By Jon Peterson
New York City-based Clarion Partners has been selected as the buyer of 1999 Harrison Street in downtown Oakland. The purchased price is $224,750,000, or nearly $468 per square foot (based on estimated size of building at 480,328 square feet), according to public documents.
Clarion declined to comment when contacted for this story. The real estate manager as a company policy does not comment on transactions until a closing has occurred. The investor stated this fact in an e-mail.
The seller of the property was San Francisco-based DivcoWest Properties. It chose not to comment when contacted for this article.
Since DivcoWest has owned the property, the real estate manager has transformed the asset from a value-add opportunity to a core asset. The real estate manager had bought the property for its DivcoWest Fund IV in February of 2104 for $275 per square foot or around $134.75 million. At that time the property was 82 percent occupied. It’s now considered to be a nearly fully occupied asset.
The sale seems to fit the DivcoWest investment strategy. The real estate manager does have an investment history of buying value-add properties, making improvements to them and selling the finished product to core buyers.
It would appear that the pricing on 1999 Harrison is attractive on a replacement costs basis. According to sources that track the office building market in Oakland, the replacement cost for office buildings in Oakland is $600 per square foot, so at $468 per square foot the purchase price seems advantageous.
The property is located in the ever tightening class A office market of downtown Oakland. According to data from Colliers International, the downtown Oakland office market had a vacancy of 2 percent for the first quarter of this year. This was down from 2.9 percent at the end of 2015. This sub-market has a total of 30 buildings equalling approximately 10.2 million square feet.
Clarion has plenty of capital sources that it could use to acquire 1999 Harrison. One of these would be its large core open-ended commingled fund, The Clarion Lion Property Fund, which buys core assets on a nationwide basis. The real estate manager also could invest for its separate account pension fund clients. It represents major institutional capital sources like the California State Teachers Retirement System and the Oregon Public Employees Retirement Fund.
Clarion and Oregon PERF did complete a deal late last year in the San Francisco Bay Area. This was the purchase of the 450,000 square foot first phase of 3333 Scott Boulevard in Santa Clara for $299.2 million.