By Jon Peterson
The sale of the 1155 Market Street office building in San Francisco could be sold for somewhere in the range of $700 per square foot or $72.5 million, according to sources who are familiar with the details of the property.[contextly_sidebar id=”9ySoKfxVt4QzfIQA09uCH6bJ60sglEDX”]The sale of this property is under a unique set of circumstances; only floors 1-8, a total 103,613 square feet, is for sale. The remaining floors, 9 through 11, were acquired by the San Francisco office of the Lighthouse of the Blind and Visually Impaired, which will be relocating into this space later this year.
San Francisco-based Patson Companies had paid $72.6 million or $518 per square foot to buy the entire property in June of last year. “We felt that now was a good time to sell the asset as values on many office buildings have risen significantly since we bought the property. I think that there is a lot of capital that is looking to buy office buildings in our market,” said David Harrison, co-founder of Patson Companies.
The cap rate on the sale is projected to be lower this time around. Patson had earned a sub 6 cap rate when it acquired the property last year. “I would think that the cap rate on the sale would be in the low five percent range. This return would be based on the property’s current net operating income,” says David Terzolo, a senior vice president with CBRE in its San Francisco office. This company is handling the sale for Patson. Another person involved in the sale is Josh Peterson, vice president.
1155 Market is now a 100 percent occupied property. The tenant in the space that is up for sale is the City and County of San Francisco, and its lease runs through January of 2023. This kind of asset would seem to attract core buyers that are looking for years of stable and secure cash flow. The one year projected net operating income for the property is $3.76 million.
There has been over $14 million spent on a renovation of the asset in the past three years. One part of this was new tenant improvements built by The City of San Francisco with its lease that was signed in 2013. Some of the other work included a fully renovated entryway and main lobby and upgraded restrooms and elevator lobbies on all floors.
The property is located in the Mid-Market sub-market in San Francisco. This submarket has a direct vacancy rate of 1.43 percent, which puts it among the lowest of any sub market in San Francisco, according to sources that track this information. Tenant demand is very strong in the city. There are over 150 active tenants seeking over 4.5 million square feet of office space.