Prudential Tests Strength of SoMa Draw

By Jon Peterson

Parsippany, N.J., -based Prudential Real Estate Investors, the real estate investment management business of Prudential Financial Inc., is seeking buyers for a 255,000 square-foot office building located in San Francisco’s bustling South of Market.

The property at 475 Brannan St. is fully leased to a variety of tenants including California Pacific Medical Center, which has 61,000 square feet; Dolby Laboratories Inc., which occupies 33,000 square feet; Steelcase Inc., which has 27,000 square feet; and Microsoft Inc., with 18,000 square feet, according to TRI Commercial/CORFAC International.

Brokers active in the San Francisco office market predicted the building could sell for $500 a square foot or more. That translates to about $128 million.

San Francisco offices recorded an occupancy increase of nearly 900,000 square feet in the first quarter, according to CBRE Inc. Total vacancy was 10 percent, down from not quite 15 percent a year ago. Total availability is more than 14 percent, driven in part by an increase in technology firms putting a portion of their leased space back on the market for sublease.

The vacancy rate for so-called “creative” Class A space South of Market is much lower, in the neighborhood of 5 percent, and SoMa rents are rising quickly, Anton Qiu, a principal with TRI Commercial in San Francisco, said in an email message. Overall SoMa rents have risen as much as 30 percent in the last year, but in some cases have climbed as much as 50 percent for space that is tailored to technology users.

475 Brannan was originally built in the early 1900s but significantly renovated during the dot-com era to make it attractive to technology tenants, Qiu said. Its ceiling heights range from about 13 feet to 15 feet, and there is below-grade parking as well as a 6,000 square-foot open air, landscaped interior courtyard.

Based on recent lease transactions, the building could sell for more than $500 a square foot, said Meade Boutwell, a CBRE senior vice president in San Francisco.

The capitalization rate, a measure of yield, also could fall below 5 percent, Boutwell said.

“This building is one of the best office buildings in the market, and it could tell us how high investors are willing to go for properties in this sub-market of San Francisco,” he said.

Both Prudential representatives and the listing agent declined comment. David Karol, a director with Holliday Fenoglio Fowler L.P. in its San Francisco office, is handling the sale.

Qiu predicted robust buyer interest from institutional and international sources and cash-rich real estate investment trusts, including those already in the market such as Kilroy Realty Corp. and Hudson Pacific Properties Inc., “plus a few more aggressive out-of-town buyers who are actively looking for deals,” he said.

Prudential Real Estate Investors owns the property for its value-add, open-ended commingled fund PRISA II. The real estate manager has owned the building since 2004. PRISA II has total assets of $5.1 billion.

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