Prudential Selling in San Francisco South Financial District

By Jon Peterson

Parsippany, N.J., -based Prudential Real Estate Investors has put 685 Market St. in San Francisco’s red-hot South Financial District up for sale.

The Monadnock Building, as the property is known, is 96 percent occupied and claims as a major tenant, which leases 95,000 square feet, or 46 percent of the space, through March 2018.

The e-commerce division of the giant department store company announced late last month that it had signed a nearly 250,000 square-foot lease at San Francisco’s 680 Folsom St., for space that it expects to occupy for 15 years beginning in January 2014. also occupies space at 22 Fourth St. in San Francisco. New York-based Macy¹s Inc. reported fiscal 2011 sales of $26.4 billion.

The 205,000 square-foot Market Street office building is expected to draw in the neighborhood of $75 million, or $375 a square foot, according to industry sources. Prudential has owned it since 2000. The pension fund advisor has a regional office in San Francisco at Four Embarcadero Center. The company declined comment.

The office building was originally developed in 1907 and is located near one of San Francisco’s signature corners at Geary, Market and 3rd streets. It is adjacent to the Hearst Building, the Palace Hotel and One Kearny.

From 1986 to 1990 owners completed $15 million in renovations at the property, including stripping it to its structural frame and rebuilding. Since 2000, PREI has invested $4 million, including $321,000 last year. The listing agent on the property is Michel Seifer, a managing director for Jones Lang LaSalle in its San Francisco office.

The South Financial District, which abuts the bay, is a favorite of the technology sector, which is far and away the most active in the leasing market today, according to research from brokerage CB Richard Ellis. At the end of last year, CBRE was tracking nearly three million square feet of lease demand from technology companies alone in the San Francisco market—half of all leasing requirements on the street at that time. That concentration, much of it on the South Financial District, has pushed lease rates for Class A and Class B office space in the 27-block area to parity at $40 a square foot a year. It is a first in the years that CBRE has been tracking the rates.

Average asking rents for Class A office space in the submarket went from $36.70 a square foot at the end of 2010 to $44.84 a square foot at the end of 2011, according to Jones Lang. Vacancy moved from 11.4 percent in 2010 down to 8.4 percent in 2011. With 455,000 square feet of occupancy gain in 2011, the South Financial District captured more than 25 percent of the city’s total, JLL said.

PREI is a nationally known manager of real estate assets for pension funds and other institutional investors. The company is a major player in all of the main property types: office, industrial, retail and apartments. The company had a North American real estate portfolio with a net asset value of $19.4 billion at the end of September, according to its Web site.

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