By Jon Peterson
The San Francisco office of Hines and Chicago-based GEM Realty Capital have placed on the market for sale the 25-story office asset in Sacramento named Park Tower. The pricing on this sale could reach as much as $400 per square foot, or $192 million, according to sources aware of the sale of this asset.
Hines declined to comment when contacted for this story. The listing agent on the sale is the San Francisco office of Newmark Knight Frank Capital Markets.
There are three components that are considered part of Park Tower. The most significant of them is the 450,593 square foot office building located at 980 9th Street. Next door to this property is an eight-level, 800-stall parking structure. There is a second office building included in the sale, as well. This is a five-level, 31,822 square foot property and 357-space parking garage located at 1010 8th Street.
Hines and GEM have held the ownership of Park Tower since June 2017. These two firms came together to buy the property for $120.5 million, or $249 per square foot, according to sources familiar with the sale of the property at that time.
It’s likely that a major institutional investor will be the buyer of Park Tower, according to sources familiar with the Sacramento market. This asset will allow the new owner to buy a very large property at a much lower price point than San Francisco. This same kind of asset would likely trade for $1,100 to $1,200 per square foot in that market.
The original thought process was that it would take the sellers three to five years to complete its business plan; this was accomplished in a little more than two years. The work done was to renovate the building at 980 9th and to wrap-up a significant amount of leasing. All of the goals with the property have now been completed.
Park Tower is now 92 percent leased, and it boasts a diverse group of tenants. The largest industry in the asset is government, which occupies 36 percent of the property. This includes the home of the Sacramento County Employees Retirement System. Other double-digit occupiers include 17 percent for public service, 16 percent consulting and 13 percent for finance/insurance/real estate. The average weighted lease term in the property is six years with no tenants occupying over four percent of the net rentable area expiring during the next five years.
The new owner of Park Tower will be buying into an office market that has very strong fundamentals. The Class A market in Sacramento has a current vacancy of 4.1 percent, its lowest level since 2001. This makes it the second lowest vacancy versus many of the top office markets across the country. Only San Francisco is lower at 2.5 percent. Rents in downtown Sacramento have been going through a growth spurt. They have been experiencing a compound annual growth rate of 4.1 percent since 2014.