Columbia Property Trust Deal on 650 California Earns 3.6 Cap Rate

Columbia Property Trust, San Francisco, Commercial Real Estate News, Palo Alto, Tishman Speyer, EW Capital Management, Real Capital Analytics

By Jon Peterson

Atlanta-based Columbia Property Trust’s acquisition of 650 California Street in San Francisco produced a 3.6 percent cap rate. The publicly traded office REIT based this return on having a first-year in-place net operating income of approximately $11 million.

“We are expecting that the current rental rate situation in the property should enable us to increase the value of the property in the future. There are some [existing] tenants in the property that have a rental rate significantly below market. We should be able to add value to the property by either re-leasing the space to current tenants or bringing new tenants into the property,” says David Dowdney, senior vice president of the western region for Columbia.

Columbia Property Trust, San Francisco, Commercial Real Estate News, Palo Alto, Tishman Speyer, EW Capital Management, Real Capital AnalyticsHe believes that the San Francisco office market still is a very healthy one. “Rents in San Francisco continue to be on the upswing. There are no signs of a downtown. There is every reason to believe that the market still has some growth in it. One factor in this is that Prop M has made it difficult to build new office buildings in the marketplace,” said Dowdney.

Columbia paid $309 million or $645 per square foot to buy the 478,392 square foot 650 California asset. The deal included 58 percent equity and 42 percent debt. The amount of leverage on this deal is a little higher than the 32 percent leverage that Columbia has on its overall office building portfolio.

The seller of the property was a joint venture of New York City-based Tishman Speyer and Newark, N.J.-based Prudential Real Estate Investors. Both of these firms declined to comment when contacted for this story.

The sellers had owned the property since the third quarter of 2012, according to data from Real Capital Analytics. This is when they bought the property from Boston-based AEW Capital Management for $223 million or $453 per square foot.

650 California is now 88 percent leased. “This property has a long history of being able to keep its occupancy at over 90 percent. We expect this will be the case very shortly under our ownership,” said Dowdney. Floors five and nine are now empty. There is a chance that both of these floors could be leased to a single tenant. The makeup of the tenant base in the property now is 2/3 to financial service firms and 1/3 to tech companies.

Columbia will continue to be a player in the San Francisco office market. “San Francisco is one of our core markets where we want to invest capital in the future in additional office acquisitions,” said Dowdney. In April of this year it paid $228.8 million to buy the 387,943 square foot 221 Main Street building in San Francisco. The office REIT also owns 333 Market Street and three office buildings in Palo Alto.

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