By Jon Peterson
San Francisco-based Swift Realty Partners has bought its first property for its commingled fund, Swift Real Estate Partners Fund I.
The company paid $20 million to acquire the 77,000 Corporate Terrace office building located at 3466, 3468 and 3470 Mount Diablo Boulevard in Lafayette.
“A big part of our interest in the property was our ability to re-sign the main tenant in the property to a new lease. This is the John Muir Medical Group. They were extended for another 10 years. This was important as the tenant represents around 11 percent of the building and 16 percent of the net operating income in the asset,” says Christopher Peatross, founder of Swift Realty.
The suburban office building was acquired from a joint venture of San Mateo-based Glenborough and Chicago-based Henderson Global Investors. “Our venture with Henderson was ending its termination period and that is why we decided to sell the property at this time,” says Alan Shapiro, senior vice president with Glenborough.
The seller had moved the property with the assistance of its broker, Sacramento-based Palmer Capital. The listing agent on the sale was Rick Ryan, investment partner. He did not respond to phone calls and e-mails seeking comment for this story.
Swift Realty has introduced some new debt on the property. “Wells Fargo Bank is providing debt on the asset with the leverage component being at 60 percent. The cap rate on this investment is 7 percent, based on the current net operating income that the property is producing,” said Peatross.
He sees that there is a value-added nature to buying the office building. “We think that we can bring the property up a little bit from a vacancy standpoint. The current occupancy is 91 percent. There also will be a chance to improve some of the rents in the property in the future,” said Peatross. The property is centrally located across the street from Whole Foods Market and the City Hall in close proximity to a BART station.
Corporate Terrace is located within the Lamorinda submarket in the East Bay that covers the towns of Lafayette, Moraga and Orinda. According to data provided by CBRE, the submarket has a total of 1.1 million square feet of office buildings in 66 properties. The current vacancy in the sub market is 8.3 percent through the third quarter of 2013. The average asking rent is $2.70 per square foot for full-service gross on a directly monthly basis.
CBRE has not seen much movement for occupancy or rents over the past 12 months in Lamorinda. “The market has been flat on both the occupancy and rents for the time period,” says Zachary Greenwood, a researcher for CBRE in its Walnut Creek office.
Swift has raised a total of $75 million of equity so far for Fund I. The long-term goal is to have a total capital raise of $300 million. One of the current investors in the commingled fund with a $15 million commitment is the Teacher Retirement System of Texas.
Fund I has a value-added investment strategy. It looks to buy a mixture of office buildings and industrial properties on the West Coast.
