The historic Warfield building in San Francisco’s Mid-Market neighborhood was supposed to be the first downtown office-to-housing conversion in the wake of the pandemic. But, last week, the building sold to new owners with a different vision for revitalizing the troubled block surrounding it at Market and Sixth streets. And it may come on a much quicker timeline.

KALW, a Bay Area public radio station that has been on the air for more than 80 years, plans to move this fall from its Financial District home into the Warfield at 988 Market St., where the radio station will occupy two of the building’s nine floors and serve as its anchor tenant. Moving forward, the century-old building that towers over the adjacent Warfield Theater will be known as “Warfield Commons,” a planned arts and independent media hub.

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“I think it’s important that the future of downtown San Francisco is built upon organizations that are committed to the city and committed to the area. We’ve been around since 1941 … we’re not going anywhere,” said KALW Executive Director James Kass. “All of the organizations that will be in the building are truly committed, and we are not going to leave because economic headwinds change.”

The radio station’s vision for 988 Market is backed by the Community Arts Stabilization Trust, or CAST, which closed a deal to purchase the building for $7.3 million on Friday. While KALW has equity in the building, CAST is the majority owner and will manage the property long-term.

“These are the buildings that nonprofits lose out on for lack of finances, ready tenants or complicated partnerships,” said CAST CEO Ken Ikeda. “We’ve experienced first-hand rejection, even with proof of funds, because nonprofits are seen as unsustainable. This simply isn’t true. KALW is 83 years old and has never been stronger.”

CAST is in conversation with a number of media and literature organizations about leasing space in the 48,300-square-foot Warfield building, according to Catherine Nguyen, CAST’s communications director. The nonprofit currently operates out of a building that was donated to the organization by Brookfield Properties as part of the 5M development south of Market Street, but will also be moving its headquarters into one floor at 988 Market. 

“This is an exciting project because it’s a multi-tenant building, and we can do what we do at scale,” Nguyen said. “We can really serve a whole ecosystem of organizations like KALW — and a greater host of needs.”

CAST’s mission is to provide affordable spaces to the arts and culture community — at the end of last year, it committed $1 million to help another nonprofit serving the SoMa neighborhood’s Filipino community purchase a small, vacant commercial building at 457 Minna as its headquarters. 

The 988 Market acquisition was made possible with the support of the Kenneth Rainin Foundation and Community Vision Capital & Consultants, who served as guarantor and lender on the deal, and provided below-market rate-financing. 

The Warfield sits between two of CAST’s pre-pandemic projects: CounterPulse, a nonprofit art center at 80 Turk St., and the Luggage Store Gallery, a multidisciplinary arts organization at 1007 Market St. When those nonprofits purchased their buildings with the support of CAST in 2015, San Francisco’s real estate market was close to peaking, fueled by demand from tech companies, and prices were considered to be toxic for arts and culture groups seeking space in downtown. CAST’s focus landed on Mid-Market between Civic Center and Union Square, which also includes the Theater District, due to the displacement of artists from the area following the “Twitter tax break” of 2011. 

But a lot has changed since then. Downtown office vacancy hit 37% last year — a historic high — after many companies adopted remote work policies and let go of office space in the years following the pandemic. 

And Mid-Market has been particularly challenged. Home to a number of theaters and not long ago the epicenter for budding tech startups and some of the city’s large employers, the area has been hit hard by empty storefronts, quality-of-life issues and last year reported close to 50% office vacancy as buildings like 995 Market St. — a 16-story office tower that traded for about 10% of its 2016 value in a foreclosure auction last year — have been languishing for years. 

The Warfield building is no different. When developer Joy Ou’s Group I purchased the property in 2011 for $6 million, it was vacant. Group I then spent $9 million on an extensive renovation effort on the historic building and eventually landed tech companies including Match.com, Benchmark and Spotify as tenants. By 2017, the building was 100% occupied.

But crime and public safety issues began impacting leasing in the area years before the pandemic emptied offices, according to Ou. 

In 2022, Group I filed plans to convert 988 Market into 45 residential units — Ou said she won entitlements for a total of 53 units in 2023.  The project, which is estimated to cost more than $16 million, was the first conversion effort proposed in response to rising commercial vacancy post-pandemic, and was expected to open the floodgates for additional adaptive reuse projects. 

But the “financing market just isn’t there,” Ou said. “I was waiting for the equity market to come back. And I’m at a point where the value has plummeted and I have to exit to pay my lender.”

Group I was served with a notice of default by its lender last year for a $26 million loan recorded for the property in 2019.

“I’ve been a developer for 35 years, but who could have predicted COVID-19 and the market just dying like that?” Ou said. “I have a design background, so I figured that arts and culture has to be the engine to get things going again — Mid-Market has gone through that once already. It feels like we need to put the energy in the right places, and things will happen.”

In recent years, city leaders have pushed for more residential development in downtown, where commercial spaces outnumber homes, but their efforts to support the conversion of deserted office buildings have yet to bear fruit. And even though the housing plan at the Warfield is dead for the forseeable future, Mayor Daniel Lurie told the Chronicle that the building’s takeover by the nonprofits “sends a message” that “San Francisco is on the rise again.”

Sarah Dennis Phillips, head of the city’s Office of Economic and Workforce Development, said that the city’s vision for downtown as a place to “live, work, play and create” remains, and that building housing there is a “long-term strategy.”

“Residential conversions are hard, and we don’t yet have in place the full set of financial incentives needed to move them forward — although we are working on it,” she said. “Having CAST and KALW here to act as activators in the near-term is a real win, and their investment in this mid-Market community will only add to reasons for people to live here over the long-term.” 

For KALW, the downturn in the real estate market has only brought opportunities.

For years, its studios were based out of the Phillip & Sala Burton High School campus in Visitacion Valley, in southeastern San Francisco. The location was challenging to access for KALW’s guests, said Executive Producer Ben Trefny, who described it as “very tucked away.”

But the city’s Vacant to Vibrant program — a 2023 effort by then-Mayor London Breed to address downtown’s vacancy problem by matching artists and small businesses with property owners to create pop-ups in empty spaces with financial support — opened up the possibility for KALW to move into a ground-floor space at 220 Montgomery in the Financial District.

Since then, Trefny said that KALW hosted more than 100 live events, and after graduating from Vacant to Vibrant, managed to negotiate a month-to-month lease with its Montgomery Street landlord.

“The move to Montgomery Street has been pretty transformative as far as visibility for us,” Trefny said. “And now moving to what I consider, as a journalist and somebody who cares about the Bay Area, a crossroads of so many communities, is really important. With the Tenderloin, the Theater District, City Hall, the Federal building, and the Sixth Street corridor tech hub coming together, Sixth and Market is really a key spot.”

Steve Gibson, executive director of the Mid-Market Business Association and Foundation, a nonprofit that works to improve the area, agreed. He said that the Warfield’s activation adds to efforts that his group has made in recent years, including launching Market Street Arts a year ago. The public-private initiative aims to activate underused spaces for artists and designers and funds programming on Market Street.

“This investment reinforces what we’ve long known: that arts and culture are not just part of this neighborhood’s history, but the key to its future,” Gibson said about the Warfield’s sale. “The vision of Mid-Market as a cultural haven will be a key driver of economic regeneration for our city.”

Reach Laura Waxmann: [email protected]