June 24th, 2008
San Francisco Building Update: $370M One Sansome Sale Closing in August
In what is becoming a rarity of sorts lately, a downtown San Francisco high rise is set to change hands in the very near future. One Sansome, located where Sansome St., Market St., and Sutter St. come together across Market St. from the Market Center, is tied up by a Korean investment firm. The property, as detailed in the GlobeSt.com story attached below, is part of a portfolio of San Francisco properties, three of which are either publicly or privately being marketed for sale today.
There has been a dearth of skyscrapers sold recently, and it will be interesting to discover after closing what rents are being anticipated at One Sansome to justify the predicted purchase price. As we have discussed previously, rents in the financial district appear to be flattening or headed South, while Landlords that bought into the real estate market at its height last year are expecting and needing rents to increase.
The article below also addresses some greater economic indicators affecting values, most notably the weak dollar in comparison to foreign monies. I anticipate that more San Francisco properties will be sold to oversees investors over the next two years as our downturn, and the weak U.S. dollar are of benefit to those with cash reserves looking for undervalued assets here in the United States.
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SAN FRANCISCO-The $370-million sale of the 43-story, 652,000-sf Citigroup Center building in Downtown San Francisco will close later this summer, multiple sources tell GlobeSt.com. Taking advantage of the weak US dollar, a listed property fund of Mirae Asset Maps Investment Management, a unit of South Korea’s biggest mutual fund sponsor, Mirae Asset Group, tied up the property in May. The seller is an entity of Broadway Partners, a New York City-based real estate investment and management firm.
The property was brought to market in the spring. The property is encumbered with an assumable $250-million, five-year, interest only (6.1%) mortgage that matures in mid 2012. The closing date, said to be sometime in August, may be tied to the assumption of the loan, though that could not immediately be confirmed.
Citigroup is the largest tenant at 1 Sansome with more than 200,000 sf. The company leased approximately 50,000 sf of the total in early 2003 at a lease rate believed to be in the $30s per sf. Citigroup’s leases expire from 2010 to 2015, according to a source familiar with the offering memorandum. Bear Stearns occupies another 10% of the building on a lease that expires in 18 months. Lewis Brisbois Bisgaard & Smith LLP, a national law firm, occupies about 8% of the building on a lease that runs into 2012.
Located at 1 Sansome St., the North Financial District office building is seen as “core-plus” due to its 93% occupancy rate and near-term rollover, which could allow the new owner to raise rents and, therefore, its capitalization rate. In-place rents are said to be well below current asking rates, which are in the $60s per sf. Although the price wasn’t achieved, sources told GlobeSt.com in April that a sale price near $400-million would have translated to a sub-6% capitalization rate.
One Sansome was completed in 1984. Broadway Partners acquired the building with its third fund as part of a 24-property portfolio acquisition from Beacon Capital in May 2007. An industry source tells GlobeSt.com that Broadway Partners identified the building as a candidate for early disposition at the time of acquisition. Eastdil Secured has the current marketing assignment.
Broadway Partners also reportedly has Eastdil shopping 50 Beale Street, one of four Downtown San Francisco buildings it acquired from Beacon Capital last year as part of a larger deal. Constructed in 1968 and renovated in 1995 and 2006, the property is 90% leased to tenants like Blue Shield of California, Bechtel and the US Dept. of Education on mostly longer-term leases. A $310-million sale price for the 664,000-sf building would translate to a cap rate in the 5% range. That deal also could include the assumption of the interest-only $230 million loan on the property, which floats 135 basis points above LIBOR and matures in 2012.
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If there is anything I can do to help you as a Tenant Representative in the commercial real estate world, please do not hesitate to get in touch with me.
Thanks for visiting,
Tom Poser, Jones Lang LaSalle, San Francisco
www.sanfranciscotenantrep.com
