By Jon Peterson
Emeryville-based Harvest Properties and Madison, N.J.-based Prudential Real Estate Investors have come together to form a joint venture to acquire the 490,000 square foot 555 City Center office building in downtown Oakland for around $270 per square foot or $132.3 million, according to sources familiar with the transaction.[contextly_sidebar id=”93257e5e806c4a48cfabc7c299eb9bfd”]The two firms involved in the acquisition both declined to comment on the purchase price and cap rate on the transaction.
PREI provided the majority of the equity in the deal. Harvest is more of the local operating partner and will manage the property for the venture going forward.
PREI made its investment in the property for its core-plus open-ended commingled fund, Prudential Real Estate Separate Account II. The investment will represent the first time that the commingled fund has acquired a property in Oakland.
Harvest sees that 555 City Center is an excellent fit for PRISA II. “The property in Oakland falls in line with the investment strategy of the commingled fund. The building has strong current income as it’s 98 percent leased,” said John Winther, founder and managing partner with Harvest. However, the strategy going forward will include a focus on expanding rents. “The rents in the property now are approximately 10 percent below market. There should be a chance to add value when some of the leases start to roll in three years,” he added.
A core plus investment strategy typically calls for the acquisition of a property with strong existing income coming out of the box right away. The asset also offers the manager an opportunity to increase its value over time through several value add techniques. These could include bringing rents up to market speed, a renovation and a redevelopment.
PREI sees that 555 Center Street is a very high quality property. “This asset in our view is the best class A office building in Oakland. For our commingled fund we are looking to invest some of the capital outside of the top 10 CBD markets, and we consider Oakland to be one of those markets,” says Darin Bright, a portfolio manager with PREI.
The real estate manager does see a return spike by investing in a market like Oakland. “In general terms I would think that there is a 200 basis point difference on a yield for a property in Oakland versus San Francisco,” said Bright.
555 Center Street had been owned since June 2010 by Los Angeles-based CBRE Investors. Other than to confirm how long they owned the property, the real estate manager declined to give out any other information on the property.
The property is a multi-tenant building. Its three main tenants are IAC Search, Matson Navigation Company and Public Health Institute. The building was constructed in April of 2002.
The Oakland office market is one that doesn’t have the highs and lows of some other office markets in the Bay Area. “The market in Oakland is one that is more of a steady performer. Over the last 12 months there has been only a little increase in rents and occupancy has moved from 11 percent to 10 percent,” says Ken Meyersieck, a senior vice president with Colliers International in its Oakland office.
The East Bay submarket does offer a much less expensive alternative than San Francisco. “I would think that tenants could save $20 to $25 per square foot in rents by taking space in Oakland rather than San Francisco,” said Meyersieck.
Harvest and PREI have a relationship that involves more than just 555 City Center. They are involved in a variety of projects around the San Francisco Bay Area. One of these is the 28-acre National Business Park in Livermore. The parcel is zoned for industrial development. Bayshore Technology Park in Redwood Shores is another property for the venture. This is a two-story office/R&D complex totaling 887,186 square feet.
The two companies are also involved with the 636,150 square foot Towers at Great America in Santa Clara. This asset is a six-story two building campus operation.
Harvest has a relationship with PREI that allows the operating partner to search for transactions on a deal by deal basis. All of the transactions are in the Bay Area and include office, R&D and industrial.
Photo by 111th Aerial Photography Squadron, Julie & Pat Belanger