By Jon Peterson
New York City-based J.P. Morgan Asset Management has put under contract the recapitalization of the 1.1 million square foot Market Square two-building office and retail property in San Francisco for around $900 per square foot or $900 million, according to sources aware of the transaction.
J.P.Morgan did not respond to an e-mail and phone call seeking comment. A company representative of Shorenstein declined to comment when contacted for this story.
The transaction is projected to produce a cap rate of approximately four percent, according to sources that track this kind of information. This return is based on the current income being produced by the asset. Twitter is a tenant in the property.
J.P. Morgan will be funding the transaction with two capital sources. 49 percent of the deal will be taken by the real estate manager’s commingled fund, The J.P. Morgan Strategic Property Fund. The other 49 percent will be taken by an un-named Asian group that the real estate manager represents. Shorenstein will keep a 2 percent interest in the property.
Shorenstein has owned the property outright since March of 2011. It bought the asset at that time for $110 million. The complex was placed into the real estate manager’s commingle fund, Shorenstein Realty Investors Nine. This is entity was formed in 2007 where the manager raised $2.06 billion of equity. This included a $154 million co-investment from Shorenstein.
Shorenstein did spend an additional $200 million of capital to improve the property since it has owned the asset.
There is no question that J.P. Morgan has enough capital to invest in the Shorenstein deal for the Strategic Property Fund. Through the first quarter of 2015, the commingled fund had an entry queue of $1.82 billion. This was capital committed to the commingled fund but had not yet been called by the manager.
The Strategic Property Fund is a core open-ended commingled fund with gross real estate assets valued at $34.7 billion, as of the end of March. It has the west region as the largest component of the portfolio on a geographical basis. It totals 39.63 percent of the total fund. On a property type basis, office buildings make up the largest amount of the portfolio at 45.94 percent.