Cornerstone to Earn Low 5 Cap Rate on San Mateo Purchase

777 Mariners Island Boulevard San Mateo The Registry real estate

By Jon Peterson

Hartford-based Cornerstone Real Estate Advisers has achieved a low five percent cap rate on the purchase of the 180,000 square feet 777 Mariners Island Boulevard office building in San Mateo, according to sources familiar with the transaction. This yield factors in the existing net operating income being produced by the property.

[contextly_sidebar id=”199d50ee59003ca542fad09003f521de”]Cornerstone did not respond to phone calls or e-mails seeking comment for the story.

The seller of the property was Thoma Bravo/Keynote System. It sold the property through the Cushman & Wakefield office in San Francisco. The brokers included Adam Lasoff, director, Jon Dishotsky, associate director and Grant Lammersen, senior director.

There was ample interest in the building. “There were several other buyers lined up behind [Cornerstone] if they were not able to close on the deal. The new buyer will mean that the property is owned by a real estate investment management company for the first time. It had been previously owned by users,” says Lasoff. He declined to comment on the cap rate.

The property was first developed in the 1980s, and it was the corporate headquarters of investment advisor and manager Franklin Templeton. Until recently, it was also the home of Keynote Systems, an internet and mobile cloud testing and monitoring company.

The property is not stabilized from a rental rate standpoint. “There are many tenants in the property that will be coming up for renewal over the next several years that have rents that are as much as 25 percent below market,” said Lasoff.

Once the rental rate is stabilized, the cap rate should be in the seven percent range, according to sources with direct knowledge of the deal. The property was sold for $63 million or $336 per square foot, according to public record.

The property is now fully leased. Keynote Systems has signed a lease to remain in property for 50,000 square feet for another seven years. Another major tenant in the property is IXL Learning, which takes up 55,000 square feet. The company uses this space as its corporate headquarters.

777 Mariners Island is located in a county that made some significant improvements during the third quarter. According to the Cassidy Turley Commercial Real Estate Services’ Third Quarter 2013 market snapshot report, office vacancy in San Mateo County dropped from 15.1 percent to 13.9 percent. The market posted over 398,000 square feet of occupancy growth in the third quarter, erasing much of the 507,000 square feet of losses from the previous quarter.

This quarter’s performance reflects the highest single gain in over two years. The report stated that the last time this happened was the second quarter of 2011.

Cornerstone acquired the property for its commingled fund, Cornerstone Fund Real Estate VIII. The fund manager had a final closing on the fund in March of 2012. It raised $546 million of equity for the commingled fund. This is a value-added commingled fund, and it looks to buy existing properties that have some leasing issues and where the asset is located in a growth market. This commingled fund has a national investment strategy for this commingled fund.

Fund VIII was also the entity that had acquired 795 Folsom in San Francisco in 2011 for $70 million. It was then sold in October of this year to ASB Real Estate Investments for $110 million. Cornerstone is nearly finished with all of the investing for Fund VIII.

West Coast Commercial Real Estate News