Ground Lease and Quality of Asset Keeps Price Down for Office Deal in San Francisco by Jamestown

Jamestown, San Francisco, Waterfront Plaza, LaSalle Investment Management, San Francisco real estate, commercial real estate, Bay Area news

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By Jon Peterson

Atlanta-based Jamestown has paid around $88 million or $296 per square foot to acquire the 297,260 square foot Waterfront Plaza office complex in the North Waterfront sector in downtown San Francisco, according to several sources aware of the transaction. The buyer declined to comment on the precise figure for the property.

Recent transactions in San Francisco have pushed the per square foot pricing over $900 in some cases. Just in June, the same company, Jamestown, announced a sale of a 430,000 square foot mixed-use Pacific Place located at 22 4th Street to J.P. Morgan for $415 million or $916 per square foot. Another sale in San Francisco last month saw the trade of 201 California Street to Cornerstone Real Estate Advisors for $549 per square foot. The relatively low pricing in the Waterfront case was affected by two main reasons: a ground-lease with the city and the fact that the building is a B+ quality asset.

“I think that one of the main factors in the pricing is that the property has a ground lease with the Port of San Francisco that has 29 more years left to run. This could make some investors look at the asset a little differently. There also is the fact that the property is considered to be a B+ quality asset,” says Michael Phillips, chief operating officer of Jamestown.

The property was sold by Chicago-based LaSalle Investment Management. A company representative did not respond to phone calls seeking comment for the story. The San Francisco office of Eastdil Secured was the listing agent on the sale.

Jamestown looks at Waterfront Plaza as a core or core plus asset. “I think the complex is right on the line as being either a core to core plus property. One of our long-term goals with the property is to improve it from a B+ quality to either an A- or A quality asset over the next few years,” said Phillips.

The investment manager had several ideas in mind to make the property of better quality. “We are going to be offering improved amenities at the complex. This includes better food offerings, a renovation of the lobby and an upgrade to the elevator system,” said Phillips.

Jamestown will have an opportunity to add some value to the property. “The rents in the asset are now significantly below market, which will give us the chance to add some value to the property in the future,” said Phillips. He decline to say how far below market the rents are.

Waterfront Plaza is located within the North Waterfront sub-market of San Francisco. Phillips thinks this is a region of the city that hasn’t received a lot of attention. “I think this area hasn’t been noticed nearly as much as SoMa or the Financial District. One of the things that we like about is that within 20 minutes you can be in the Marin Headlands,” he said.

Waterfront Plaza is an early 1980s vintage property. The current occupancy of the property is 92 percent. This puts it very close to the occupancy for the North Waterfront sub-market. According to data supplied by the San Francisco office of Colliers International, the vacancy for office buildings in the sub-market is 7.2 percent for the second quarter of this year.

This is an improvement from the first quarter where vacancy was 8.1 percent. The total North Waterfront sub-market has 48 buildings totaling 3.7 million square feet.

Jamestown acquired Waterfront Plaza for its open-ended commingled fund, The Jamestown Premiere Property Fund. The total value of the assets in the fund is just shy of $3 billion. The overall investment strategy for the commingled fund is to invest in a mixture of core and core plus assets.

Photography by Alejandro Velarde

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