Harvest and Hudson Stroll Market Street

By Jon Peterson and Sharon Simonson

San Francisco’s Market Street, a public-transit jammed thoroughfare stuffed with restaurants and other amenities, is enjoying some much-deserved love.

Emeryville-based Harvest Properties Inc. cites a mix of factors for its expected success at 731 Market, its newest San Francisco address. Rising market rents, rolling leases and conservative tenants with a watchful eye make up a special alchemy that Harvest says it believes in.

Meanwhile, Los Angeles real estate investment trust Hudson Pacific Properties Inc. has bought 901 Market St., paying $90 million for the 211,000 square-foot historic landmark. And Prudential Real Estate Investors, owner of 685 Market St., the historic Monadnock Building, is on the verge of selecting its buyer.

They all follow the sale of 717 Market St. in February to Digital Garage, a Japanese venture capital firm. The 81,000 square-foot building sold for not quite $400 a square foot.

Now Union Property Capital LLC, a San Francisco-based real estate development company, is offering 660 Market, a 1924 building with nearly 53,000 square feet. Colliers International, which also sold 717 Market and 731 Market, is the exclusive agent. The five-story building, which also has a basement, is across Market Street from the Sheraton Palace Hotel and next door to One Post St., the McKesson Corp. headquarters.

Harvest acquired 731 Market St., a six-story, 93,100 square-foot building including a 13,000 square-foot basement, for $30 million, Joss Hanna, a Harvest partner, said. The company paid San Francisco-based Ellis Partners LLC all cash. Harvest’s investment partner is Atlanta-based Invesco Real Estate.

Harvest is counting on rising market rents and the short remaining terms on the property’s leases to increase income and value. “The property has existing leases that are 30 percent to 40 percent below market,” Hanna said. “A good number of the existing tenants will have their leases come up for renewal in the next 18 months. This should give us an excellent opportunity to add some value to the property.”

In addition, new leases that the company signed in the $40 a square foot range as it finalized the purchase are also short-term, giving the company another bite of the apple in 24 months to 36 months as they roll, he said. The building is now 100 percent leased. Cautious tenants concerned about oversubscribing to real estate are behind the short terms. “Many tenants are being very conservative with their space needs and are only signing leases for the space that they currently need,” Hanna said.

Harvest plans to spend $4 million to improve 731 Market, also known as the Bancroft Building, including the repositioning of spaces to appeal to tenants seeking the open floor plans and brick-and-timber construction that have come to be called “creative space.” The goal is to appeal to software and other high-tech companies as well as creative-industry firms and start-ups. The asset was built in 1908.

The ownership is currently evaluating ways to use the building’s basement and is considering additional offices, classrooms, meeting space or parking.

West Coast Commercial Real Estate News