By Jon Peterson
Hartford, Connecticut-based Cornerstone Real Estate Advisers has bought the 240,134 square foot 33 New Montgomery office building in San Francisco for $148.9 million or $620 per square foot, according to sources familiar with the transaction.
“Cornerstone Real Estate Advisers has long been active in the Bay Area, and the city of San Francisco in particular. 33 New Montgomery was appealing due to its excellent location, straddling the North Financial District and the South Financial District, with excellent access to BART, the Ferry Building and the future Transbay Terminal. The building appeals to both transitional tenants and tech tenants, who have been rapidly changing New Montgomery with their presence. Ownership of this asset is intended to be a long-term hold,” says Jim Gallagher, a vice president with Cornerstone. He works out of the company’s regional office in Los Angeles and is head of the company’s acquisitions on the West Coast.
The seller of the property was Blackstone/ EOP. Representatives of EOP would not comment. The listing agent on the property was the San Francisco office of Cushman & Wakefield. They had first brought the property to market for sale in April. They also declined to comment.
The cap rate on the sale of 33 New Montgomery was 4.5 percent, according to sources familiar with the deal. This return is based on the property’s current net operating income.
There will be a chance for Cornerstone to add some value to the property going forward. Around 44 percent of the existing tenants will be coming up for renewal over the next few years. Value can be created by marking to markets current leases that are 30 percent below market value. The weighted average lease term for the existing tenants is 3.4 years.
33 New Montgomery is now 95 percent occupied. The 19-story building was constructed in 1986, and the typical floor size for the property is around 12,500 square feet.
This property is considered a Class A property. San Francisco’s direct vacancy rate for this sector of the office market is at 8.4 percent.
Cornerstone acquired the property for its core open-ended commingled fund, The Cornerstone Patriot Fund. This is an investment fund that is always open to new commitments from investors. Total assets in the fund are in excess of $2.1 billion. It buys a mixture of office, industrial, retail and apartments around the country.
This transaction on 33 New Montgomery shows that Cornerstone does have the capability to find properties to acquire in the San Francisco market after selling two properties in the city last year.
In October, it sold the 180,000 square foot 795 Folsom office building for $110 million or just over $600 per square foot to Bethesda, Md.-based ASB Real Estate Investments. Around a month later it found a buyer for 201 Spear Street. It was able to sell the 266,048 square foot property for $121 million or $454 per square foot to Newport Beach-based KBS Realty Advisors.
Image courtesy of Equity Office