Canada Pension Plan Investment Board Makes First Investment in San Francisco

Canada Pension Plan Investment Board is making its first direct investment into San Francisco’s hot office market with the purchase of a 45 percent stake in 1455 Market St.
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Canada Pension Plan Investment Board is making its first direct investment into San Francisco’s hot office market with the purchase of a 45 percent stake in 1455 Market St., a Class A, 22-story building, from Hudson Pacific Properties, Inc., for $219.5 million.

Hudson Pacific, which acquired the 1,025,833-square-foot office building in December 2010, will retain a 55 percent ownership stake along with General Partner status and continue to oversee management and leasing.

Located in the Mid-Market neighborhood, the building is home to ride-sharing service Uber and mobile payments company Square. Previously a critical data center for Bank of America, the 1976 building is now global headquarters for both of those firms that are part of the city’s tech boom driving office sales and leasing. The concrete building is a nine-story podium with 90,000 square-foot floorplates and a 14-story tower that has sweeping view of the city.

The owners plan to expand and reposition the ground-floor space to target high-end retail and restaurant users this year.

“At 1455 Market St., we’ve completed a major renovation and employed Hudson’s aggressive leasing philosophy to capitalize in the submarket’s rapidly improving fundamentals,” Victor Coleman, Hudson’s chairman & CEO, said in a release. “Our team leased up the property’s considerable vacancy to top-tier technology companies, which signed long-term leases and built out incredible workspaces. A joint venture with CPPIB unlocks a significant portion of the value created for shareholders to date, and lays a strong foundation for our firms to explore additional investment opportunities together.”

Peter Ballon, managing director and head of real estate investments Americas for CPPIB, said the professional investment management organization looks forward to expanding its West Coast office portfolio with Hudson. He noted that San Francisco is one of the best-performing office markets in the United States and a “key strategic market” for CPPIB.

“Mid-Market’s favorable supply-demand dynamics, combined with the property’s unique scale, layout and high-quality tenant mix, make 1455 Market St. an attractive long-term investment and a solid entry into the region’s office sector,” Ballon said in the release.

Based in Toronto, CPPIB invests in public and private equities, real estate, infrastructure and fixed income instruments. As of Sept. 30, the Canada Pension Plan Fund totaled C$234.4 billion, with more than $25 billion in real estate investments.

Hudson said it plans to use proceeds from the JV for a 1031 exchange to help pay for the $3.5 billion office portfolio in the San Francisco Peninsula and Silicon Valley it plans to buy this year from Blackstone Real Estate Partners V and VI. The 8.2 million-square-foot portfolio consists of 75 buildings in 26 developments throughout the region. The Los Angeles-based company, which focuses on properties in select growth markets in California and the Pacific Northwest, announced in December it had agreed to acquire the Equity Office Properties portfolio. The REIT said it planned to pay for the purchase with $1.75 billion in cash and approximately 63.5 million Hudson common shares and operating partnership units issued to Blackstone. Hudson also said it would consider selling assets or entering into joint ventures to raise the cash portion of the deal that is expected to close by the middle of this year. Once the transaction is completed, Hudson would have 53 properties totaling 14.6 million square feet, making it the dominant office REIT on the West Coast.