Kilroy Delivers 2 San Francisco Office Projects, Nabs L.A. Office Tenants
- Apr 28, 2016
San Francisco—From San Francisco to Los Angeles, Kilroy Realty Corp. has been busy finishing up office buildings, acquiring land for a new project and leasing up office space in a major Hollywood mixed-use development.
“For several years now, West Coast commercial real estate markets have been among the strongest performers in the nation and our recent experience suggests that well-located, high-quality contemporary office space remains in high demand,” John Kilroy, KRC’s chairman, president & CEO, said in a prepared statement.
Kilroy said the Los Angeles-based REIT has delivered two fully leased office projects in San Francisco’s South of Market Street neighborhood that cost a total of $381 million to develop. The company’s 350 Mission St., a 30-story glass and office tower leased to Salesforce.com, has already been granted LEED Platinum certification. The 450,000-square-foot building was designed by Skidmore, Owings & Merrill and is the first high-rise LEED Platinum ground-up development constructed in San Francisco. Located directly across from the city’s new Transbay Transit Center, the office development has been under construction since April 2013.
Another technology company, cloud storage firm Dropbox Inc., is the tenant at KRC’s second recently completed SoMa office project – 333 Brannan St. Dropbox announced in February 2014 that it was leasing the entire 6-story brick and concrete building.
“Together these projects represented a total investment of $381 million at an average stabilized cash return on cost of approximately 8 percent,” Kilroy told analysts Thursday during a conference call to discuss first quarter 2016 earnings according to a transcript on www.seekingalpha.com. “At current market cap rates we estimate that these two projects would be valued at double our investment.”
Kilroy said the company is seeking a single tenant for its 700,000-square-foot office campus called Exchange on 16th that is under construction in the Mission Bay neighborhood and scheduled for completion next year. He also said the REIT is prepared to offer the space to multiple tenants if a single tenant was not available.
He noted the company made “a key strategic addition” to its Flower Mart development project by acquiring a land parcel that is immediately adjacent to the acreage it had already assembled.
“The new land site with its key corner location gives the overall development inside greater market presence, expands the project’s design possibilities and enhances its overall value potential,” Kilroy said, according to the Seeking Alpha transcript. He noted that the new land was purchased for $31 million in cash and about 870,000 operating partnership units.
KRC has been assembling parcels at the site on Brannan Street between 5th and 6th Streets that include a wholesale flower market since 2014. It plans to develop a 2.1 million-square-foot mixed- use project that will keep the flower market and add creative office space and market hall-style retail surrounded by a public plaza.
Heading down the coast to Los Angeles, KRC has signed letters of intent for an additional 83,000 square feet at its $461 million mixed-used Columbia Square development, increasing the committed portion of the office space to 80 percent. The LEED Gold development is being built in three phases and will total 685,000 square feet of office, retail and residential space along with a 5-level underground parking garage. Phase 1, completed in 2015, consists of the redevelopment of the original Columbia Broadcasting System (CBS) radio and business buildings and encompasses 110,000 square feet in two buildings that are fully leased by NeueHouse, a private workspace collective.
KRC completed Phase 2, the new office space, in the first quarter of the years and has signed leases for 83,000 square feet. Viacom and Fender Music had previously agreed to take about 215,000 square feet and are expected to move in later this year. The office space is now 85 percent leased or committed, KRC said in a news release.
Phase 3 will be a residential tower with 200 furnished and unfurnished units.
As of March 31, KRC’s stabilized portfolio totaled 13.7 million square feet of office properties, all located in the coastal regions of greater Seattle, the San Francisco Bay area, Los Angeles, Orange County and San Diego. The company also had approximately 905,000 square feet of office and residential properties under construction with a total estimated investment of about $645 million.
333 Brannan St. image courtesy of CBRE, John Kilroy Caption via Youtube