By Jon Peterson
Oslo, Norway-based Norges Bank Investment Management has made its first move into the San Francisco office market with partial ownership into the 945,249 square foot 425 Market Street office building.
An investment in this asset was combined with another property, the 782,000 square foot 555 12th Street office building in Washington, D.C. NBIM paid $480 million for a 47.5 percent interest in the two properties. The gross value of the two properties is approximately $1 billion.
This investment was done in a joint venture with New York City-based MetLife. The two properties had been 100 percent by MetLife via its general account and an affiliated wholly-owned subsidiary of MetLife.
“We decided that 425 Market Street is an iconic core asset that neatly fits the desired investment profile of our joint venture with Norges Bank,” says Joel Redmon, managing director of real estate investments for MetLife. He works out of the company’s regional office in San Francisco.
MetLife and Norges Bank first established their venture in December of 2013. It will be looking to buy additional Class A office buildings in the top five or six office markets in the United States. These markets will include San Francisco, Los Angeles, New York, Boston and Washington, D.C.
“With these two investments we are expanding our joint venture with MetLife in line with our strategy and original intent,” says Karsten Kallevig, chief investment officer for real estate at Norges Bank in a prepared statement.
The total assets in the venture now stand at $1.7 billion. The third property in the relationship is One Financial Center in Boston. For the overall JV, the ownership split of the assets is 52.5 percent to MetLife and 47.5 percent to Norges Bank.
MetLife has owned an interest in 425 Market since it was originally developed in 1973. The office building is now 85 percent occupied and is certified LEED Gold. “During 2013, 425 Market had a few lease expirations where existing tenants took the opportunity to right-size their office needs. The property should be back to occupancy in excess of 90 percent by the end of 2014,” said Redmon.
MetLife sees that 425 Market is a core property with a long-term hold strategy in a key targeted market. The company through the general account of MetLife owns an office portfolio in the San Francisco Bay Area valued at approximately $2 billion and totaling over 4.5 million square feet.
It likes the office market in San Francisco. “This city is a solid market with strong real estate fundamentals. It’s a market which we desire to increase our foothold,” said Redmon.
425 Market is located in the South Financial District sub-market. This area has a total of 97 buildings totaling 24.2 million square feet, according to data supplied by the San Francisco office of Colliers International. Vacancy in the region was 7.3 percent through the third quarter of last year.
Norges Bank is the asset manager for the Norwegian Government Pension Fund Global. The real estate manager has invested in other office building assets in the United States with TIAA-CREF and Boston Properties.
Photograph courtesy of Regus