Canadian Pension Fund Moves into San Francisco Office Market with Hudson Pacific Venture

By Jon Peterson

Toronto-based Canada Pension Plan Investment Board has moved into the San Francisco office market for the first time by investing $219.2 million, or $476 per square foot, to acquire a 45 percent interest in the roughly one million square-foot 1455 Market Street property.

This partial sale will produce a very large profit for Los Angeles-based Hudson Pacific Properties. The publicly-traded REIT paid $93 million or $90 per square foot to buy a 100 percent interest in the property in 2010.

CPPIB liked the price point at which it was able to get into the property. “This asset is located in the Mid-Market sub-market of San Francisco. This part of the city is not fully priced yet in comparison to some other sub-markets in the city like the Trans Bay area. We feel that there is going to be some additional value that can be created for 1455 Market in the future,” says Peter Ballon, managing director and head of real estate investments Americas for CPPIB.

CPPIB wants to focus its additional investments in office building assets in the San Francisco Bay Area only in downtown San Francisco. “We believe that the downtown market is showing very strong operating fundamentals. This strategy also follows our national investment strategy for office buildings, which is to focus on supply constrained CBD (Central Business District) urban markets in the best performing cities in the United States,” said Ballon.

CPPIB is counting on growing its relationship with Hudson Pacific in the future, as well. “Our goal with all of our partners is to expand our investments with them going forward. This will certainly be the case with Hudson Pacific. We see them as a very strong company and hope to grow the portfolio with them down the road,” said Ballon.

1455 Market is now 99 percent occupied. Some of the major tenants in the property include Square, Uber and the Army Corps of Engineers. The property was first developed in 1976 and has been renovated since then. It was a former data center location for Bank of America.

CPPIB is a major owner of office buildings around the country. Its office building portfolio is valued at around $2.5 billion in Canadian dollars. The pension fund has a total equity real estate portfolio in the United States valued at $10 billion in Canadian dollars.

Hudson Pacific made major headlines a month ago when it paid $3.5 billion to acquire 26 buildings and 40 acres of land in Silicon Valley and on the San Francisco Peninsula.

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