By Jon Peterson
New York City-based Blackstone Real Estate Partners has paid $600 million or $750 per square foot to buy a 49 percent interest into the 1.6 million square foot One Market Plaza office building in San Francisco, according to sources familiar with the transaction. The iconic San Francisco address has been home to such tenants as Salesforce, Autodesk and Visa.[contextly_sidebar id=”d3c3d6476c53538e5865dab744c90b94″]Blackstone acquired the property from New York City-based Morgan Stanley Real Estate, who had previously owned 49 percent interest. The other 51 percent stake in the property remains in control by New York City-based The Paramount Group. These two companies did not respond to phone calls seeking comment for this story.
There is a feeling in the brokerage community that the price for this asset could have been higher. “There is no doubt that the price would have well exceeded $750 a square foot and might have reached $800 per square foot had the property been publicly marketed for sale instead of being an off-market deal and had the 100 percent interest in the property been offered,” says Erik Hanson, a vice president with Colliers International in its San Francisco office.
He sees this property as a top asset in the San Francisco market. “I think this is a top five office building in the San Francisco market. Some of the reasons for this are its location and the views that it has of the San Francisco Bay and Market Street,” said Hanson.
Blackstone has made this acquisition as part of its new core plus investment strategy around the globe, according to sources familiar with Blackstone. The real estate manager has now invested over $2 billion in this strategy since it started this strategy at the beginning of 2014.
Blackstone in the past was known as a manager of close-ended commingled funds that were only investing in opportunistic real estate.
The other core plus investments included a $513 million purchase of an office building in London and a $968 million investment into a shopping center company on the East Coast, EDENS Investment Trust based in Columbia, South Carolina.
The long range plan for these assets is to have Blackstone close on these deals first and then sell of interests in these investments to pension funds or other institutional investors. Blackstone has not done this yet to One Market Plaza.
Blackstone has sold off interests in the London property and its stake in EDENS to investors like the Virginia Retirement System and the State of Wisconsin Investment Board.
For the acquisition of new properties, Blackstone for now is only looking to do this with office buildings. The real estate manager is searching for investment opportunities in the major markets in the US. These would include places like San Francisco, New York City and Washington, D.C.
Blackstone will only be investing in existing assets for its core plus strategy. The transactions would be to buy an existing property that is producing strong cash flow. The real estate manager would look to add value in the future by a new leasing strategy or have the capability to expand the property.