Pension Fund Investor Pays Good Price for Sansome Offices

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By Jon Peterson

Washington, D.C.-based Multi-Employer Property Trust, an open-ended commingled real estate equity fund, has paid approximately $450 a square foot, or $159 million, to acquire 475 Sansome St., a 353,000-square-foot San Francisco office building in the city’s North Financial District.

San Francisco real estate The RegistryThe seller was the Abu Dhabi Investment Authority.

The price is a “healthy” one that reflects well on the San Francisco submarket, said Grant Lammersen, a senior director with Cushman & Wakefield in the city. “I think it is a pretty good value for an asset that is north of Market [Street]. I think there is still quite a bit of upside left in North Financial District assets like this.”

The property is about 40 years old, and at the time of the transaction, occupancy was 90 percent. Major tenants include Oracle Inc., which occupies a third of the building and is committed through 2016, Lammersen said. The second largest is Yahoo! Inc., followed by Amazon.com and Bank of the West.

Paul Boneham, an executive vice president and head of U.S. transactions for Bentall Kennedy, the real estate investment advisor for the Multi-Employer Property Trust, said the company decided four months ago to add a major central business district office building to its portfolio. After research, executives concluded that the three best markets for investment were San Francisco, Boston and Seattle. “Our decision to invest in San Francisco does not diminish what the other two cities had to offer for office buildings,” Boneham said.

“The property is a high-quality building that had been maintained very well by the previous owner and is also close to mass transit, which was an important factor for us,” he said. “Our view of the office market in San Francisco is that there has been steady rental growth over the past year. We don’t think that the market has peaked, and there should be room for more rental growth in the years ahead.”

MEPT bought the property in an all-cash transaction and views the purchase as a low-risk, or “core,” deal. Holiday Fenoglio Fowler represented the previous owner in the sale. The HFF broker on the deal was Gerry Rohm, a senior managing director who works out of the company’s San Francisco office. He did not comment.

Roughly half of the building is leased at rental rates that are approximately 15 percent below market, Boneham said. “Some of the leases will be rolling in the years ahead, which will allow us to create some value.”

The commingled fund is now pursuing other property types including existing grocery-anchored shopping centers and urban apartment development. In the third quarter, MEPT bought San Jose’s Trimble Distribution Center with 206,600 square feet of industrial space for $26.1 million. In June, it committed $50 million to the development of 1401 Market St. in San Francisco, a $292 million 754-unit apartment complex. It is a preferred equity investment that is to yield a 9 percent return for the fund plus priority returns over the development partners’ equity on both cash flow and sale or refinance proceeds.

The developer is Miami-based Crescent Heights, which has a regional office in San Francisco. The property is located across the street from the new Twitter Inc. corporate headquarters building.

MEPT had a gross asset value of $6.6 billion through the end of September. Before the acquisition of 475 Sansome, the commingled fund had 4 percent of its portfolio, or assets valued at $265 million, located in the San Francisco Bay Area. The fund’s investor base consists of 361 pension plans.

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