San Francisco commercial property owners with almost $9 billion in outstanding loans from Wall Street are seeking tax relief from a city bracing for a budget shortfall that’s expected to eclipse $1.2 billion in five years, according to Barclays.

The requests come from many owners of San Francisco’s best known office buildings, hotels and retail properties, including Vornado Realty Trust’s 555 California office skyscraper in the financial district and the Westfield San Francisco mixed-use shopping center downtown, according to Barclays.

Westfield surrendered the keys to its shopping mall to lenders about a week ago, blaming “challenging operating conditions” in the San Francisco’s core, while still owing $558 million of debt on the property.

Vornado Property Trust and Westfield did not respond to requests for comment.

Vornado’s co-head of real estate Glen Weiss said that 555 California, a former headquarters of Bank of America, has bucked the broader trend in downtown office space, during a May 2, first-quarter earnings call. It lost zero tenants, with Goldman Sachs, KKR, Microsoft and BofA all renewing leases in the last three years, without reducing their office space, he said.

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When it comes to remote working and the postpandemic recovery, “probably few other cities have been as negatively affected as San Francisco,” a Barclays credit and municipal strategy team wrote, in a Wednesday client note.

While San Francisco commercial property landlords filed for $59 billion in total tax relief in 2022 from the city, on average they requested a 40% drop in their assessments. That figure rose to 50% for loans securitized in bond deals.

“Market price declines might be even more significant in some cases, as the city assessment already stands well below the appraised value at securitization for certain assets,” the Barclays team wrote.

The bulk of San Francisco’s expected budget shortfalls can be tied to mandated cost, the Barclays team also pointed to “lower property tax revenue,” in the wake of the COVID crisis and as the Federal Reserve sharply pace of rate hikes as also “responsible for the ballooning budget deficit.

While San Francisco’s soaring home prices get a lot of attention, its smaller share of commercial buildings are much more valuable, including in terms of bringing in the city’s $2.5 billion in annual property taxes.

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Related: Former WeWork office building in San Francisco sees value slashed by about 66%

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