By Jon Peterson
The current owner of the ground lease property located by San Francisco’s Embarcadero at 900 Front Street has put the office building up for sale. The potential pricing could be in the neighborhood of $65 million, or around $472 per square foot, according to sources that are aware of the property being sold.
The seller of the property is Gerson Baker and Associates, a San Francisco-based firm that had recently reached an agreement to sell the Levi’s Plaza office building in San Francisco, located in the neighborhood, to Atlanta-based Jamestown for around $820 million.
The listing agent on the 900 Front sale is the San Francisco office of CBRE. The main people working on the disposition are Russell Ingrum, vice chairman, and Kyle Kovac and Michael Taquino, both executive vice presidents. CBRE declined to comment when contacted for this story.
The potential sales price on the 137,843 square foot property would come in at around $472 per square foot, a price that is low for Class A office buildings in San Francisco at this time. The main reason for this pricing is that the sale is a ground lease, which would likely reduce the level of buyer interest in the property. The expectation is that the buyer could be either an institutional or private capital investor. The first round of offers for the property are expected to come toward the end of July.
The office building is now 100 percent leased to KGO Television, an ABC-owned and operated station. This tenant has been in the property since 1979. Every five years, KGO Television is subject to rental adjustments that are equal to 75 percent of fair market rent with an option to cancel. The rent adjustment has already been agreed upon for the five-year period beginning in July of 2020.
The current lease with KGO means that there are almost no capital expenditures, tenant improvements or leasing costs expected to be incurred by the new owner in the future. The tenant is fully responsible for capital and operating expenses per the triple-net terms of the lease.
The ground lease on the property is held by the San Francisco Port Commission. This lease lasts until December 1, 2039. The ground rent has historically been 8 percent of the appraised land value and is reset every ten years with the next adjustment anticipated to occur in July 2020.
900 Front is located within the Jackson Square / North Waterfront sub office market in San Francisco. The Class A vacancy in this region is 2.2 percent. Asking rents for Class A assets in the submarket have increased by more than 15 percent in the past year and now stand at $80 per square foot.