By Jon Peterson
New York City-based TH Real Estate, a division of TIAA Global Asset Management is planning on acquiring the 85,011 square foot 400 Montgomery office building in San Francisco for approximately $50 million, according to sources familiar with the transaction. The property is under contract to the buyer with a closing projected to happen very soon.
TH declined to comment when contacted for this story. The real estate investor will make the investment on behalf of its general account. There is a local firm that will be involved in the asset going forward. This is Emeryville-based Harvest Properties.
The seller of the property is The Hearst Corporation. It had hired the San Francisco office of CBRE to be involved in the sale. Dave Terzolo, a senior vice president with CBRE had the listing. He wrote in an e-mail that he has no comment on the sale at this time.
The sales price on the property comes in at around $588 per square foot. This compares to the average sales price for office buildings in San Francisco at approximately $750 per square foot, according to sources that track the sales of office buildings in San Francisco. A reason for the difference is that the property is considered to be a core plus to value add kind of a transaction, however there will need to be some capital invested by the new owners to transform the property from old office space to more creative kind of space that tech companies are looking for. A potential amount to be invested to improve the asset could be somewhere in the neighborhood of $100 per square foot.
The 12-story property was first developed in 1901. It has gone through several renovations with the last one occurring in 2011. The above ground space in the property is now 100 percent leased to a variety of tenants.
The overall San Francisco office market has gone through a major transformation since 2010. Current overall vacancy in the market is 5.5 percent. This represents a drop of over 65 percent from the highs in 2010. Average asking rental rates in the central business district of San Francisco have increased for 21 straight quarters and rental rates have grown 115 percent during that time frame.