Boston Properties Plans to Start San Francisco Office Tower Without Tenant

San Francisco real estate investment

By Jon Peterson

Boston-based office landlord Boston Properties Inc. intends to break ground in mid-February on an estimated $215 million office tower in the South of Market district of San Francisco with or without a signed lease.

San Francisco real estate investment“We like that the site is located in the South Financial office-building submarket where there is a lot of activity from a tenant-demand perspective,” said Michael Walsh, Boston’s senior vice president of finance.

“We see activity both with technology tenants and the more traditional office tenants like financial services, law and accounting firms. It’s our view and the view in brokerage reports that the office market in San Francisco has not peaked and will continue to show improvement for some time.”

Boston paid $71 million in cash to buy the development site at 535 Mission St., which was owned by Boston-based Beacon Capital Partners. Beacon declined to comment for this story.

Beacon owned the site for its private real estate fund, Beacon Capital Strategic Partners IV. The fund manager raised just over $2 billion in equity for the commingled fund, ending in 2006, according to its Web site. One of its largest investors with a $350 million commitment was the California State Teachers’ Retirement System.

Boston Properties plans to finish construction on 535 Mission by fall 2014. The 27-story property will total 307,000 square feet and is expected to achieve LEED Gold designation. There will be a retail component, but the size and type have not been determined.

The company is prepared to manage a multitenant building as well as a single-tenant property, Walsh said. “I think that our project is more likely to attract the more established and mature technology tenants than some firms that are still getting their feet wet,” he said, citing in example Inc., Google Inc. and Microsoft Corp. Any special amenities would not be added until the REIT knows its tenants and their needs.

Boston Properties, which owns the city’s 3.3 million-square-foot Embarcadero Center, has undertaken a campaign to increase its exposure to the San Francisco office market, its second smallest representing less than 10 percent of net operating income last year. In October, the company entered a 50-50 joint venture with an affiliate of the Hines company to develop the more than $1 billion, 61-story, 1.4-million square-foot Transbay Tower; 535 Mission would be across the street.

Also last year, Boston bought 680 Folsom St., an ongoing, two-building redevelopment with an anticipated 522,000 square feet, which is 85 percent leased to and Riverbed Technologies Inc. With an estimated total investment of $340 million, the Folsom Street project is the second largest in the company’s 2.48 million square foot office-construction pipeline, after a more than $1 billion project in New York City.

Indeed, the publicly traded real estate investment trust is so confident in the strength of its four major office markets—San Francisco, New York City, Boston and Washington, D.C.—that it is building speculative projects in each totaling more than $2 billion of value, Walsh said.

The company hasn’t decided how much debt to place on the project at 535 Mission. The development is being funded with its own capital or a line of credit that it has with several banking institutions.

West Coast Commercial Real Estate News