Birtcher Anderson Buys Flex/Office Campus

Potrero Business covers 4.55 acres in southeast San Francisco, adjacent to Interstate 280 and one mile east of Highway 101. Built in 1986, the property includes two, single-story buildings and one, two-story building and off-street parking for 167 vehicles.

The campus is 95% leased to 14 tenants. Anchor tenants include Davita Dialysis Clinic, Aramark Inc., Cupertino Electric and Graybar Electric Co. The physical addresses of the buildings are 1740, 1750 and 1760 Cesar Chavez St.

"We targeted this property due to its location in the rapidly improving San Francisco market," says Birtcher Anderson's VP of acquisitions Steve Corea. "This particular sub-market has experienced significant positive absorption and rapidly increasing rental rates driven by the lack of competitive alternatives and the re-emergence of high technology and life sciences industries within the city."

The property also is appealing due to its proximity to the 3rd Street Light Rail line. The line, which is scheduled to open in late 2006, has already impacted the real estate market in the immediate area, Corea says. Also impacting the market is the boom in residential construction that is coming "at the expense of potential commercial development sites," he says.

Over the last four years, approximately three million sf of existing commercial space has been converted to residential use in San Francisco, Corea says. Over the past year--April 1, 2005 to April 1, 2006--the San Francisco office market vacancy rate has declined from approximately 18.5% to 11.5%. The office market should tighten even more as commercial space is converted to residential use, he says.

Potrero Business Center marks the first Northern California acquisition by Birtcher Anderson, a member of the Birtcher Real Estate Family of Cos. that began its direct investment program in 1999. Birtcher Anderson CEO Bob Anderson tells GlobeSt.com the company often uses private equity partners but in the case of Potrero did it in house with equity from principals and employees and high-leverage financing from Wachovia.

Value-add opportunities include converting some of the remaining warehouse space to office space as tenants roll, and potentially working with the owners of an adjacent three-acre property to expand the development. Currently, the site is used to park taxi cabs.

Potrero was underwritten to a five-year hold. "But we will watch it very closely," says Anderson, whose weighted average IRR goals is typically in the teens. "That neighborhood is being transformed daily."

The company is pursuing other office and property investments in the region. "We have a property in Sacramento in escrow and have offers out on a couple of office buildings in Downtown San Francisco," Anderson says.

Including this latest acquisition, the company has about $170 million of property in the western US over the past eight months. Much the recent activity has been focused in the Greater Phoenix area, says Anderson.

Ken Hulbert of GVA Daum Commercial in Newport Beach represented Birtcher Anderson Realty in the acquisition of Potrero Business Center. Marcella Harrison and Tim Mason of GVA Whitney Cressman in San Francisco represented the seller, Potrero Business Center LLC.