Newcastle Partners Places San Francisco’s 900 Kearny Up for Sale

San Francisco, Holliday Fenoglio Fowler, Newcastle Partners, Bay Area, Jackson Square, Google, Menlo Park, Benchmark Capital, Comstock Saloon, Kiells Irish Restaurant and Pub, Tommasso’s, Aesop

By Meghan Hall

The Jackson Square neighborhood of San Francisco is up and coming, with its close proximity to the San Francisco Ferry Building and North Financial District. One of the city’s oldest commercial districts, Jackson Square is known for its 19th century buildings, large parks and unique character that provide a calmer contrast to downtown San Francisco and its bustling Central Business District. According to marketing materials presented by Holliday Fenoglio Fowler (HFF), one of the neighborhood’s office buildings, 900 Kearny, has hit the market.

The seller is San Francisco-based Newcastle Partners, who acquired the property in 2017 for $16.5 million, or about $535 per square foot, in an off-market transaction. According to the company’s website, the acquisition was a unique one for Newcastle, as the sellers at the time were a local family who had owned the building since 1991. Newcastle Partners owns an array of industrial and office projects throughout the Bay Area, including Great America Place in Santa Clara and Centre Pointe Business Park in Walnut Creek, Calif.

“We really like 900 Kearny as a contrarian business plan to the traditional Transbay Terminal large corporate-user buildings. Jackson Square is now a hotbed of high-end VC and private equity firms. We intend to gradually build out each space that comes available to a full, open ceiling, creative office design. It will be a dramatic improvement to the current look. The bones of the building and submarket location are exactly what we want for our portfolio,” said Dennis Higgs, managing partner of Newcastle Partners at the time of the acquisition.

What Newcastle hopes to garner for the property is unclear, and as of this writing representatives of HFF had not yet returned The Registry’s request for comment.

According to HFF’s marketing brochure, 900 Kearny was built in 1989 and includes six floors and a basement. Renovations to the building, completed in 2018, include a new lobby and CertainTeed Flintastic roof. Currently, the 30,864 square foot building is 85 percent leased to a wide variety of retail and office tenants, with two-thirds of the property’s leases expected to roll in the next one to three years. 25 percent of the leases are also below market rent. The seventh floor of the building is currently vacant.

There is currently 400,000 square feet of Class A office space in the Jackson Square submarket, and like much of San Francisco, office fundamentals in the neighborhood are strong. Jackson Square has under two million square feet of available office space, which translates to a vacancy rate of approximately 3.1 percent. Jackson Square’s vacancy rate is one of the lowest in the city, beating the city’s financial district, which has a vacancy rate of 4.4 percent, the Civic Center & Van Ness neighborhood, which as a vacancy rate of 4.2 percent, and Union Square, which has a vacancy rate of 7.8 percent. The Portrero Hill and Mission Bay/China Basin neighborhoods remain the tightest for space, with vacancy rates of zero percent and 0.3 percent, respectively.

Additionally, rents in Jackson Square are lower than the city average; as a whole, San Francisco’s Class A office space goes for about $85.71 per square foot. In Jackson Square, rents run at about $74.29 per square foot and is one of the less expensive areas in the city.

The district is also home to numerous venture capital (VC) and technology companies. Earlier this year, Google signed a new lease for 190,000 square feet at One Maritime Plaza, just a few blocks from 900 Kearny. HFF states that the property stands to gain from Google moving into the neighborhood, as previous tenants at One Maritime Plaza will be looking for approximately 76,000 square feet of space. As many as ten other VC companies, such as Menlo Park, Calif.-based Benchmark Capital call Jackson Square home. According to HFF, these VC firms have funds between $75 million and $3 billion, and are a unique industry cluster in the neighborhood.

900 Kearny also boasts both a Walk Score and a Transit Score of 100; the property is a six minute walk to the Central T Subway Chinatown Station. Numerous other shops and restaurants from Comstock Saloon to Kiells Irish Restaurant and Pub to Tommasso’s and Aesop are nearby as well, making Jackson Square an incredibly walkable district for 900 Kearny’s tenants.

HFF predicts that these market fundamentals are only expected to improve as firms, particularly VC companies, continue to migrate to San Francisco in order to be in close proximity to the region’s best talent. Vacancy rates remain below the eight year historical average, and Jackson Square has record-high Class A rents, producing potential upside for future investors.

West Coast Commercial Real Estate News