5M residential project in San Francisco on hold; Hearst cites market conditions

Hearst Corp., the owner and developer of the 110 Fifth St. condo tower in San Francisco, has put on hold plans to build a 400 unit condominium tower. The company cited deteriorating market conditions and rising construction costs.

The building is the second phase of a 5M project that Hearst and Brookfield Properties developed between Fifth, Mission, and Howard Streets. Hearst alone is responsible for the second phase of the project.

Hearst's spokesperson stated that the building is "not financially viable due to market conditions and construction cost." Hearst's spokesperson stated that the company does not plan to make any changes at this time.

Hearst is the owner of the San Francisco Chronicle, as well as its headquarters at 901 Mission St. adjacent to the site. In 2018, the company sold part of the property, a 5M parcel to Forest City (which was later purchased by Brookfield Properties), but retained ownership over the Chronicle building and the future condo building plot that is currently occupied by the San Francisco Examiner's former headquarters.

The first phase was completed last spring with Brookfield delivering The George - a 302-unit complex - and 415 Natoma - a 25-story Class A office building measuring 640,000 square feet. The 5M development, which is a $1 billion project that spans approximately 4 acres in the South of Market area, was named after its location on the corner of Fifth Street and Mission Street.

Brookfield is also responsible for renovating two historic properties located on the project site, the Dempster Building and Camille Building -- as well as the development of a privately owned 0.6 acre public open area.

Dan Sider is the chief of staff for the San Francisco Planning Department. He said that, in a city with a peak office vacancy of close to 30%, and a condo market that's struggling downtown, "many projects are on hold right now."

"I find it exciting that unlike other projects, this one has been executed well -- the public's benefits have been realized." Sider said that the Dempster Building was opened by CAST (the Community Arts Stabilization Trust), and the parks were built. "Two of the three buildings in the development program have been constructed," he added. This is the final piece, and we're eager to see it move forward. But like any other project, the economic climate will determine whether or not the project is successful.

The office tower at 415 Natoma in Brookfield, which was the only new office building to be completed in the city by 2021, has struggled to find tenants. Thumbtack, a home management technology company, signed a 20,000-square-foot lease in 2021. It is still the only tenant of the building today. According to The Chronicle, the tower was only 3% full, and the condo project had been halted on Wednesday.

Brookfield began construction on 5M during the summer of 2019. This was months after a court of appeals rejected an appeal in 2015, which had prevented the project's progress for years.

This week on CNBC, the current market situation in the city.