Why San Francisco Condo Values Are Crashing in 2026

Added: 2026-05-13

[00:00:00]A building at 580 Market Street in downtown San Francisco just had its value appraised at 8.9 million dollars.

[00:00:07]That same building sold for 24.2 million dollars back in 2015. That's a 63% loss in value. And right now, according to servicer notes reviewed by Morningstar, foreclosure proceedings on that property are expected to wrap up by the third quarter of this year. This isn't one isolated case. Commercial foreclosures have been piling up across San Francisco for the past 2 years. And what most condo owners haven't figured out yet is that those foreclosures are directly eating into their home equity. Today, we're going to break down exactly how that works, where the numbers stand right now, and what it means if you own, rent, or plan to buy in this city. Let's start with the office market, because that's where this whole story begins.

[00:00:49]According to Cushman & Wakefield's first quarter 2026 report, the office vacancy rate in downtown San Francisco is sitting at 31.1%.

[00:00:59]That sounds like progress compared to where it was, and technically it is. The peak hit around 33.8% in mid-2024, according to CBRE. But 31% is still catastrophically high. Before the pandemic, that number was 5.4%.

[00:01:17]So, we went from 5 to 31 in about 4 years, and it hasn't come all the way back.

[00:01:24]Here's what happens when a third of your downtown office buildings sit empty. The owners stop making money. They took out loans at low rates when the buildings were full. Now, their refinancing are coming due at commercial loan rates that have been hovering in the 6.5 to 7.5% range, with occupancy that can't cover the payments. When that math doesn't work, the building goes to foreclosure.

[00:01:48]And in San Francisco right now, that's happening at a pace that's hard to keep up with.

[00:01:52]In March of this year, Rialto Capital filed to foreclose on 580 Market Street after the $15.7 million loan matured and went unpaid. That same firm had already filed to foreclose on three office properties in Oakland back in January.

[00:02:09]In April 2026, CIM Group, a Los Angeles-based investor, entered negotiations for a consensual foreclosure on two buildings at 703 Market Street and 26 Third Street. Those buildings together span 165,000 square feet and are tied to a $98 million commercial mortgage-backed securities loan.

[00:02:31]According to notes sent to bondholders and reported by the San Francisco Business Times, lenders expect to take ownership by the fourth quarter of 2026.

[00:02:39]And that's just what made the news this month.

[00:02:42]The situation got messy fast, and it's been compounding for 2 years. No one expected the timeline to stretch this long. Here's the part that doesn't get explained enough, and it's the part that actually matters to people who own condos in this city. When a commercial building two blocks from your condo sells at foreclosure for 60 cents on the dollar, that sale becomes part of the comparable data that appraisers use to value nearby properties. Lenders rely on those appraisals when they approve mortgage loans. If the comparable sales in your neighborhood are distressed commercial sales at deep discounts, the appraisal on your condo can come in low.

[00:03:20]And when an appraisal comes in low, the buyer either has to make up the difference in cash or the deal falls apart. That's how sellers in SoMa and downtown have been losing buyers mid-contract. According to CoStar Group's senior Bay Area Director Nigel Hughes, a survey of distressed commercial mortgage-backed security loans in San Francisco showed resulting valuations that had fallen between 20 and 80% from their original appraisals.

[00:03:47]The largest single decline his research found was at the Emporium San Francisco Center, where the appraised value dropped by $930 million since 2016. That kind of number changes the entire neighborhood's financial landscape. Now, layer on top of that something called the mortgage blacklist. This is a list maintained by Fannie Mae and Freddie Mac of condo buildings considered ineligible for conventional financing, usually because of inadequate insurance, deferred maintenance, or HOA problems.

[00:04:19]As of June 2025, according to reporting by the San Francisco Standard, 19 condo buildings in San Francisco were on that list, spanning nine zip codes and more than 2,550 units. Boston-based law firm Alcock Marcus, which has access to the list, confirmed that dozens of California buildings have been added since early 2025 alone.

