With Limited Office Options, 500 Pine Easily Finds Buyer

SAN FRANCISCO—Tenants occupying newly completed buildings drove net absorption, maintaining the momentum from the first half of 2018. All developments slated to deliver through 2020 are pre-leased, limiting near-term leasing activity to frictional relocations and movement created by downsizing space returning to market, according to JLL’s third-quarter office report.

One project eased the office crunch ever so slightly when it was completed last year. 500 Pine is one of the newest office developments in the North Financial submarket, and got almost immediate attention from investors.

The 56,179-square-foot class-A office building recently sold to Heitman LLC, a real estate investment management firm, which acquired the office building on behalf of an affiliate of the firm. The asking price was approximately $80 million and some sources have put the sales price in the neighborhood of $70 million, GlobeSt.com learns. The sellers were Gemdale USA Corporation and Lincoln Property Company.

500 Pine is a LEED Gold-certified office asset featuring creative office improvements with open floor plans, floor-to-ceiling window lines, on-site parking with a bike room and showers, and a rooftop balcony connected to St. Mary’s Park. The height of the building was established by the adjacent St. Mary’s Square park.

Located at the corner of Pine and Kearny Streets on a 14,000-square-foot site, the curved corner design is a gesture to the importance of this downtown urban intersection and the rooftop crown of the corner serves as a one-story outdoor frame with a glass trellis.

The first four stories of the building are full-floor plates and the fifth story is a partial floor plate opening onto the park, yet the fifth floor and mechanical penthouse fall within the allowable shadow envelope. One full basement level with parking sits over a partial sub-basement level, intended for building support services.

The fully stabilized building is 100% leased to CVS and Blend. With a Transit Score and Walk Score of 100, the property has access to all forms of public transit including BART and MUNI, and numerous restaurants and cafes, hotels and many high-profile corporate neighbors.

An HFF team represented the seller and procured the buyer. The investment advisory team representing the seller included senior managing directors Michael Leggett and Gerry Rohm, senior directors Ben Bullock and David Dokko, and director Thomas Foley.

“There is an extremely limited supply of new construction acquisition opportunities in San Francisco due to the constraints of Proposition M as well as several build-to-core investors that do not plan to sell,” Bullock tells GlobeSt.com. “500 Pine represents one of the rare opportunities to acquire a fully stabilized new construction office building in CBD San Francisco.”

While a total of 3.8 million square feet of new development is underway, 65.7% of it is preleased, according to JLL research. With limited supply, vacancy is expected to compress while demand keeps upward pressure on rents. It is anticipated that the Central SOMA plan will be adopted in fourth quarter, after which Prop M allocations can be issued within the plan’s boundaries, conceivably providing a relief valve.

Ongoing robust demand and a severely limited supply of large blocks of space drove a notable increase in average direct asking rents, up 3.8% quarter-over-quarter and 6.7% year-over-year. Desirable availabilities often receive multiple offers, allowing landlords to be selective when choosing tenants. This trend permeates through the market in all size ranges, from 10,000 to 100,000 square-foot-plus availabilities, demonstrating the depth of demand in the market.

Four transactions greater than 100,000 square feet were signed in the third quarter, according to JLL research. PwC took approximately 200,000 square feet at 405 Howard, Unity Technologies leased the entirety of 657 and 667 Mission at 151,823 square feet, a technology company took 143,000 square feet, and Ancestry.com renewed and expanded for 128,570 square feet at 153 Townsend. More than 600,000 square feet of absorption were recorded at 510 Townsend and 100 Hooper, which were fully preleased by Stripe and Adobe, respectively.