Foreign Pension Fund Extends Debt On San Francisco Offices

By Jon Peterson

Newport Beach-based Buchanan Street Partners, on behalf of a foreign pension fund, has provided a $14 million mezzanine loan to upgrade and re-tenant 1155 Market St., an office building in downtown San Francisco.

1155 Market Street San FranciscoThe loan has a three-year term and floating-rate debt, said Mike Hurst, Buchanan’s senior director of investments. He would not disclose interest-rate terms.

The financing will be used to help the owner, Los Angeles-based Laurus Corp., to lease the 18 percent vacant space in the 141,000-square-foot property and to finance base building improvements to attract new tenants. Comparisons to like buildings suggest that 1155 Market St. has a total value as high as $500 a square foot, or $70.3 million, Hurst said in an email message.

The loan is extended on behalf of a $250 million separate account that Buchanan manages on behalf of the foreign capital source. Hurst declined to identify the investor. The manager has just begun to allocate the capital. “Up to now, we have placed around 10 percent. We are looking at major markets in the United States on a nationwide basis,” he said.

The real estate manager’s loan against 1155 Market St. is subordinate to another loan.

“We feel very good about the property given that it is 82 percent leased to six entities of the City and County of San Francisco. These tenants have leases that run for another nine-and-a-half years at good rates. We view these tenants as AA-credit. This will certainly keep the value in the property for the length of our loan,” Hurst said.

Laurus did not respond to phone calls seeking comment for this story. The company has owned 1155 Market since 2011. When it bought the property it was vacant, Hurst said.

Buchanan likes the performance of the San Francisco office market and would like to place other Bay Area loans. “This market has strong fundamentals, rapidly increasing rents, strong absorption and high barriers to entry. As a gateway city, it has continued to see higher inflows of investment capital on both the debt and equity sides,” Hurst said.

Buchanan up to this point has invested in the San Francisco Bay Area in only office and retail properties. It provided debt on the 57,000-square-foot Whole Foods at Bay Place in Oakland. This property was recently acquired for $41 million by Beachwood, Ohio, -based DDR.

Buchanan prefers to place debt on strong existing assets with solid cash flow. It is also interested in Bay Area apartments and industrial buildings. The real estate manager does have investment discretion on the separate account if it stays within established investment criteria.

Photo courtesy of Google Maps

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