By Jon Peterson
Atlanta-based Columbia Property Trust has paid $228.8 million or $589 per square foot to acquire the 387,943 square foot office building at 221 Main Street in San Francisco.
“I would say that this investment is a core plus to value-added kind of real estate investment. This is mainly due to the occupancy and where the rents are in the complex now compared to market rents,” says Tripp Sullivan, a company spokesperson for Columbia.
The property is now 81 percent occupied. The existing rents in the property are now in the mid $30s per square foot. This compares to the existing rents in the South Financial District sub-market in San Francisco being in the range of high $50s to low $60s per square foot.
The cap rate on the acquisition came in at 3.1 percent. This return is based on the buyer’s expectation that the first-year in place net operating income being approximately $7 million. Columbia is planning on increasing the cap rate substantially over the next several years by bringing the rents up to the market level.
The property was sold by Boston-based Beacon Capital Partners. The real estate investment firm declined to comment when contacted for this story. It had sold the asset through its listing agent, Eastdil Secured.
Beacon had acquired the property for its commingled fund, Beacon Capital Strategic Partners VI. This investment entity was formed in 2010. The real estate fund manager raised $2.5 billion for the fund from a variety of institutional investors around the country. One of the investors with a $200 million commitment was the Pennsylvania Public School Employees’ Retirement System.
The investment fund had a value-added investment strategy with office buildings. The targeted returns for the commingled fund were an 18 percent to 20 percent gross IRR. It had nine targeted markets. One was San Francisco and the others were Boston, Los Angeles, New York, Seattle, Washington, D.C., Paris, London and Luxemburg.
Beacon had made an investment in one other Bay Area asset, according to its Web site. This was the 720,000 square foot Santa Clara Campus property in Santa Clara.
Columbia does consider San Francisco one of its targeted markets. “This is an area the company would like to buy more assets in the future,” said Sullivan. Its other targeted markets for investment are Washington, D.C., New York, Houston and possibly Boston.
The publicly traded office REIT owns four other buildings in the San Francisco Bay Area. These are 1900, 1950 and 2000 University Circle in East Palo Alto and 333 Market Street in downtown San Francisco.
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