Key findings:
- The Financial District was the busiest neighborhood in terms of office sales in 2016: 10 out of the 20 largest transactions closed in the city’s CBD;
- Blackstone topped the list of biggest office buyers of 2016, shelling out more than $560M on two Central San Francisco assets;
- The $521M sale of One Front Street was the largest office deal to close in the city last year; the 38-story tower was snagged by Paramount Group.
There was no shortage of office activity in The City by the Bay in 2016. The San Francisco commercial real estate market continues to attract investors and young professionals alike, and the professional and business services sector alone added more than 18,000 jobs in the past year—a 3.6% increase year-over-year, according to a Yardi Matrix seasonal metro report (pdf). Tech companies keep flocking to and expanding in the metro, for example Fitbit, which signed a 305,000-square-foot sublease with Charles Schwab at 215 Fremont, and Lyft, which took over 206,000 square feet at 185 Berry St.—two of the largest office leases to close in the metro last year.
Strong leasing activity in the tech sector, combined with the wave of pre-leased new office completions, resulted in 479,285 square feet of positive net absorption in Q4 2016 in San Francisco, according to CBRE. Total annual net absorption volume reached 1.5 million square feet in 2016, surpassing the previous year’s total by nearly 600,000 square feet.
Top 20 Largest Office Deals of 2016—Investors Bullish on the Financial District
As office activity in San Francisco continues to heat up, investors are betting big on the market—the 20 largest office deals in 2016 fetched a total of $3.8 billion, well above the previous years’ total. The city’s Financial District proved to be the most sought-after neighborhood for office investment—10 of the 20 largest deals closed on the Barbary Coast. The Blackstone Group was the biggest investor on our top 20 list, shelling out in excess of $560 million on two office assets on Market and Seventh streets.
We’ve rounded up the largest office deals to close in Fog City below:
| # | Sale price | Address | Buyer | Seller | Neighborhood |
|---|---|---|---|---|---|
| 1 | $521,000,000 | 1 Front St. | Paramount Group | Invesco Real Estate | Financial District - Barbary Coast |
| 2 | $510,000,000 | 555-575 Market St. | Blackstone | John Hancock Real Estate | Financial District - Barbary Coast |
| 3 | $374,000,000 | 760 Market St. | Main Place Liberty Group | Thor Equities | Downtown San Francisco |
| 4 | $332,030,500 | 505 Howard St. | American Realty Advisors | Tishman Speyer + J.P. Morgan Asset Management | Yerba Buena |
| 5 | $284,000,000 | 140 New Montgomery St. | Pembroke Real Estate | Stockbridge Capital Group + Wilson Meany | Yerba Buena |
| 6 | $277,073,500 | 100-120 Montgomery St. | Vanbarton Group | Blackstone | Financial District - Barbary Coast |
| 7 | $255,000,000 | 123 Mission St. | HNA Group | Pacific Eagle Holdings | South Beach |
| 8 | $218,000,000 | 580 California St. | JP Morgan Asset Management | PGIM Real Estate | Financial District - Barbary Coast |
| 9 | $185,000,000 | 295 Bush St. | Sidra Capital | CBRE Global Investors | Financial District - Barbary Coast |
| 10 | $169,500,000 | 353 Sacramento St. | KBS | Pacific Eagle Holdings | Financial District - Barbary Coast |
| 11 | $135,000,000 | 350-360 Post St. | Ponte Gadea Group | Real Estate Capital Partners | Downtown San Francisco |
| 12 | $103,700,000 | 530-550 Kearny St. | Madison International Realty | Brickman | Financial District - Barbary Coast |
| 13 | $91,000,000 | 1789 Montgomery St. | Jamestown | KBS | North Waterfront |
| 14 | $83,000,000 | 115 Sansome St. | Vanbarton Group | TA Associates Realty | Financial District - Barbary Coast |
| 15 | $62,000,000 | 995-997 Market St. | Bridgeton Holdings | Columbia Pacific Advisors + Long Market Property Partners | South of Market |
| 16 | $50,470,000 | 650 7th St. | Blackstone | Alecta Real Estate Investment | South of Market |
| 17 | $49,780,000 | 400 Montgomery St. | TIAA | Hearst Corporation | Financial District - Barbary Coast |
| 18 | $45,000,000 | 420 Taylor St. | Seven Equity Partners | PRES Real Estate + Seal Rock Investments | Downtown San Francisco |
| 19 | $42,650,000 | 755 Sansome St. | Shanghai Lingang Economic Development | Market Street Real Estate Partners | Financial District - Barbary Coast |
| 20 | $38,500,000 | 340 Townsend St. | CIM Group | iHeart Media | South of Market |
1. One Front Street Trades for $521M
One Front Street
In early December, Paramount Group closed on the $521 million acquisition of One Front Street, a 38-story, roughly 645,000-square-foot office tower located in San Francisco’s Financial District. Paramount shelled out approx. $800 per square foot to snatch the Class A asset from Market Front Associates LP, a partnership that included Invesco Real Estate, according to the San Francisco Business Times. Ideally located within two blocks of the $6 billion Transbay Transit Center currently under development, One Front Street includes a 290-space parking garage, is LEED Gold-certified, and was 99.4% leased at the time of sale.
