Hudson Pacific Boosts San Francisco Portfolio by 1.6 MSF

Since it entered the commercial real estate market as a REIT in June, Hudson Pacific Properties Inc. has had its eye on San Francisco. The company has just snapped up a pair of office properties in the area.

December 17, 2010
By Barbra Murray, Contributing Editor

Since it entered the commercial real estate market as a REIT in June, Hudson Pacific Properties Inc. has had its eye on San Francisco and the company just snapped up two more properties in the area to add a total of approximately 1.6 million square feet of office space to its portfolio. The transactions, together valued at $239.3 million, involve $133.3 million in cash and $106 million in debt.

“We think the City of San Francisco, in terms of leasing and pricing, is as good as any office market,” Victor J. Coleman, CEO of Hudson Pacific, told CPE. “That stems from technology companies moving into the city because of its amenities and transportation; it increased our interest in San Francisco moving forward.”

The new REIT just closed on the free and clear purchase of the 1 million square-foot office tower at 1455 Market Street in the Civic Center area from Bank of America and Strada Investment Group in a $93 million transaction. “There is a strong relationship between us and Bank of America and we’ve been negotiating this acquisition for six months,” Coleman said. The deal was accompanied by a leaseback agreement with Bank of America, which presently occupies 836,000 square feet in the 22-story building. The Bank has called 1455 Market Street home since having the building erected specifically for its use in 1977. Along with the Army Corps of Engineers’ occupancy of 90,000 square feet and tenants in the retail space, the property is 92 percent leased.

Hudson Pacific also acquired a 51 percent stake in One and Two Rincon Center, a two-building office development totaling 581,000 square feet within the South Financial District’s Rincon Center mixed-use complex. One and Two Rincon, six-stories and five-stories respectively, encompass a total of 482,000 square feet of office space and 99,000 square feet of retail space. Hudson Pacific paid an affiliate of Beacon Capital Partners Inc. $40.3 million for the 21-year-old buildings and assumed $106 million in existing debt as well; the project loan comes with an interest rate of 6.08 percent and is due to mature in July 2011. As per terms of the off-market transaction, Hudson Pacific will own the two towers in a joint venture with Beacon, and in a put/call arrangement, Hudson Pacific will buy the remaining interest in the buildings in approximately six months. Together, One and Two Rincon have an average vacancy rate of approximately 85 percent and, according to Coleman, the company has “good activity on the remaining space.”

Hudson Pacific is not done mining San Francisco for opportunities, but the company won’t exactly be looking at marketing brochures. “We think there’s going to be a lot of assets out there in terms of off-market relationship deals,” according to Coleman. “We’ve been in conversations with principals on a number of assets.” In addition to its new purchases, the REIT’s San Francisco assets include the 286,000 square-foot office property at 875 Howard Street and the 144,000 square-foot two-structure office complex at 222 Kearny Street, which the company acquired for $34.9 million in October. With the closing of the second half of the One and Two Rincon deal next year, Hudson Pacific’s San Francisco office portfolio will encompass just over 2 million square feet.