By Jon Peterson
Palo Alto-based Kenson Ventures has closed on the acquisition of the office building in San Francisco located at 634 Second Street. The purchase price was $55 million, or just around $1,100 per square foot, according to sources that track the sale of office buildings in San Francisco.
The seller of the property was New York City-based Thor Equities, which worked on the sale with the San Francisco office of CBRE. Kyle Kovac and Michael Taquino, both executive vice presidents at the firm, led the sales efforts of the asset. CBRE declined to comment when contacted for this story.
“Our sale of 634 2nd Street represents the culmination of our targeted investment strategy within the SOMA market. We have added value to the property and are confident in the capabilities of its next stewards,” said Joseph Sitt, chairman of Thor Equities in a statement. “We look forward to taking our next steps growing our Bay Area portfolio of tech office, R&D and lab spaces.”
The office building totals around 50,000 square feet. There are currently no vacancies in the property, and the existing tenant has round 7.5 years remaining on the lease term in the property. The building was at one point fully leased to Okta, which has a lease running until September 2024. This tenant has subleased all of the office space in the building to Cloudflare, which in turn has a lease that converts to a direct lease, and it expires in December of 2027.
The property was initially put up for sale in the fall of 2019. At that time, the first floor of the building was occupied by SAJJ Mediterranean, a restaurant that has been in the building since 2016. There was some initial buyer interest in the property until the start of COVID-19 in early 2020, which is when most of the interest in the property had disappeared, according to industry sources. However, renewed interest in the asset emerged during the fall of this year. Properties with single tenants that have strong credit and relatively long leases have garnered more attention from potential investors. Cloudflare’s business, which has been bolstered by the remote distributed workforce model, also provides additional security for new investors.
Thor Equities had been the owner of the property since 2016. The real estate investment firm had acquired the property for $40 million, as stated in public records. The property since 2007 has seen significant amounts of capital invested in the property. This includes $6.1 million in building improves and $2.5 million in tenant improvements. The work in the property included HVAC, mechanical and Title 24 upgrades, a brand-new roof and a fair amount of interior work.
Kenson Ventures may also have the opportunity to expand the office building int the future. An additional 16,000 square feet could be added to the property, which would transform the asset from a three-story property to one with two new floors. The seller hired Huntsman Architectural Group to design the addition. The added space can become a reality without needing a Prop M allocation, which in San Francisco is also another major benefit. Prop M limits construction of commercial properties in the city, and this addition would fall well below the threshold of that limitation.
The buyer is known as a family office operation that has invested in a variety of industries including real estate, venture capital and biotech. The company owns a second office building in San Francisco. This is the asset located at 340 Brannan, which it acquired in July 2014 for $20.7 million, according to public records.