By Jon Peterson
The sale of the 388,370 square foot 101 Second Street office building in San Francisco produced a cap rate of around three percent, according to sources familiar with the transaction. That puts the sale price at roughly $297 million.
Houston-based Hines sold the property to Dallas-based Invesco Real Estate. Both of these firms declined to comment on the financial details of the transaction.
The real estate brokerage community sees that the sale of the property shows how aggressive the pricing still is for high quality office buildings in San Francisco. “I think the expectation going in was that the cap rate on the deal was going to be around 4 percent and the sales price at $700 per square feet. Where it ended up at $765 per square foot, means that pricing is still aggressive in the market for very high quality office buildings in San Francisco,” says Erik Hanson, a vice president with Colliers International in its San Francisco office.
Invesco acquired the property for one of its core investment funds. “It was a very competitive process, but an asset we think makes a lot of sense to own long-term and quality is rarely found in San Francisco,” says Greg Kraus, a managing director of acquisitions for Invesco.
The real estate manager underwrote its investment for a long period of time. According to industry sources, the buyer took under consideration a 25-year investment period. A more typical time horizon when underwriting an investment is 10 years.
There were many capital sources interested in the property. This included the likes of New York City-based Clarion Partners, New York City-based TIAA-CREF and Pembroke, according to sources familiar with the transaction.
Hines had owned the property since 2004. The seller stated in an e-mail that it felt this was the ideal time to sell the asset from a capital markets perspective to monetize the value created for its investors.
101 Second Street was first built in 2000, and the complex was 90 percent occupied at the time of the sale.
This vacancy puts the property right in the ballpark as the overall market vacancy for San Francisco office buildings. According to the third quarter 2013 research & forecast report for office buildings in San Francisco by Colliers International, vacancy is now below the 10 percent “tipping point” citywide for the first time in consecutive quarters since 2001.