By Jon Peterson
Los Angeles-based Downtown Properties has acquired the 41,039 square foot 1098 Harrison Street office building in the western South of Market District in San Francisco for $11.5 million or nearly $281 per square foot.
“This was an all-cash deal. We had marketed the property to a wide audience and received a good deal of interest from investors,” says Tony Crossley, an executive vice president with Colliers International in its San Francisco office. He and Frank Wheeler, Tim Mass and Erik Hanson at Colliers represented the seller, Mill Valley-based Redbird Investment Group, in the transaction.
Downtown Properties declined to comment when contacted for this story.
The cap rate on this deal was 6.3 percent. “This yield is based on the existing net operating income that the property is producing. The sale of the property is another example of the strong institutional and international attraction to SOMA product. It further legitimizes the sub market as a top tier investment location in the United States,” said Crossley.
The property is fully leased to software developer Atlassian Inc. “They are looked as a strong tenant. The company is headquartered in Australia and has another branch office in Europe. The company’s lease at 1098 Harrison has another four years left to go,” said Crossley.
Redbird had owned the asset for a long time. “This company is a small private individual family. They decided that from a diversification standpoint it would be best to not have all of its eggs tied up in one basket. In this case it was real estate. That is why they decided to sell the property,” said Crossley.
The SOMA West office market has a total square footage of 3.4 million square feet in 41 buildings, according to the Colliers International San Francisco Mid-Year & Forecast Report. The current vacancy in the submarket is 7.4 percent.
Downtown Properties owns several other properties in San Francisco. These include 333 Market Street, 1161 Mission, 330 Montgomery and 550 Montgomery.
Downtown Properties figures to become a bigger player in the future. Hong Kong-based Gaw Capital Partners has Downtown Properties as its US associate. Gaw Capital recently created a new entity, Gaw Capital US., a company that will manage the new real estate funds and provide investment advisory while Downtown Properties will continue to co-exist alongside Gaw Capital US as its asset management partner.
Gaw Capital US will start a new capital raise for its first commingled fund in this country during the fourth quarter. The size of the fund will be in the range of $300 million to $500 million. The main investment strategy for the fund will be to invest in assets where value can be created through design, creative repositioning and redevelopment. The targeted property types would be creative office and hospitality redevelopments in urban locations. San Francisco is targeted as one of its main markets.
The head of Gaw Capital US is Timothy Walsh. Prior to this role Walsh was director and chief investment officer of the New Jersey Division of Investment that is responsible for the investment management of the seven pension funds that comprise the New Jersey Pension Fund and the State of New Jersey Cash Management Fund.
Downtown Properties was formed in 1991. It controls a portfolio of more than 2.5 million square feet of office buildings, hotels over 1,000 rooms, two 18-hole golf courses, a ski resort and three residential redevelopment projects. These assets are located in San Francisco, Los Angeles, New York and Hawaii.