Bentall Kennedy, MEPT Buy 359 KSF SF Office Tower

Bentall Kennedy, real estate advisor for the Multi-Employer Property Trust, has expanded the fund’s Bay Area holdings with the acquisition of 600 California St., a 20-story, Class A office tower in San Francisco.
600 California St

Bentall Kennedy, real estate advisor for the Multi-Employer Property Trust, has expanded the fund’s Bay Area holdings with the acquisition of 600 California St., a 20-story, Class A, 358,591-square-foot office tower in San Francisco for $216.5 million.

The seller, Clarion Partners, bought the building in the city’s North Financial District in July 2012 for $180 million from Beacon Capital Partners L.L.C.

The LEED Gold­-certified office property is located at the corner of California and Kearny streets. Built in 1990, it was significantly upgraded in 2006. The building has three levels of below-grade parking. Upper floors have views of San Francisco Bay.

“600 California St. is a great fit with MEPT’s portfolio and the acquisition increases the fund’s investment commitments in the Bay Area to more than $929 million in existing assets and new developments,” David Antonelli, executive vice president and MEPT portfolio manager at Bentall Kennedy, said in a news release. “The transaction advances our core strategy to acquire energy-efficient, urban assets in innovation markets with strong employment trends and solid demand growth.”

San Francisco is experiencing explosive and unprecedented absorption and leasing activity, mainly driven by the growing tech industry.

“Despite fear that the growth in the tech industry is too good to be true, the industry continues to surprise the office market with large-lease transactions and expansion” according to the JLL Office Insight report for the third quarter. “Google, in addition to purchasing 188 Embarcadero, signed an additional lease for more than 270,000 square feet at One Market Plaza during the quarter, and Uber announced its partnership with Alexandria Real Estate to build its new headquarters location in Mission Bay.”

The North Financial District where 600 California St. is located is the city’s largest office submarket with 21.6 million square feet of Class A inventory and a total of 30.7 percent inventory for the third quarter, according to Transwestern’s San Francisco Office Market Third Quarter 2014 report. Class A direct vacancy rates were 7.2 percent and the total vacancy rate was 8 percent. Sublease space is practically non-existent at 0.7 percent. Average rent for Class A office space in the submarket was $52.43 for the third quarter.

While there is demand for blocks of space more than 100,000 square feet, large blocks are hard to find. The Registry reported that 600 California is expected to go from nearly full occupancy to 59 percent when Merrill Lynch and Wells Fargo both soon leave the building.

Noting that the building has been nearly 100 percent occupied since it was completed, Bentley Kendall Senior Vice President Ashley Powell stated that the turnover in two leases will mean 600 California St. is one of only about four buildings in San Francisco that will be able to offer new tenants blocks of space between 100,000 and 200,000 square feet.

“We will bring to 600 California our proven commitment to responsible property ownership and management, and we are excited to be able to offer for lease very shortly one of the largest contiguous spaces available in the city,” Powell said in the release.

Bentall Kennedy is one of North America’s largest real estate advisors, serving close to 500 investors and their 134 million square feet of office, retail, industrial and multi-family properties valued at more than $32 billion in Canada and the United States. MEPT is the firm’s open-end commingled private equity real estate fund and at $6.8 billion is one of the largest in its class. Founded in 1982, MEPT is owned by more than 320 institutional investors and has a diversified portfolio of real estate assets in 25 major markets across the U.S. Earlier this year, Bentall Kennedy and MEPT sold a 42-acre campus in Germantown, Md., a Washington, D.C. suburb, to Matan Cos. for $128 million. The Milestone Business Park had 635,272 square feet of space in three office buildings and a flex building along with additional development potential.