By Jon Peterson
San Francisco-based Drawbridge Partners LLC has inked a deal with New York City-based Almanac Realty Investors LLC for an equity investment of up to $125 million to fuel Drawbridge’s acquisition efforts on the West Coast and in Northern California.
As part of the deal with Almanac, two Almanac executives—partner Pike Aloian and director Justin Hakimian—will join the Drawbridge board of directors.
Mark Whiting, Drawbridge managing partner and a company co-founder, said firm leaders decided roughly a year ago to begin a search for investment capital. Banks are generally not interested in lending on value-add real estate, he said. “The thinking was that it would be better to have a single capital source fund all of our deals on a long-term basis instead of trying to do it one deal at a time,” he said.
The company hopes to acquire a combination of office, research and development and industrial properties in central Silicon Valley locations such as Sunnyvale, Santa Clara, Mountain View and North San Jose. Most of its transactions will range from $10 million to $50 million, Whiting said. “We like these size deals as a way to avoid competing with REITs and big institutional investors that are looking for larger-sized transactions,” he said. The company plans to place 50 percent to 65 percent debt on its purchases.
This is the second time that Almanac has placed capital with a company seeking to invest in Northern California real estate. In August, Almanac, which was formerly known as Rothschild Realty Managers LLC, committed up to $200 million with Westcore Properties. The San Diego-based company now has regional offices in downtown San Francisco and Sausalito.
Information about Almanac’s Drawbridge investment was included in staff reports presented to the board of the San Francisco City and County Employees’ Retirement System for its March 14 meeting. At that meeting, the pension fund approved a commitment of up to $50 million to the Almanac Realty Securities VI commingled fund. The first investment by the Almanac fund was the allocation to Drawbridge.
The pension fund’s investment in Almanac is in the form of convertible debt, on which it is to receive a yield of 8 percent to 9 percent.
Drawbridge is focused on the purchase and ownership of mostly single-tenant office, R&D and industrial properties leased to major corporations in Northern California. The company owns several properties in the Bay Area already, according to its Web site. They include 950 Page Mill Road in Palo Alto, a 71,000 square-foot Class A office building that is fully leased to law firm WilmerHale. It also owns the 33,000 square-foot life sciences property at 2500 Faber Place in Palo Alto, which is fully leased to CardioDx Inc.
Lindsey Adams, senior portfolio manager of real estate for the San Francisco pension fund, wrote in a memo for the board that Almanac has a unique strategy that focuses on private placement of growth capital with public or private real estate companies across the country. Since 1996, Almanac has originated $2.4 billion in entity-level investments in 28 real estate companies.
Almanac’s previous five investment funds have a consolidated net internal rate of return of 13.2 percent.
Almanac plans an $800 million to $1.2 billion equity raise for Realty Securities VI. The fund manager will make an equity contribution to the fund of $7.5 million, or 1 percent of total fund commitments, whichever is larger. Investors in the commingled fund are projected to achieve a 12 percent net or 15 percent gross internal rate of return. There will be no leverage placed on the commingled fund.
The commitment by the pension fund is part of up to $400 million set by San Francisco City and County for non-core real estate investments in the current fiscal year. A second investment was approved at the March board meeting calling for up to $25 million in equity to go into the Japan Fortress Opportunity Fund II.
Image: VTA (Santa Clara Valley Transit Authority) light rail train loading passenger at Mountain View, California stop.