DivcoWest Grabs 170 KSF Class A Building in San Francisco

DivcoWest continues its office property-shopping spree, picking up the 170,200-square-foot building at 701 Gateway Blvd. in South San Francisco. The real estate investment and management firm purchased the Class A property from Broadway Partners.

By Barbra Murray, Contributing Editor

Acting on behalf of DivcoWest Fund III, DivcoWest continues its office property-shopping spree, picking up the 170,200-square-foot building at 701 Gateway Blvd. in South San Francisco. The real estate investment and management firm purchased the Class A property from Broadway Partners in what the company describes as a discounted loan payoff in a partnership with Broadway.

Both DivcoWest and Broadway are remaining mum on the price tag attached to the transaction; however, the last time 701 Gateway changed hands was in 2007, when Broadway acquired the six-story tower from investment firm Consolidated Farms for $66 million.

Today, the 13-year-old building, developed by Hines and Morgan Stanley Real Estate Funds, is predominantly leased to healthcare- and technology-related tenants, including San Mateo Health and pharmaceutical knowledge provider First Databank. With an occupancy level of 80 percent, 701 Gateway has a significant amount of vacant space, but the current office climate in the area may help pave the way to a fuller tenant roster.

While South San Francisco closed 2011 with a 20.2 percent vacancy rate, according to a report by commercial real estate services firm Grubb & Ellis Co., the greater San Francisco Peninsula continues to improve with the help of tech companies, large and small. Big-ticket deals like Sony Computer Entertainment’s 450,000-square-foot commitment at the former Seibel headquarters in San Mateo, Facebook’s relocation to Sun Microsystems former home in Menlo Park and YouTube’s doubling of its space in San Bruno, have attracted the attention of less prominent tech industry businesses. “As a result of these hefty leases and the ‘cluster effect’ that most technology firms tend to follow, it is not surprising that activity has also picked up in the 10,000 square foot range,” Grubb reported. “Smaller companies naturally want to position themselves next to these tech giants.”

The 701 Gateway transaction, which was brought to DivcoWest’s table by Premia Capital, marks one in a series of Class A office purchases the real estate company has made on behalf of Fund III in the last few months. In March, the company bought the 261,000-square-foot Caribbean Corporate Center in California’s Silicon Valley for $71 million, and shelled out $79 million for The Davenport, a 220,000-square-foot property in Cambridge, Mass. And in February, the company acquired Prominent Pointe I & II, a 261,200-square-foot office project in Austin, Tex., for a reported $53 million.

DivcoWest’s buying binge is likely to continue.  When leveraged, Fund III, which closed in December 2011 with commitments totaling $871 million, provides $2 billion for investment activity.