The $300.8 Million Bet: Why Norges Bank Doubled Down On 405 Howard St, San Francisco, Despite The Office Market Downturn

The San Francisco office market, long battered by high vacancy rates and the shift to remote work, just saw a massive, confidence-boosting transaction. In a deal that has recalibrated investor sentiment for prime South Financial District (South FiDi) assets, the majority stake in the prestigious 405 Howard Street office tower, known as Foundry Square II, officially changed hands in a valuation that points to a recovery in the city’s top-tier commercial real estate.

The transaction, reported in late Q4 2024, saw one of the world's largest sovereign wealth funds significantly increase its ownership, injecting fresh capital and signaling a strong, long-term belief in San Francisco’s economic future. This move by a major global investor stands in stark contrast to the prevailing narrative of downtown decline, highlighting a clear bifurcation between older, vacant buildings and modern, well-tenanted Class A properties.

The Landmark Acquisition: Norges Bank Ups Its Stake in Foundry Square II

The purchase of the additional stake in 405 Howard Street represents a decisive move by one of the world’s most powerful institutional investors. The details of the transaction are critical to understanding the current state of the San Francisco commercial market.

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• Property Name: 405 Howard Street, San Francisco, CA 94105 (Foundry Square II / The Orrick Building)
• Transaction Type: Acquisition of an additional majority stake (50.1% interest)
• Buyer (Increased Ownership): Norges Bank Investment Management (NBIM)
• Seller (Divesting Stake): TIAA (Teachers Insurance and Annuity Association of America), through its subsidiary Nuveen Real Estate
• Reported Valuation: $300.8 million for the TIAA stake.
• Price Per Square Foot (PSF): Approximately $597 per square foot.
• Building Size: Approximately 503,576 to 521,000 square feet.
• Location: South Financial District (South FiDi), part of the larger South of Market (SOMA) area.
• Context: Part of a larger portfolio deal involving eight premium office properties across Boston, San Francisco, and Washington D.C.

Prior to this deal, the property was co-owned by a joint venture between NBIM and TIAA. The transaction effectively consolidates the ownership under Norges Bank, which manages Norway's massive Government Pension Fund Global. This move aligns with Norges Bank’s renewed "Strategy 28," which focuses on expanding its global real estate exposure, particularly in high-quality, stabilized assets in key global gateway cities.

The Divestment Strategy of TIAA

The sale by TIAA, a major financial services organization, reflects a broader, strategic asset divestment. TIAA has been actively rebalancing its real estate portfolio, selling off stakes in various commercial properties. This includes other San Francisco assets, such as a stake in the nearby 888 Brannan Street building, which was also part of the eight-building portfolio deal with Norges Bank. This divestment is less about the health of the asset and more about TIAA's organizational strategy to liquidate non-core holdings and reallocate capital, a trend seen across institutional investors in the current economic climate.

Why 405 Howard Street is a "Flight to Quality" Asset

The $300.8 million valuation is a strong indicator of the market's differentiation between premium and secondary office space. While San Francisco’s overall office vacancy rate remains high—hovering around 33.6% to 34.6% as of Q3 2025, according to reports from Cushman & Wakefield and CBRE—405 Howard Street is considered a "flight to quality" asset, which commands a premium.

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The building, completed in 2002/2003, is a modern, Class A office tower that is part of the four-building Foundry Square complex (Foundry Square I, II, III, and IV). Its appeal is driven by several key factors:

• Prime Location: It sits in the highly desirable South FiDi/SOMA neighborhood, offering easy access to the Salesforce Transit Center, the Moscone Center, and major transportation hubs.
• Anchor Tenants: The building is anchored by the prestigious law firm Orrick, Herrington & Sutcliffe, which has its headquarters there.
• Major New Leasing Activity: Crucially, the building recently secured a massive 200,000 square-foot lease with PwC (PricewaterhouseCoopers). This deal, which will see PwC move its San Francisco offices to 405 Howard Street, is one of the largest and most significant new leases signed in the city in recent memory. This commitment by a major global firm provides significant stability and long-term cash flow for the property.
• Building Features: Foundry Square II boasts large, highly efficient 63,000 RSF floorplates, a raised flooring system, and a generous parking garage, all features highly sought after by modern tech and professional services firms.

This combination of a top-tier location, modern build quality, and, most importantly, a high-occupancy rate secured by blue-chip tenants like Orrick and PwC, insulates the property from the broader market troubles. Investors like NBIM are willing to pay a premium for stabilized income in the face of widespread uncertainty.

The Broader Implications for the San Francisco Real Estate Market

The Norges Bank transaction at 405 Howard Street is more than just a single deal; it is a bellwether for the future of the San Francisco office market. It supports the view that the market is undergoing a "recalibration," not a collapse.

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The $597 PSF valuation, while significantly lower than the market peak valuations of a few years ago, is a strong price for a majority stake in the current environment. It demonstrates that capital is available and aggressive for the right assets. This is a crucial distinction: investors are not buying the overall market; they are selectively targeting the best-performing, most resilient buildings.

Market reports for Q3 2025 have shown early signs of positive momentum, with the overall vacancy rate dropping slightly from its peak of 36.9% in Q3 2024. Furthermore, total office leasing volume continues to show positive trends, driven by firms consolidating into smaller, higher-quality spaces—a phenomenon known as "densification" or "right-sizing."

Future Outlook: A Two-Tiered Market

The purchase solidifies the emerging two-tiered nature of the San Francisco commercial market:

1. Tier 1: Prime, Stabilized Assets: Buildings like 405 Howard Street (Foundry Square II), which are modern, well-amenitized, and have long-term leases with major tenants. These assets will continue to attract premium pricing and international institutional capital, such as Norges Bank and other sovereign wealth funds.
2. Tier 2: Older, Vacant Assets: Older Class B and C buildings, or those with large upcoming lease expirations, will face significant challenges. These properties will require deep discounts, massive capital improvements for repositioning, or potential conversion to other uses, such as residential housing, which is a key policy discussion in the city.

The commitment by PwC to 200,000 square feet at 405 Howard Street, coupled with Norges Bank’s $300.8 million investment, sends an unmistakable message to the global investment community: the highest-quality real estate in San Francisco remains a highly valued, long-term asset. This transaction could spur other institutional investors to move off the sidelines and begin exploring opportunities in the city’s premium office sector as the market slowly begins its recovery into 2025 and beyond.