Market Turn Proves Out Hold Strategy

BRISBANE, CA—A 104,000-square-foot, six-story multi-tenant office building was built in 1983 on 4-1/2 acres. at 1000 Marina Blvd. At the time of Meridian Property Company’s acquisition of the building in late 2016, it was 92% leased to seven tenants and the in-place rents were approximately 25% below the current market rents.

“After successfully repositioning the Atrium in Pleasanton, we determined that the market for value-add general office was substantial, particularly in the sub-$50 million space,” John Pollock, Meridian’s CEO, tells GlobeSt.com. “We hired Dan Rosenbaum to lead the effort and 1000 Marina was the first acquisition under his leadership.”

When Meridian negotiated the Marina Boulevard purchase, the vacancy rate in the 2-million-square-foot Brisbane and South San Francisco general office submarket was nearly 30%, GlobeSt.com learns.

“But, it was a somewhat small submarket and our market sources, primarily our CBRE leasing team of Simon Clark and Matt Mulry, had concluded that the vacancy rate was about to take a dramatic turn for the better,” Dan Rosenbaum, senior vice president of investments for Meridian, tells GlobeSt.com. “Sure enough, by late 2017, the vacancy rate in Brisbane had dropped to nearly zero and South San Francisco was also in the single digits. Several large transactions had rectified the high vacancy rate.”

Indeed, an uptick in the health of the leasing market had changed the dynamics. And during that 12-month timeframe, Meridian performed more than $2.5 million in property upgrades to the interiors, exteriors and building systems of the building.

“This was Meridian’s largest general office acquisition at the time,” says John Moutsanas, Meridian’s senior vice president. “We were big believers in the resurgence of the North San Mateo County market, particularly due to the explosion in life science demand, coupled with YouTube’s large presence and expanding footprint in San Bruno. Our strategy proved out.”

Meridian recently sold the building to Phase 3 Real Estate Partners of South San Francisco and San Diego. The sale price was $39.5 million in an off-market transaction. CBRE’s Northern California capital markets team represented both the buyer and the seller in the transaction.

“We had certainly planned to hold the building longer and roll our own rents to the increasing market, but our brokers did a great job of alerting us to an opportunity to sell the property to a more life science-centric developer who would be well-suited to reposition the building, which is what they did,” Moutsanas says. “Phase 3 Real Estate Partners’ development of the Genesis Towers just down the 101 from this building gave them the insight to sharpen their pencils and make a quick decision.”

San Ramon, CA-based Meridian has a pipeline with multiple projects currently in escrow and several completed projects listed for sale in its healthcare business platform, Pollock says. The firm has approximately 500,000 square feet currently in development/redevelopment, plus another 500,000 square feet in the development pipeline. It continues to seek out value-add land and buildings.

“There is a growing divide between the class-A and the class-B buildings in the Bay Area,” Pollock tells GlobeSt.com. “Meridian can identify the markets and the buildings that have those unique characteristics where we can deploy our expertise to improve the building’s systems, address deficiencies, add the right amenities and help to narrow the gap between the classes of buildings. This ’heavy lifting,’ coupled with our effective and hands-on management, allows us to create value in this space.”