2. Blackstone Goes Shopping on Market Street
555-575 Market Street
The Blackstone Group ended the month of June 2016 in style, with the $510 million purchase of the Market Center office complex in the city’s Unified School District. According to data from Yardi Matrix, Equity Office Properties Trust, a wholly owned subsidiary of Blackstone, acquired the 21-story tower at 555 Market St. and the 40-story tower at 575 Market St. from John Hancock Real Estate, the U.S. division of Manulife Financial Corp. The two office buildings that make up Market Center total roughly 755,898 square feet of space and are home to tenants such as Uber, DivcoWest Properties, PNC Bank and Bank of San Francisco, according to REbusiness Online.
3. Thor Equities Doubles Investment in 760 Market St.
760 Market Street
It’s been a busy year on Market Street in terms of office transactions. Eight years after paying $130 million for the Phelan Building at 760 Market St., Thor Equities sold the asset for a whopping $374 million, PropertyShark data shows. A member of the prominent Hotung family from Hong Kong acquired the 11-story building through a limited liability company, The Phelan Building LLC, Reuters reported at the time. The property consists of roughly 250,000 square feet of office space and 52,000 square feet of ground-floor retail and is home to tech startups such as Obvious Ventures and Medium—both led by Twitter co-founder Evan Williams.
4. American Realty Advisors Pays $332M for 505 Howard St.
505 Howard St.
In late December, American Realty Advisors closed a major office deal, shelling out $332 million for Foundry Square III in the city’s SoMa district. The 10-story asset at 505 Howard St. was developed in 2014 by Tishman Speyer and J.P. Morgan Asset Management and offers major street exposure on 1st and Howard streets, according to Yardi Matrix data. Foundry Square III features 83 parking spaces, 11,880 square feet of first-floor retail, and expects to earn LEED Gold certification from the USGBC.
5. 140 New Montgomery Sells for Record Price Per Square Foot
140 New Montgomery Street
Pembroke Real Estate made the news in April 2016 with the purchase of the historic Pacific Telephone Building at 140 New Montgomery St. in Yerba Buena, from Stockbridge Capital Group. The $284 million price tag for the building translates to roughly $962 per square foot, hitting a new record for the city, according to The Registry. Yardi Matrix data shows that the sale price also included a $142 million loan placed with Metropolitan Life Insurance Co. The 26-story high-rise was originally completed in 1925 and completely renovated in 2013, and features Yelp as the main tenant.
6. Vanbarton Shells Out $277M for Equitable Life Building
100 Montgomery Street
Back in July, Vanbarton Group LLC acquired the 25-story, 435,290-square-foot office building at 100-120 Montgomery St., for a little over $277 million. The company bought the historic tower from Blackstone affiliate Equity Office, which purchased it in 2012 for $165 million, and plans to invest in upgrades to maintain the asset’s market positioning, The Registry reported. The building completed in 1955 is LEED Platinum-certified and houses tenants such as Adecco, Perkins Eastman, Hines and City National Bank, as per PropertyShark data.
