TIAA-CREF Buys Interests in Two Buildings from Alexandria for $262.9MM in San Francisco

TIAA-CREF San Francisco Alexandria Real Estate Equities Mission Bay South of Market
409/499 Illinois Street
409/499 Illinois Street
409/499 Illinois Street

By Jon Peterson

New York City-based TIAA-CREF has acquired interests in two life science office buildings from Pasadena-based Alexandria Real Estate Equities in the Mission Bay/South of Market region of San Francisco for $262.9 million, according to the seller’s fourth quarter 2015 operating results document.

TIAA-CREF paid $189.6 million to buy a 40 percent interest in the 455,069 square foot 409/499 Illinois Street property. The other transaction was a $73.3 million purchase of the 158,267 square foot 1500 Owens Street property. The buyer now owns a 49.9 percent interest in this asset.

“We typically don’t invest with real estate operating companies. But, we believe that Alexandria is a best-in-class company for the life sciences real estate industry,” says Giacomo Barbieri, head of acquisitions for TIAA-CREF.

1500 Owens Street
1500 Owens Street

He feels good about investing in the life science business. “The demographics for this industry are very strong. The population is aging, and people are going to be living longer and more companies are taking advantage of this factor. There also is very limited supply of new life science properties in many markets like San Francisco,” said Barbieri.

Both of the properties are 100 percent leased. The Illinois Street property was bought for $1,042 per square foot. TIAA-CREF sees that life science properties have higher tenant improvement costs than do traditional office building properties. “One example of this is with the Illinois Street property where there is a chemical lab, which likely adds a significant cost to the property,” said Barbieri.

Alexandria was able to achieve higher returns through the development of the two properties in which it sold interests to TIAA-CREF. The interest in the Illinois Street property was sold at a cap rate of 4.5 percent. The seller stated in its 2015 fourth quarter report that it completed the development with an initial stabilized yield on a cash basis of 6.7 percent.

The property on Owens Street was a land parcel that Alexandria had developed. It projects it was built with an initial stabilized yield of 8.2 percent. The cap rate on the partial sale of the property was 4.8 percent.

TIAA-CREF made the investment in the assets with Alexandria for its Real Estate Account. This is an investment product that the company has for individual/retail investors. The real estate manager has only invested in life science properties on the equity side with Alexandria. Besides the two properties in San Francisco, TIAA-CREF also bought a 70 percent interest in the 190,100 square foot 225 Binney Street in Cambridge, Mass. for $190 million or $890 per square foot.

These three properties are the first transactions that TIAA-CREF has done with Alexandria. “We would be hopeful of being able to do more transactions with them in the future,” said Barbieri.