If there was ever any uncertainty that interest for Bay Area assets from Asian investors may be subsiding, the recent sale of 123 Mission Street, a 28-story office building consisting of approximately 346,000 rentable square feet, should put those considerations to rest. The seller, an investment holding company and a wholly-owned subsidiary of Pacific Eagle Real Estate Fund, L.P., sold the building at a premium of over 40 percent in roughly one year in which it owned it (Pacific Eagle purchased the building for $180MM, or nearly $521 per square foot, at the end of June of 2015, according to public documents). The buyer is a subsidiary of HNA Ecological Technology Group Co., Ltd. which is principally engaged in the high-tech industry and has set up operation and R&D institutions in China and the U.S., and it paid $255 million, or nearly $737 per square foot.
In an official announcement issued on June 22nd to the Hong Kong Stock Exchange, the seller stated that the reason for the sale was primarily due to the prices of office buildings in San Francisco, which have appreciated rapidly over the past year, and the General Partner and Asset Manager believed that it was appropriate to dispose of the property, which allows the U.S. Real Estate Fund to take advantage of the favorable market conditions.
Pacific Eagle had valued the building at the end of 2015 at $225 million, so the sales price for the seller represented a 13 percent premium over the appraised value of the asset.
HNA is acquiring a building with the audited total rental income of just over $14 million, in a building that is approximately 95 percent occupied by a total of 14 tenants, including McKesson and Salesforce.
123 Mission Street was designed by renowned architect Skidmore, Owings and Merrill and developed by Shorenstein Company in 1986, according to Pacific Eagle. The building is constructed of steel and concrete, enveloped with travertine, marble and glass and is crowned with a pyramid-shaped roof. The Gensler designed lobby was renovated in 2009 and features a spectacular glass wall that is lit with LED lights.
123 Mission is in the South Financial District neighborhood of San Francisco near the Market & Embarcadero intersection, where a slew of activity had occurred in 2015. Aside from the Pacific Eagle purchase in June of 2015 of 123 Mission, Tishman Speyer had sold 160 Spear Street just a month earlier for $197 million, or approximately $670 per square foot. Earlier this year Fitbit announced that it was leasing 306,000 square feet at 215 Fremont Street. This submarket boasts vacancy of approximately 4.3 percent, according to a recent, second quarter San Francisco Research & Forecast Report from Colliers International.