A Deep Bay Separates Oakland from San Francisco

Intero, San Francisco, Bay Area, Berkshire Hathaway, HomeServices of America,

By Jon Peterson

Institutional Investors are being able to buy office buildings in Oakland at much lower price points than in San Francisco. One recent example of this is with a property acquired by San Francisco-based Strada Investment Group.

East Bay The Registry real estateThe company paid $179 per square foot or $65.7 million to purchase the 172,000 square foot 505 14th Street and the 195,000 square foot 1300 Clay Street in Oakland.

This compares to CIM Group recently paying $485 per square foot or $34 million to buy 246 1st Street in San Francisco. These deals are similar in the fact that they are well-leased properties that offer the new owner the chance to add value through a re-leasing opportunity down the road.

Strada stated on its Web site that its properties were 90 percent leased at closing. It identified significant opportunities to credit value through operational efficiencies, below market rents and an increasing volume of San Francisco spillover tenants in search of lower occupancy costs.

The CIM property is now 100 percent leased to Novogradac & Co. Its lease runs for two years. The rental rate is low, and it will lead to a re-leasing opportunity for the buyer.

The pricing on the Strada deal was according to a document from the Orange County Employees Retirement System.

Strada bought the property in a venture with New York City-based Angelo Gordon & Co. This investment manager has a regional office in San Francisco at 101 California Street. It made an investment in the property on behalf of its commingled fund, Angelo Gordon Core Plus Fund III.

Angelo Gordon had a total capital raise of $1 billion. A final close occurred in the fourth quarter 2012. Orange County Employees made a $40 million commitment to the commingled fund. The real estate manager is targeting 12 percent to 13 percent net IRRs for returns on investments made for the commingled fund. Around six percent to seven percent of the return was projected to come from rental income.

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