San Francisco Office Investment Activity Picks Up In Q2

After a slow fourth quarter and first quarter, office investment activity picked up in San Francisco and on the peninsula with several office transactions worth over $100M completed during the second quarter. This is likely to be an active year for investment sales with the Ferry Building and a partial stake in Transamerica Pyramid on the market. 

San Francisco and San Mateo counties remain attractive for investors due to high barriers to entry, low vacancy rates and limited office supply. Demand has been so high for new office product that a majority of projects are pre-leased by the time of delivery. The San Francisco downtown market and San Francisco Peninsula market have among the highest occupancy costs in the world at $113.84/SF and $103.22/SF, respectively.

Check out some of the noteworthy deals worth over $100M that occurred during the second quarter.

Oyster Point Development Site (South San Francisco)

Sales Price: $308M

Buyer: Kilroy Realty Corp.

Seller: Oyster Point Development (affiliate of Greenland USA)

Kilroy Realty is fast becoming a prominent developer in South San Francisco. Its acquisition of a 2.5M SF development site was among the largest acquisitions during the quarter and will give Kilroy a significant footprint along the peninsula. The 40-acre waterfront site is expected to be turned into 11 office and R&D buildings once the site is completed. Kilroy Realty also acquired Oyster Point Tech Center, a 146K SF laboratory and office building, for $111M in January at 345-349 Oyster Point Blvd.

123 Mission St. (San Francisco)

Sales Price: About $300M

Buyer: Northwood Investors

Seller: HNA Group

Despite initial reports that Gaw Capital Partners was in talks with HNA Group for this 345K SF office property, Northwood Investors ended up purchasing the property. HNA bought the 28-story building in 2016 for $255M. Due to increased regulatory scrutiny in China over outbound investments, HNA was expected to sell about $16B in assets during the first half of 2018.  

Clearview Business Park (San Mateo)

Sales Price: $217M ($571/SF)

Buyer: Hines

Seller: Deutsche Asset & Wealth Management

The 380K SF office park at 3000-3155 Clearview Way is leased to Tesla and GoPro and became Hines’s fourth San Mateo office property. Deutsche Asset & Wealth Management bought the then-270K SF property in 2014 for $125.5M. The company added 107K SF to the building in 2015.

101 Mission St.

Sales Price: $160M ($775/SF)

Buyer: Vanbarton Group

Seller: PGIM

Broker: HFF (for seller and arranged financing for buyer)

The property, formerly known as 100 Spear St., is a Class-A, 21-story 206K SF tower that includes ground-floor retail. At the time of sale, the building was 86% leased and tenants included Wells Fargo Bank and Forbes Media. Features include column-free interiors, a corner-block location and adjacent outdoor garden. Vanbarton will implement a leasing and value-add enhancement program that includes adding new tenant amenities, upgrades to common areas and renovating the lobby. PGIM bought the property in 2013 for $100M.  

DC Station (Daly City)

Sales Price: $114M ($300/SF)

Buyer: Harvest Properties and a Cerberus Capital Management affiliate

Seller: Deutsche Asset Wealth & Management

The sale of the 383K SF DC Station at 2028 Junipero Serra Blvd. marks one of the first office buildings to change hands in recent years in Daly City. The San Mateo County city has the lowest office inventory in the county, making this transaction a rare occurrence. The property underwent a recent lobby renovation and upgrades were done to the common areas and fitness center. A conference center was added.

1390 Market St. (San Francisco)

Sales Price: $110M

Buyer: Swift Real Estate Partners

Seller: Broadreach Capital Partners

Broker: HFF (for buyer)

Swift Real Estate Partners made its first Mid-Market acquisition through its purchase of the 220K SF office portion of 1390 Market St., which spans the first 12 floors of the 29-story building. Essex Property Trust owns the top portion, which contains multifamily units. At the time of purchase in May, the office was 89% leased. Tenants include Twitter, Arista Networks and several branch offices for the city of San Francisco. Swift plans to renovate the lobby and common areas and enhance the building’s exterior.

Burlingame Bay Office Park

Sales Price: $110M

Buyer: EverWest Real Estate Investors and Partners Group

Seller: H&Q Asia Pacific

The 262K SF two-building office park at 555-577 Airport Blvd. spans 13 acres and was 90% leased at the time of sale. Its biggest tenant is Alaska Airlines, which leases about 85K SF. The seller paid $90M for the property in 2015.