By Jon Peterson
PGIM Real Estate is no longer trying to buy the 123 Mission property in San Francisco, the 346,000 square foot building that is currently owned by Juul, according to sources with direct knowledge of the current state of the transaction.
PGIM walked away from the deal without making any non-refundable deposits or placing capital at risk. According to sources, the real estate manager made an evaluation based on the fact that bridge lending market froze up over the last month or so, as well as several big block tenants who expressed an interest in the building walking away from their desire to lease up the space. As the fallout of the economic consequences of the coronavirus because more clear, the leasing market was turning from red hot to something much less robust, stated the sources. With all of this uncertainty, the pricing the asset became very difficult to evaluate, and PGIM made the decision to walk away.
Juul was working with the San Francisco office of Newmark Knight Frank as its listing agent on the transaction.
PGIM had been working on the deal with Madison Capital, which continues to pursue the acquisition under a very different structure, stated the sources. The property now could be going through a major re-pricing along with a so-called “hope certificate.”
One estimate from a source that tracks the sale of major office buildings in San Francisco pegged the repricing discussions in the low $800 per square foot range. A hope certificate is an arrangement that would allow Juul to participate in the sale proceeds only after the new capital coming in is returned and it receives a stipulated return on that capital. It is unknown at this time how serious that arrangement is or if it will be considered by the seller.
Juul has been the owner of the property since May 2019, when it paid $397 million or $1,147 pre square foot. It had acquired the asset from Northwood Investors. This real estate firm had in turn acquired the property for $290 million, or $840 per square foot, in June 2018, less than a year earlier. Northwood purchased the building from HNA Insurance, which paid $255 million, or $737 per square foot, for the property in August of 2016.