In addition to the unrealistic replacement cost assumed by the article, there is a lot going on that we need to know to make an informed judgment on this deal. For example, did lender sell the note at full value and walk away happy to get their principle back? Even though property may be worth more, hassle of trying to fixup the asset may not be worth it for most lenders. The onwer likewise may have realized asset was worth more, but been unable to come up with anyone willing to refinance in this environment. Lots of things could be going on to make the deal happen that are not necessarily indicitive of going rates for unstressed properties.
That replacement cost estimate by the article's author seems to be a bit off, IMO. Buyer paid $172/sf, if that's 25% of replacement cost, then replacement cost is $688/sf. That is far too high for San Francisco, and starting to become too high even in New York. Land prices have come way down and even construction costs have come down during the last 18 months (labor is cheaper, and some raw materials). $172/sf is lower than replacement cost in SF, but not 75% lower.