X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

OAKLAND, CA-Based on initial reaction from analysts, the market takes a positive view of Radnor, PA-based office REIT Brandywine Realty Trust’s decision to sell five of its Oakland-area office assets to an affiliate of the CIM Group of Los Angeles for $412 million.

As reported on GlobeSt.com, recently, the deal will involve properties totaling 1.7 million sf at One Kaiser Plaza, 1901 Harrison St., 1333 Broadway, 2101 Webster St. and 2100 Franklin St. News of the pending sale, which is expected to close in the third quarter of this year, prompted upgrades in the stock’s rating by at least two firms, Stifel Nicolaus & Co. and RBC Capital Markets.

The Stifel Nicolaus report upgraded its rating of Brandywine’s stock to a hold from its previous sell rating. Stifel Nicolaus views the news of the $412-million sale positively because the deal will reduce Brandywine Realty Trust’s debt load and generate cash that will help the Pennsylvania-based REIT to pay off bonds that mature later this year.

RBC Capital Markets upgraded Brandywine to a rating of perform from its previous rating of under-perform. The RBC report, however, suggested the possibility that Brandywine may cut its dividend some time over the next year. The RBC team also said it believes Brandywine Realty Trust may pursue more joint ventures this year.

In acquiring the Brandywine assets, CIM is buying into an Oakland office market where newly released figures from CB Richard Ellis show vacancy has increased to 11.7% in the second quarter and was up 30 basis points since last quarter. At the same time, however, absorption increased by 5.7% and building owners were making a concerted effort to keep the market moving by increasing concessions on free rent and tenant improvement allowances. Despite the weakening in vacancy and concessions, CBRE points out that “select business sectors and submarkets have maintained buoyancy with strong leasing activity.”

Grubb & Ellis Co. also pegs the vacancy rate increase at 30 basis points although it calculates the market vacancy at 13.6%.One factor that contributed to this slight increase in vacancy was new construction hitting the market, according to the Grubb & Ellis report.

The Grubb & Ellis report specifically cites Brandywine, pointing out the REIT delivered Center Twenty One in the Oakland CBD submarket during the first quarter with no signed tenants, adding 192,000 sf of vacancy to the submarket. This helped drive the overall vacancy rate in the Oakland CBD submarket up 150 basis points to 12.8%, except for class A which is still below 10% in the Oakland CBD.

In a public filing several days after the news hit the market, Brandywine said the sales agreement provides for the buyer to fund the $412-million purchase through a cash payment to Brandywine of about $276.9 million plus the loan assumptions to bring the deal’s total value to $412 million. The sales agreement also calls for Brandywine to manage and lease the five properties for one year following the closing in exchange for a market-based fee.

The decision to sell the assets follows a strategy, listed in the most recent Brandywine annual report. “Our disposition of properties is based upon management’s periodic review of our portfolio and the determination by management or our board of trustees that a disposition would be in our best interests,” the executive team concluded.

In addition to the agreement to sell the five properties, Brandywine’s filing says that the company has agreed to grant a 15-year purchase option to CIM for another property–Two Kaiser Plaza, which is adjacent to One Kaiser Plaza.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 3 free articles* across the ALM subscription network every 30 days
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?

Dig Deeper

GlobeSt

Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.