By Jon Peterson
San Francisco-based Union Bank is planning a sale/leaseback transaction for its 297,642 square foot office building in San Francisco located at 350 California Street. The pricing guidance on the sale of the property will be $250 million, or roughly $840 per square foot, according to sources that track the sale of major office buildings in San Francisco.
Union Bank has selected the San Francisco office of CBRE Capital Markets to be the listing agent on the sale. Working on the transaction will be Kyle Kovac, Michael Taquino, Russell Ingrum, Mandy Lee and Giancarlo Sangiacomo. CBRE declined to comment when contacted for this story.
This sale will be considered a value-add investment opportunity for the new owner. Union Bank is planning to vacate 224,927 square feet of the property within a year after the close of escrow. This space will become available over various time periods. As soon as the acquisition of the property closes, the new owner could immediately reposition 71,828 square feet of the property. In addition, 92,558 square feet would become available by March 1 of next year, 29,437 in September and 31,104 square feet in December. This would give new ownership 13 contiguous floors in the asset. There also is a second-floor mezzanine that would provide a tenant with a highly visible and branding opportunity.
The property could be used in the future as a corporate headquarters for a technology company or other tenants looking for creative office space. Union Bank has invested $41.2 million into the property over the past four years. Some of the work done to the property has included an ongoing seismic program and several building system updates, including HVAC and electrical work. The lobby renovation was also completed earlier this year.
The new owner will have the opportunity to lease the empty space at market rates. Rents for Class A office space in the Financial District in San Francisco have reached $90 per square foot per year, and larger blocks of space have historically generated a premium over that figure with asking rents reaching $110 per square foot per year, according to sources tracking leasing information. However, the Covid-19 pandemic has brought a freeze in the market, which could bring a reduction in asking rents in the foreseeable future.
350 California is located within the Financial District submarket in San Francisco. Rental rates in the submarket have shown strong performance over the past year. Average Class A rental rates in the market have increased by five percent over the past 12 months, according to industry sources. During the fourth quarter of 2019, 41 percent of all leasing activity in San Francisco took place in the Financial District even though it only makes up 32 percent of all the office space in San Francisco.