[00:04:41]One of the most striking examples is the Mira, a 39-story luxury tower built in 2019 by Tishman Speyer right at the Embarcadero. That building was flagged not because of structural issues, but because of pending HOA litigation and deferred maintenance items, including a malfunctioning rooftop window washing unit that was leaking fluid. Buyers trying to purchase units there couldn't get a conventional mortgage. When you can't get conventional financing, only cash buyers remain. Cash buyers demand a discount. Sellers panic and the equity vanishes. This is not abstract. The median condo price in SoMa, the neighborhood sitting directly on top of San Francisco's commercial foreclosure ground zero, was at $1.08 million as of early 2026, according to the Luxury Playbook's market analysis, showing flat growth over the past year, while the rest of the city's single-family home market has moved up. That flatline in the middle of a broader recovery tells you everything. There's one more layer to this that condo owners are dealing with, and it doesn't get nearly enough attention. When commercial retail spaces in mixed-use condo buildings go dark, whether through agency, foreclosure, or a business shutting down, the revenue that helped subsidize the building's operating costs disappears. HOA fees go up to cover the gap. According to the San Francisco Standard's June 2025 investigation, one condo owner at The Village at Petrini Place in the Western Addition watched their HOA dues climb from $500 to $1,100 a month over 15 years. A resident who bought a unit there for $675,000 in 2023 then faced a $44,000 bill for balcony repairs within 2 years. That kind of financial pressure pushes sellers into the market at exactly the wrong time, adding inventory in neighborhoods that already have more supply than demand. And then there's the insurance problem. Several HOA policies in San Francisco buildings have been abruptly canceled as insurers reassess risk in the city. When a building loses its insurance policy and can't quickly replace it with compliant coverage, it gets flagged. And once it gets flagged, conventional financing dries up. Agents were shocked at how quickly some buildings that looked fine from the outside suddenly became nearly impossible to transact in. According to data from Redfin and Compass, both cited in a November 2025 analysis, condo price declines in San Francisco were outpacing single-family home declines citywide.

[00:07:13]Neighborhoods with heavy condo inventory, SoMa, Mission Bay, South Beach, and the Civic Center area were the weakest performers. Days on market in those areas stretched significantly beyond the city's broader average. So, where does this leave things in May 2026? The honest answer is it's complicated, and the market is splitting in two. On one side, you have the premium end of San Francisco real estate absolutely taking off. According to a February 2026 market update from top SF realtor Danielle Lazier, the 3-month median sales price for all property types rose 5.6% year-over-year. And January 2026 saw a 22% drop in new listings compared to the year before, meaning supply is tight and well-priced homes are moving fast. The AI boom is real. Companies like Anthropic and OpenAI have leased millions of square feet of office space.

[00:08:10]AI workers are bidding up properties in neighborhoods near those campuses, and luxury sales above $6 million hit a median of $6.4 million between August and October 2025, up 5% from 2024.

[00:08:25]But on the other side, the condo market, especially downtown and SoMa, is still absorbing years of damage from commercial real estate distress.

[00:08:34]Commercial foreclosures are still being filed in 2026. Buildings are still being surrendered to the lenders. The mortgage blacklist is still growing, and HOA fees are still climbing in buildings where the commercial underpinning has collapsed.

[00:08:48]According to Newmark's fourth-quarter 2025 San Francisco office report, average direct asking rents have dropped 22.6% since their 2019 peak. That's a market that is improving, but improving slowly from a very deep hole.

[00:09:05]CBRE's Colin Yasukochi said that AI tenants currently occupy around 5 million square feet in San Francisco, and that number could reach 20 million over the next 5 years. If that plays out, it would fundamentally change the picture, cutting vacancy nearly in half, and bringing commercial foot traffic and retail back to neighborhoods that have been quiet for years. That would stabilize HOA finances, improve appraisal environments, and take buildings off the blacklist. But that is a 5-year story, and right now in May 2026, the condo owners who bought in SoMa, the financial district, or the Civic Center area between 2018 and 2022, are still sitting on properties worth less than what they paid, in buildings with rising fees, in a financing environment that gets more complicated every quarter. The commercial foreclosure wave isn't over. It's just finding its floor, and until it does, every condo owner in those neighborhoods is watching closely to see where that floor actually lands.