SF Office Rebound? $50M Loan Signals Selective Revival in Historic Core

SAN FRANCISCO, CA – March 24, 2026 – In a significant vote of confidence for San Francisco’s embattled office market, alternative investment firm Axonic Capital has closed a $50 million senior loan to refinance the city’s historic Merchants Exchange Building. The deal provides a crucial injection of capital for the landmark property and underscores a growing trend that may define the city's commercial real estate recovery: a discerning “flight to quality” where historic, amenity-rich assets are attracting capital while newer, generic towers struggle.

The financing allows the building’s sponsor, The Clint Reilly Organization, to refinance existing debt on the 245,000-square-foot property at 465 California Street. The three-year, floating-rate loan, arranged by Northmarq, includes two one-year extension options, providing crucial flexibility as the market continues its slow-but-steady stabilization.

A Tale of Two Markets: SF's Flight to Quality

Axonic's investment arrives at a pivotal moment for San Francisco. While headline vacancy rates remain stubbornly high—hovering just above 30% at the start of 2026—a more nuanced picture reveals a bifurcated market. Data shows that tenants are abandoning older, less desirable spaces in favor of high-end, well-located properties. The city’s most prestigious Class A towers in the Financial District boast vacancy rates in the single digits, a stark contrast to the city-wide average.

This recovery, though selective, is gaining momentum. After years of negative absorption, the market saw a significant turnaround in late 2025, absorbing nearly one million square feet of space in the fourth quarter alone, with the trend continuing into the new year. A primary catalyst for this resurgence is the city’s booming Artificial Intelligence (AI) sector. AI firms leased over two million square feet in 2025, cementing San Francisco’s status as a global hub and driving new demand for premium office space.

“We see that certain gateway markets continue to experience recovery, and Axonic is selectively increasing our office exposure where we believe tenant demand is rebounding and the rejuvenation of legacy assets creates upside potential for future leasing,” said Erik Nygaard, Principal and Portfolio Manager at Axonic. His comments reflect a broader investor sentiment that, while a full market recovery is years away, strategic bets on high-quality assets are poised to pay off.

The Strategic Bet on a Historic Landmark

Axonic Capital’s decision to back the Merchants Exchange is a direct application of its investment thesis. The New York-based firm, with approximately $8 billion in assets under management, is not making a blanket bet on the office sector. Instead, it is surgically deploying capital into what it calls “legacy assets” in recovering “gateway markets.”

The financing structure itself tells a story. A floating-rate loan suggests a belief that interest rates may stabilize or decline, while the extension options grant The Clint Reilly Organization runway to capitalize on improving market conditions and leasing momentum. The deal is further solidified by the continued participation of Affinius Capital, the incumbent mezzanine lender and a recent strategic partner of Axonic, signaling layered confidence from multiple capital providers.

This transaction highlights a shift in the lending environment. For the past few years, securing financing for any office property in San Francisco has been a monumental challenge. Now, lenders are showing a renewed, albeit cautious, willingness to engage, but only for the right asset, the right location, and the right sponsor.

The Merchants Exchange: A Blueprint for Resilience

What makes the Merchants Exchange Building the “right asset” is its unique blend of history, location, and amenities. Originally built in 1903 and one of the first major structures completed after the 1906 earthquake, the 16-story building is an architectural icon in the heart of the Financial District.

Unlike the empty glass towers that have become symbols of the city’s office downturn, the Merchants Exchange boasts an occupancy rate of over 80%. Its resilience is rooted in a diversified tenant roster of approximately 40 tenants, including government agencies, law firms, financial services firms, and technology companies. This diverse base provides a stable foundation, insulating the property from the volatility of any single industry.

Furthermore, the building offers more than just office space. It is home to the opulent Julia Morgan Ballroom and the prestigious Merchants Exchange Club, two renowned event venues that provide alternative revenue streams and serve as a powerful amenity for tenants. This integration of workspace and high-end event space creates a unique ecosystem that modern, single-use buildings cannot replicate, making it a durable and attractive asset for long-term investment.

Financing in a New Era

The Axonic loan is not an isolated event but rather a leading indicator of a market recalibration. Investor activity has picked up significantly, with recent sales of other prominent Financial District properties like 300 Howard Street and 88 Kearny Street demonstrating that capital is selectively returning. While sale prices per square foot are down sharply from the market’s peak, this repricing is creating opportunities for well-capitalized investors to acquire premier assets at a new basis.

As San Francisco navigates its post-pandemic identity, the path to recovery appears to be paved not with new construction, but with the revitalization and strategic financing of its most enduring properties. The investment in the Merchants Exchange Building is a clear signal that for assets combining historical significance with modern relevance, the future in San Francisco’s office market has already begun.