Office Properties in San Francisco Sell for Over $700M
- Sep 11, 2014
San Francisco’s office investment market continues to sizzle as two high-profile sales in the city worth over $700 million closed and an East Bay office campus changed hands for nearly $50 million.
In the largest of the three transactions, New York-based Paramount Group Inc., purchased 50 Beale St. from a joint venture of Rockefeller Group U.S. Premier Office Fund L.P. and Mitsubishi Estate New York for $395 million, or $596 per square foot. The JV had owned the Class A, 23-story, 662,060-square-foot office building at the intersection of Beale and Mission streets for about two years. Built in 1968, the building is 90 percent occupied with tenants including Bechtel Corp., which developed the property and still has its headquarters there. It is located next to 350 Mission St., a new tower under construction that has been fully leased by Salesforce.com, and one block from the Transbay Transit Center, a $4.5 billion transit hub that will see its initial phase completed by 2017.
“This building, which is located in one of the most desirable neighborhoods in the heart of San Francisco undergoing immense redevelopment, is the type of iconic asset where we believe we can utilize our operational expertise to attract and retain a premium tenant base and enhance cash flow over time,” Albert Behler, Paramount president & CEO, said in a news release.
Dennis Irvin, president & CEO of Rockefeller Group Investment Management, a subsidiary of The Rockefeller Group, noted in a separate release that the sale “presented an opportunity to realize gains ahead of plan driven by the strength of the recovery in San Francisco and the solid performance of both 50 Beale Street and the whole South of Market submarket.”
Paramount, a privately held real estate investment and management firm with assets in midtown Manhattan, and Washington, D.C., also owns One Market Plaza in San Francisco.
The firm was represented by Wilkie Farr & Gallagher L.L.P. on the acquisition of 50 Beale St.
In a separate transaction, Columbia Property Trust paid $309 million for 650 California St., a 33-story, 478,392-square-foot, Class A office tower that had been owned for just over two years by a joint venture of Tishman Speyer and Prudential Real Estate Investors. The purchase price includes Columbia’s assumption of a $130 million loan bearing interest at 3.60 percent and maturing July 2019. The $179 million cash portion was funded with borrowings from an unsecured credit facility and cash on hand.
The Atlanta-based REIT said the LEED Gold-certified property underwent $14.2 million in renovations over the past two years. The previous owners added a parking garage, upgraded the lobby, and built new conference rooms and a fitness center. Located in the Financial District, the building was completed in 1964 and has views of San Francisco Bay.
In April, Columbia bought 221 Main St., a 387,943-square-foot, Class A office building, from Beacon Capital Partners for $228.8 million, or $590 per square foot. Colliers International listed it as one of the significant sales of the second quarter in its San Francisco Research & Forecast Report.
“We have established a significant presence in downtown San Francisco – a market that continues to be one of the best in the U.S., and we continue to achieve strong leasing results at our nearby asset, 221 Main Street,” Nelson Mills, Columbia president & CEO, said in a release. “650 California Street is a compelling opportunity to acquire one of the premier assets in this market at a discount to replacement cost. With more than half the current tenancy rolling in the next three years and in-place rents significantly below current market levels, we expect to employ the expertise of our expanded local team to increase net operating income at this property over the next three years.”
Columbia’s Western Region team, led by David Dowdney, senior vice president – Western Region, will oversee asset management and leasing. Columbia recently expanded its San Francisco-based team, adding Michael Schmidt, who has over 13 years of portfolio and asset management experience in major West Coast markets.
The nearby East Bay submarket of Walnut Creek also saw an office property transaction. Rialto Capital of Miami and The Koll Co. acquired Walnut Creek Executive Park, a 423,458-square-foot office campus, for $48.6 million from an unidentified institutional global investment manager. Koll acted as Rialto’s advisor and partner and will also be the investment and property manager. JP Morgan provided competitive floating-rate debt for the purchase
JLL’s Capital Markets team led by managing directors Michel Seifer and Rob Hielscher and Vice President Aaron Heter represented the sellers while managing director John Manning and Senior Vice President Alex Witt arranged the financing for the buyer.
Rialto bought the asset through its $1.3 billion Rialto Real Estate Fund II.
“We like assets with solid track records in secondary markets like Walnut Creek’s improving Shadelands submarket that are bolstered by strong regional economic engines like San Francisco. Walnut Creek Executive Park fits into the strategy of our second fund perfectly,” Mike Farley, director of Rialto, said in a release.
Herter credited the “attractive capital markets environment in the Bay Area” for the successful disposition for the seller.
“At the same time, Rialto and Koll were able to acquire a critical mass of office product in a tightening market at a significant discount to replacement cost,” Herter said in the Rialto release. “The high volume of long-standing credit tenants on the campus, combined with near-term upside potential via the lease-up of vacant space, led to a very competitive bidding process.”
Sales of office properties are on pace to surpass $5 billion this year with close to 50 transactions expected to close by the end of 2014, according to the Colliers report. There were 11 office deals in the second quarter that closed for a combined value of over $1.8 billion. For the first half of the year, 22 deals worth a total of $2.25 billion closed.
“Investment sales volume for the first six months of the year has already surpassed the total 2013 sales volume of $2.38 billion,” Colliers noted. The firm cited “robust leasing volume, impressive employment growth, continued low interest rates, and an abundance of capital in the market, including several aggressive foreign investors” as reasons why the office investment market is so strong this year.