7. 123 Mission Street Fetches $255M
123 Mission St.
The 29-story office high-rise at 123 Mission St. in San Francisco’s South Beach neighborhood changed hands in late August for a total of $255 million. China-based company HNA Group paid nearly $740 per square foot to snag the Class A asset from Pacific Eagle Holdings, with the help of a $187 million loan provided by Blackstone Group, according to Yardi Matrix data. Designed by Skidmore, Owings & Merrill, the 31-year-old building is LEED Platinum-certified and offers major exposure on both Main and Mission streets. The property also includes 2,577 square feet of retail space.
The top 7 largest office deals of 2016 in San Francisco all closed for more than $250 million, as you can see from the round-up above. But there were other properties which didn’t fetch very large amounts, yet still managed to make the news:
TA Realty Sheds Historic Sansome Street Asset
115 Sansome Street
The historic office building at 115 Sansome St. traded for the third time in five years in November, when TA Associates Realty sold it to Vanbarton Group for $83 million. The company bought the property back in 2013 for $51.5 million, and proceeded to upgrade more than 70% of the historic building to creative office space. The 19th Century French Beaux-Arts building was completed in 1912 as the headquarters for the Standard Oil Company, and today consists of 126,632 square feet of office space and 8,200 square feet of retail, according to Yardi Matrix.
Spanish Investor Adds Tiffany Building to Portfolio
350 Post Street
Towards the end of September, the iconic Tiffany Building at 350 Post St. found a new owner in Ponte Gadea, a Spanish investment company led by Armancio Ortega Gaona, founder of retail clothing chain Zara. According to PropertyShark data, the out-of-country investor paid $135 million to acquire the 11-story, 110,893-square-foot building, which includes both retail and office space. The sale price was six times higher than when the asset last traded, back in 1995. Commercial Property Executive identified the sellers as Greenstone Realty Advisors LLC and 360 Post LP, which shelled out $1,217 per square foot to acquire the property.
Reddit Headquarters Lands New Ownership
420 Taylor Street (Google Street View)
New York-based Seven Equity expanded its office portfolio in the fall with the $45 million purchase of 420 Taylor St. in San Francisco’s Tenderloin district. The sellers, a joint venture between Luxembourg-based Optimum Asset Management, Institutional Real Estate Fund, PRES Real Estate and Seal Rock Investments of San Francisco, walked away with a 65% percent return on their money just three years after acquiring the property, according to the San Francisco Business Times. The office building houses the headquarters of social news website Reddit, which took over 50,000 square feet of space in May 2016. Constructed in the 1940s, 420 Taylor used to serve as the headquarters of NBC radio affiliate KNBR and was the first air-conditioned building in the city.
Blackstone Nabs South of Market Startup Hub
650 Seventh Street
An 82,862-square-foot office building in the city’s South of Market neighborhood was acquired by Blackstone in October for $50.4 million. The buy was part of a larger, $1.8 billion national deal in which Blackstone affiliate Equity Office acquired 22 properties from Stockholm-based Alecta Real Estate Investment, according to data gathered by Yardi Matrix. Originally completed in 1908, the three-story creative office building at 650 7th St. serves as a home base for a rotating batch of startups handpicked by Salesforce. The property features above-standard ceiling height, common-area WiFi and offers major street exposure on 7th Street.
What’s Next?
According to Marcus & Millichap, over 1.6 million square feet of office space were delivered in the first half of 2016, bringing the four-quarter total to more than 3.2 million square feet—San Francisco’s most fruitful year since 2007 in terms of office construction. An additional 3.2 million square feet of new office deliveries are expected in 2017, CBRE predicts, setting the stage for another busy year in terms of office deals and leases.
Images courtesy of Yardi Matrix
Methodology:
- Data source: PropertyShark database
- Data compiled mid-January 2017
- Property type: office buildings
- We excluded “non-arm’s length” transactions
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