westfield’s nationwide fortunes. The San Francisco Centre generated sales of $455 million in 2019 but slumped to $298 million in 2022 according to Westfield, as the city failed to rebound from the lockdowns.

Over the same period footfall fell 42%, from 9.7 million to 5.6 million.

By contrast, Westfield’s California flagship mall sales enjoyed a 26% uplift, and U.S. sales were also up by 23% over the same period.

Mayor Pledges To Adapt And Diversify

A defiant Mayor London Breed issued a statement that read like an extraordinarily optimistic view of Westfield’s departure.

“This has been something that has been coming for some time. We’ve had numerous conversations with Westfield about the future of this site, and it’s been clear that they did not have a long-term commitment to San Francisco as they look to withdraw entirely from the United States market,” she said, referring to ultimate owner Unibail-Rodmaco-Westfield’s stated desire to sell up its U.S. operations.

“Retail is changing, and we will adapt to diversify and better use spaces in our Downtown area,” she added.

That no doubt includes a raft of City-backed initiatives, as she claimed that a new owner would provide an opportunity to attract new kinds of businesses or uses.

Unless she can get a handle on the myriad problems bring the Californian city to its knees, then more likely other retailers will take their leave.

Although Westfield has foreclosed on other U.S. malls, its decision along with a raft of blue-chip retailers and Main Street mainstays to exit San Francisco call into question whether one of North America’s most important retail centers has already passed the point of no return.

The lights may be on, but for how much longer?