$100MM Nets Prudential Less than 4 Percent at 100 Spear St.

San Francisco skyline The Registry real estate

By Jon Peterson

Prudential Real Estate Investors accepted an initial yield of less than 4 percent on its $100 million purchase of the 100 Spear Street office building in downtown San Francisco, based on the property’s current net operating income. The buyer paid all cash.

The length of time that the seller had owned the property and what had been accomplished in improving the asset over the last several years were major factors in the decision by New York City-based Clarion Partners LLC to sell the 203,260-square-foot building, said Mark Weld, a Clarion managing director in its Boston regional office.

“This building was owned by one of our institutional clients on a separate account basis. They had purchased the property in the late 1980s. Clarion first got involved in the asset four or five years ago. We felt that it was time to move the asset out of the portfolio. Had our client only owned the asset as long as we had been involved in it, the decision to sell might have been different,” Weld said.

Clarion is a real estate investment manager headquartered in New York. It has more than $27 billion in assets under management and more than 200 domestic and international institutional investors.

Prudential Real Estate Investors is the real estate investment management business of Prudential Financial Inc. The Newark, N.J., company is one of the largest financial services company in the world with more than $1 trillion in assets under management at the end of last year.

It was Clarion’s decision to sell the property as real estate manager has full investment discretion with this client. Weld would not name the institutional investor.

Clarion improved the property’s performance. “When we got into the management on our client’s behalf, the building was only 62 or 63 percent occupied. Since then we put in multi-million dollars’ worth of improvements and moved the occupancy up to 91 percent when we sold it,” Weld said.

The property is now leased to 41 tenants. Wells Fargo & Co. has a retail operation in the building. Another tenant is real estate services firm Kidder Mathews. Some firms in the building service technology companies.

Clarion sold the property to Prudential Real Estate Investors. This was an all-cash deal with no debt involved. Feld thinks that the buyer used core capital to acquire the property. “This property is a core asset. I do think there is some room to add value with leasing up the additional empty space at very strong rental rates given to what has happened in the San Francisco office market over the past few years,” he said.

Clarion is by no means done with investing in office buildings in San Francisco. “We still view San Francisco as one of the most attractive office markets in the country. We would like to purchase more assets there in the future,” says Weld.

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