Illinois Teachers Earns 5 Cap Rate on Foster City Purchase

harvest properties, invesco real estate, heitman, san mateo real estate, peninsula real estate, bay area real estate news, foster city

By Jon Peterson

Springfield, Ill.-based Teachers’ Retirement System of the State of Illinois has earned a cap rate in the mid to high five percent range on its acquisition of the 400,000 square foot Parkside Towers office building in Forster City, according to sources familiar with the transaction.

This return is based on the property’s existing next operating income.

Illinois Teachers acquired the property through one of its separate account real estate managers, Chicago-based Heitman. This firm declined to comment for this story.

The property was sold for $515 per square foot or $206 million, according to sources familiar with the transaction. The complex is located at 1001, 1031 and 1051 East Hillsdale Blvd.

The property had been owned by Emeryville-based Harvest Properties and Atlanta-based Invesco Real Estate. Invesco would not comment when contacted for this story.

The sellers had owned the property together since 2008 when they paid $180 million or $450 per square foot at that time. The asset was constructed during 2001 and 2002.

“We had taken the property through our business plan for the asset. We were successful in completing some significant leasing in the property. This included bringing in Guidewire and Activision to the property and expanding the lease that IMB had in place,” says John Winther, founder and managing partner with Harvest.

The property is now 100 percent occupied.

Winther sees that there is a chance to add value to the property in the future. “There is an ability to add income on a long-term basis as the existing below market leases would come up for renewal,” he said.

Harvest will continue to look for investment opportunities on the Peninsula. “We see this region as an attractive market for its continued job growth and the role that the technology industry continues to play in the area,” said Winther.

Rents for office buildings in Foster City had a strong year in 2013. “Rents increased by 15 percent for office buildings last year in the market,” says Mike Moran, a managing principal with Cassidy Turley Commercial Real Estate Services in its Burlingame office. This real estate firm stated the office market in Foster City has properties totaling 2.97 million square feet with a current vacancy rate of 21.6 percent, according to its fourth quarter 2013 office market snapshot report.

Illinois Teachers has recently awarded new capital to both Heitman and Invesco to invest in real estate across the country. The pension fund approved $100 million to Heitman and $125 million to Invesco. The capital will be invested in multiple property types and strategies.

Illinois Teachers has a total real estate portfolio valued at $5.1 billion. Invesco manages an existing portfolio of $456.6 million and Heitman $1.2 billion for the pension fund.

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