TMG, Alcion Buy Beer Brewery At Half Replacement Cost
By Jon Peterson and Sharon Simonson
San Francisco-based TMG Partners and its capital source, Alcion Ventures, have received six letters of intent from existing tenants looking to expand and other tenants looking for a toehold at 1550 Bryant St., the former beer brewery building that the two acquired a week and a day ago.
The Boston-based opportunity fund manager and TMG paid $36 million, or $197 a square foot, to purchase The Hamm’s Building, according to brokerage and real estate financial services company Jones Lang LaSalle. That is half or less than half of the asset’s replacement cost, JLL said.
The investors plan a $15 million, 18-month indoor improvement program, which should begin immediately, said Adam Chall, the TMG Partner who spearheaded the purchase. He expects to select an architect for that work right away. “Historically, when people converted industrial buildings in the 20th century, they tried to hide that the building was industrial, and they built around the old industrial character,” Chall said. “We want to bring that back.”
The building is notable for its chunky appearance and 12-story tower, the upper floors of which afford panoramic views of the Bay Area, he said. The building’s largest footprint, on the bottom floor, is 26,000 square feet; its smallest is 3,000 square feet in the penthouse at the top of the tower.
Thirty percent to 40 percent of the building’s leases expire in the next several years, and all of the tenants in the building now have below market-rate rents, Chall said. The new owners don’t expect to lose any current tenants. The 183,000 square-foot building was 85 percent leased at closing.
Alcion made the investment for its Alcion Real Estate Fund II, a closed-end commingled fund with an opportunistic investment strategy begun with $497 million in equity raised in early 2010.
Investors in the fund are projected to achieve a 20 percent internal rate of return before fees, according to documents from the Arizona Public Safety Retirement System, a public pension fund that has committed $25 million to Alcion Real Estate Fund II.
The investment period for the fund runs until the middle of 2013. The manager expects to put 65 percent leverage on the fund on a portfolio basis.
The Bryant Street property is the second for the Alcion fund in the San Francisco Bay Area this year. In February it paid around $60 a square foot to buy the 234,000 square foot Legacy Bayside Business Park in Fremont, also with TMG.
Mark Potter, a founding partner with Alcion, said his company is now looking to buy other properties in the Bay Area, including apartments, retail and office buildings. It is mainly interested in San Francisco and the Silicon Valley and is considering new development “or a repositioning where we would look to improve the overall quality of the complex,” Potter said. “We have been looking at some apartment deals in San Francisco” already.
The Hamm’s Building is situated in what TMG identifies as the “SoMa Social Media Triangle” submarket, which is characterized by the industrial quality of the building stock, including the ever-popular brick-and-timber construction and concrete buildings with high ceilings. Though the geography is outside the area that most people identify as SoMa proper—though what constitutes SoMa itself depends on who is doing the defining—the nature of the tenant base and the quality of the neighborhood is indistinguishable from SoMa, Chall said.