Eastern Neighborhoods Catch Looks Good for Long Term
The area has been home to a good amount of new development and property revitalization in recent years, along with a Trammell Crow multifamily project and the headquarters of Airbnb, Zynga and Pinterest.
SAN FRANCISCO—945 Bryant is a three-story office building that will soon house the adult probation department on a long-term lease of the entire building. This is one of several city departments that are or will be relocating in preparation for the planned renovation of the Hall of Justice building.
What with the significance of the property in terms of city operations, location and investment opportunity, it seemed poised for acquisition. And, indeed it was.
Marking a second joint venture investment, the Swig Company and STARS Real Estate Investments of Santiago, Chile recently purchased 945 Bryant St. for $42 million, GlobeSt.com learns. Back in 2017, the two firms became joint venture partners in the Wakefield building in downtown Oakland.
“From a long-term perspective, we believe 945 Bryant is a great fit for our investment program. We are excited about the attractive yield with an investment-grade quality tenant, while increasing our exposure to downtown San Francisco in a micro location that continues to rapidly develop and mature,” said Oscar Boettiger, CEO of STARS REI.
945 Bryant is located in the Eastern Neighborhoods in an area that has been experiencing a good amount of new development and property revitalization in recent years. For example, Trammell Crow is constructing a new apartment community next door to 945 Bryant. The immediate neighborhood also houses the headquarters of Airbnb, Zynga and Pinterest.
“We were drawn to potential investments in this part of the city by the transitional character of the neighborhood, which continues to improve significantly thanks to investment by some significant tech companies and all the new residents filling the newly constructed apartments,” said Tomas Schoenberg, executive vice president of the Swig Company. “945 Bryant represents a good, stable investment leased to a great tenant, the city and county of San Francisco.”
The acquisition was financed with a new 10-year loan provided by PNC Bank. Kyle Kovac, Mike Taquino and Giancarlo Sangiacomo of CBRE arranged the transaction. Mike Walker of CBRE arranged the financing. The Chicago office of Greenberg Traurig along with the San Francisco office of Farella Braun+Martel provided legal assistance to the Swig Company and STARS REI.
“We’ve expanded our relationship with STARS by joint venturing on the purchase of 945 Bryant. Together with our existing investment in the Wakefield Building in Oakland, this acquisition gives our partnership attractive assets on both sides of the Bay,” Schoenberg tells GlobeSt.com.
San Francisco office property sales jumped significantly from last quarter, with total dollar volume reaching more than $1.3 billion by the close of the first quarter. Average per square foot price also rose 12.32% quarter-over-quarter to $943.43, according to a first quarter report by Kidder Mathews. Year-over-year, the increases are even more staggering as dollar volume increased by more than $1 billion and average per square foot sales price jumped 74.42%.
The most significant sale of the quarter was Gap Inc.’s February purchase of the Mission Bay/China Basin building, one it was previously leasing from Hines Global REIT Inc., for $342 million ($1,211.22 per square foot). Clarion Partners’ purchase of the Charles Schwab building at 215 Fremont from Jack Resnick & Sons Inc. for $335 million ($898.56 per square foot) was a close second. Rounding out the top three largest sales of the first quarter was JLL Income Property Trust’s sale of 111 Sutter to Harbor Group International LLC for $227 million ($774.74 per square foot).
The crackdown on cross-border investments by the Chinese government has not had the lasting effect many thought it might, as REITs and other domestic investors have become very aggressive in obtaining San Francisco office assets. As predicted in the Kidder fourth quarter 2018 market report, domestic investors were happy to fill the void left by Chinese buyers after the imposition of stricter capital controls from the ruling Chinese Communist Party. Furthermore, many Chinese investors remain unfazed by the capital controls and continue to maintain a large presence in the US market. Looking ahead, it is likely that this market will continue to be very popular among investors, as rental rates maintain all-time highs and recent sales have yielded remarkable returns on investment.