By Jon Peterson
San Francisco-based Swift Realty Partners believes that it can improve its cap rate by 200 basis points on an office building portfolio it recently acquired in Santa Clara and Sunnyvale from San Francisco-based DivcoWest Properties.
“The cap rate on the acquisition of the portfolio was 7.5 percent. This yield is based on the existing net operating income of the portfolio that is 95 percent leased. I think that this return can be increased to 9.5 percent in the future. This would happen as we either bring the rents that are now 20 percent below market up to market levels or bring in new tenants,” says Christopher Peatross, founder and president of Swift Realty.
DivcoWest declined to comment when contacted for this story.
Swift Realty paid $83 million to acquire the seven-property portfolio, according to sources familiar with the assets. The five assets in Santa Clara are situated at 2400, 2424, 2630 and 2710 Walsh Avenue and 2855 Bowers Avenue. The buildings in Sunnyvale are located at 928 and 930 East Arques Avenue.
This investment is the latest acquisition that Swift has made for its commingled fund, Swift Real Estate Partners Fund I. “We are now working on two more deals. One of these is a medical office building in Daly City and an office building purchase in Portland. These deals combined with what we have already closed on means that we have invested 50 percent of the capital for our commingled fund,” said Peatross.
This is a pretty significant event as Swift Realty concluded its roughly $330 million capital raise in March of this year. The investors in the commingled fund included the Teachers Retirement System of Texas and Credit Suisse. The real estate manager actually started buying assets in October of 2013 when it bought its first property for the fund, an office building in Lafayette.
A typical investment period for a closed-ended commingled fund is three years and a total life of this type of investment fund is normally eight years.
Swift Realty has a total capitalization for Fund I of approximately $1 billion. This is achieved with the employment of around 65 percent leverage into the fund.
Swift Realty looks to buy a mixture of office buildings and industrial properties that have a value added component. Its targeted region is the West Coast from San Diego to Seattle.