By Jon Peterson
An affiliate of Zurich North America, advised by New York City-based Zurich Alternative Asset Management, has bought its first industrial property in the San Francisco Bay Area. This is the 135,000 square foot Potrero Business Center in San Francisco. The buyer declined to comment on the purchase price.
“This is a property that is very close to being fully leased. It should throw off strong cash flow for us right away. It’s not easy to find industrial properties in San Francisco to buy. We like the market because of its strong economy, which we think will continue to sustain itself going forward,” says Sean Bannon, managing director and head of US real estate for Zurich.
The seller of Potrero Business Center was Portland, Ore-based Morrison Street Capital. The real estate manager sold the asset through the San Francisco office of HFF. The people involved were Steven Golubchik, managing director, and John Simerlein, director. They did not respond to phone calls seeking comment for the story.
The property was developed in the mid-1980s. It has a history of holding its occupancy of at least 90 percent. This has been the case for the past 15 years. The asset is located in the Potrero East sub-market, which has a current vacancy for industrial properties of 5 percent.
This transaction represents the third asset acquired by Zurich affiliates in the San Francisco Bay Area. Last year it bought two office buildings in downtown San Francisco. It paid $49.2 million for 410 Townsend and $34.2 million for 539 Bryant.
Zurich, through multiple affiliates, closed on 9 properties throughout the US in 2013 and invested $250 million. These deals included markets like San Francisco, Seattle, Los Angeles, Houston and New York.
“In 2014, we would like to invest considerably more than what we deployed last year. Other regions that we will be actively pursuing are Boston, Washington, D.C. and Miami. Other markets that we are targeting are Portland, San Diego, Denver and Chicago,” said Bannon.
Zurich changed up its investment strategy in 2012 and made its first acquisition under the new program in April of last year. “We had been doing a fund investment program where we only invested in real estate through commingled funds, co-investments and club deals. We changed it to a direct investment program where we invest the capital directly without partners, achieving 100 percent ownership,” said Bannon.
Zurich is mostly looking to invest in the four main property types of office, industrial, retail and apartments. Its main strategy is core assets, which typically means high quality assets and minimal vacancy. It could be considering some core plus deals. This would be a scenario where there is strong cash flow from day one and the chance to add value when some existing tenants come up for renewal or there is strong lease-up potential.
Morrison Street had invested in Potrero Center through a mezzanine loan purchase, according to its Web site. The real estate investment firm has invested in two San Francisco area assets. These are the 85-unit Burlingame Towers Apartments in Burlingame and the 57-unit Madison Place Apartments in San Mateo. It holds a preferred equity investment in each complex.