By Jon Peterson
New York City-based Morgan Stanley Real Estate has paid $65 million or $857 per square foot for a 100 percent leasehold interest in the 75,875 square foot 1117 South California Avenue office building in Palo Alto.
The transaction in Palo Alto was reported in a document that was obtained through a public information request from Chicago-based Illinois State Board of Investment.
The office building acquired is within the Stanford Research Park. One of the main tenants in the building is Paul Hastings, the law firm. It occupies around 44,000 square feet in the property, according to sources familiar with the property.
Morgan Stanley bought 1117 South California Avenue for its commingled fund, The Prime Property Fund. This is the commingled fund’s first investment in Palo Alto. Illinois State had approved a $40 million commitment into this investment fund at the end of 2013.
The Prime Property Fund is a core open-ended commingled fund. This investment structure means that the fund is always open to new investors coming into the fund. Closed-end funds have a definite time period to raise capital. A core investment strategy typically means buying properties that are at least 80 percent occupied and 10 years old or less.
Through the third quarter of 2013, the fund had total gross assets valued at $12.8 billion. It was stated in a board meeting document from Illinois State that 9 percent of the commingled fund’s portfolio is located in Northern California. This region is one of the commingled fund’s seven preferred markets. The others are Southern California, Chicago, South Florida, New York, Boston and Washington, D.C.
The properties in Northern California are a mixture of office buildings and industrial properties. The assets are located in San Francisco, Santa Clara, San Jose, Hayward and Stockton.
The Prime Property Fund buys properties on a nationwide basis. This includes a mixture of office, industrial, retail, hotels, apartments and self-storage. The commingled fund has a portfolio that was 93.9 percent occupied as of the end of September 2013.
The leverage component on the commingled fund is 26.9 percent. The entry queue for new investors waiting for their capital to be called by Morgan Stanley was $125.5 million as of the end of October of last year.