By Jon Peterson
New York City-based Blackstone Real Estate Partners is planning to acquire the 720,000 square foot Market Center office building in San Francisco for around $680 per square foot or $489.6 million, according to sources familiar with the transaction. The asset has been placed under contact, but the transaction has not closed yet. It includes two office buildings located at 555 and 575 Market Street.[contextly_sidebar id=”h8NnfBNkbEQLEGzCtCvVuixKgF8GRCHp”]Blackstone declined to comment when contacted for this story.
Toronto, Canada-based Manulife Financial is the seller of the property. The listing agent on the sale is the San Francisco office of Eastdil Secured. The current owner had put the asset up for sale in February of this year. The life insurance company had been asking $750 per square foot. Should this transaction close, it would become an example of office buildings being sold at prices below the asking price as the office building sales market in San Francisco cools off a little bit, according to industry sources.
Maunlife will still earn a significant gain on the sale of the property should the sale with Blackstone come to a closed transaction. The seller had bought the property in September of 2010 for $265 million or $344 per square foot, as stated by sources that track the sale of office buildings in San Francisco. Manulife had bought the property from New York City-based RREEF, which has since changed its new to Deutsche Asset Management’s Alternatives and Real Assets.
Market Center had an occupancy level of 92 percent when the property was put up for sale. Two of its main tenants at that time were Uber and DivcoWest Properties.
When Blackstone closes on the transaction with Market Center, it will move the asset into its commingled fund, Blackstone Real Estate Partners VIII. This is an opportunity fund where the real estate had a total equity raised of $15.8 billion. This capital raise was completed in October of last year. Two of its investors are situated in the greater San Francisco Bay Area. Both the San Francisco Employees Retirement System and California State Teachers Retirement System had made $150 million commitments into the commingled fund.
Blackstone Partners VIII is considered a global investment fund. Two of its targeted areas are the United States and Europe. It will look at individual transactions and portfolio deals on both the equity and debt side. The targeted returns for the commingled fund are a 20 percent gross levered IRR. The planned leverage on the fund is between 60 percent to 65 percent.