Tennessee Pension Fund to Buy Two Bay Area Assets for $125MM

Tennessee Consolidated Retirement System, San Francisco Bay Area, JLL Capital Markets, Menlo Park, Peninsula, Foster City, LaSalle Investment Management, Emeryville, Harvest Properties
1149 Chess Drive, Foster City. Rendering by DES Architects

By Jon Peterson

Tennessee Consolidated Retirement System has approved two acquisitions in the San Francisco Bay Area with a total purchase price of $125 million, as stated by the pension fund in an email. Both of these properties had been marketed for sale by the JLL Capital Markets team in San Francisco and Menlo Park.

The two properties that the pension fund is planning to buy are both located on the Peninsula. The first property is at 1149 Chess Drive in Foster City, for which the pension fund will be paying $67.3 million, or just over $532 per square foot. The second asset is located at 85 Willow Road in Menlo Park, and the fund will be investing $57.7 million in this asset. This information was supplied by the pension fund in an email.

The seller of 1149 Chess Drive is a partnership between Chicago-based LaSalle Investment Management and Emeryville-based Harvest Properties, which had the 126,345 square foot asset on the market since September of 2018. In a report by The Registry written at the time, it was stated that the company was seeking pricing of around $65 million. This manager did not respond to an email and phone call seeking comment. According to public records, the seller had purchased the property for $36.1 million in February 2017.

85 Willow Road, Menlo Park

Tennessee’s pension fund is planning to buy the property in Foster City as a separate account investment. The manager with which it is acquiring the property is an entity affiliated with New York City-based Deutsche Asset & Wealth Management, formerly known as RREEF.

1149 Chess Drive is office/R&D property that is now 100 percent leased. The tenant in the property is Zoox, Inc. This company moved to Foster City from its previous location in Menlo Park in 2017. Zoox is a start-up robotics company pioneering autonomous mobility as-a-service. It was founded in 2014 and has raised $790 million in funding to date, according to Crunchbase. The company has invested over $20 million of its own capital into the property, as well. The improvements completed within the building were done to make the interiors more creative, as well as to improve the warehouse with 26-foot ceilings and specialized lab rooms.

The property in Foster City was initially constructed in 1975 and was renovated in 2018. There will be some room for the Tennessee fund to add some value to the property in the future. The current rental rate in the property is 39 percent below market, according to some estimates, and the lease with Zoox has around eight years left to go.

The seller of the property located at 85 Willow Road is Belmont-based Embarcadero Capital Partners. It had acquired the property for $78 million in December of 2014, as stated in public documents, from the Sunset Magazine publishing company. In January of 2016, Deutsche acquired a 50 percent interest in the asset. The $57.7 million investment Tennessee is spending is likely for the 50 percent remaining interest in the asset that Embarcadero had, which will be completed as a separate account investment. The manager working on this deal is Dallas-based L&B Realty Advisors.

The asset is an 85,732 square foot office building that is 100 percent leased to Robinhood, a stock brokerage that allows customers to buy and sell U.S. listed stocks and ETFs with zero commission. The tenant has a lease in the property through February 2026. Robinhood has an estimated company value of $5.6 billion with 200 employees, and it has raised nearly $540 million in venture funding since its formation in 2013, according to Crunchbase. The lead investors in the company are DST Global, Index Ventures and Sequoia, to name a few.

It is pretty rare for fee-simple properties to be sold in either Menlo Park or Palo Alto. According to sources that track this information, since 2010 only fourteen 100 percent fee-simple assets have traded in excess of $50 million in either Menlo Park or Palo Alto.

The Menlo Park office market has a current inventory of 4.6 million square feet, as of the second quarter of 2018. The current vacancy in this market is 5.8 percent.

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