Saturday, June 12, 2010

San Francisco Office Tower Sold in Biggest City Deal Since 2007

Bloomberg News

June 12 (Bloomberg) -- A San Francisco office tower occupied by Wells Fargo & Co. sold for $333 million to a group of South Korean investors in the city’s biggest commercial property deal in three years.


Korean Teachers’ Credit Union and Korean Federation of Community Credit Cooperatives were among the buyers of 333 Market Street, a 33-story building in the city’s financial district, the teachers union said in an e-mailed statement. The purchasers paid about $507 a square foot, said Goodwin Gaw, a Hong Kong-based developer who helped broker the deal and will manage the tower. The sale closed June 10.

The seller was Des Moines, Iowa-based insurer Principal Financial Group Inc., which bought the tower from Wells Fargo for $370 million in 2006 before a collapse in commercial property values. The last single San Francisco office building to change hands for a comparable price was 650 California St., which sold for $300 million in July 2007, according to broker Jones Lang LaSalle Inc.

“A Market Street high-rise combined with a long-term lease with Wells Fargo makes this an extremely attractive asset,” said Daniel Cressman, executive vice president at Grubb & Ellis Co. in San Francisco. “It shows you how well-located, well- leased assets hold value even in difficult times.”

San Francisco-based Wells Fargo occupies 100 percent of the rentable space and has a lease that runs to 2026. The bank owns its headquarters at 420 Montgomery Street.

Paula Chizek, a spokeswoman for Principal Financial, confirmed the Market Street building was for sale and declined to comment further.

Plunge in Values

U.S. commercial real estate values were down 42 percent in March from the October 2007 peak, according to the Moody’s/REAL Commercial Property Price Index. Retail and office properties in the biggest metropolitan areas led the decline, Moody’s said May 19.

Prime office rents in San Francisco fell to $30.48 a square foot in the first quarter from $38.80 a year earlier, according to Colliers International, a Seattle-based brokerage. The vacancy rate for the highest-quality, best-located offices, known as Class A space, rose to 14.5 percent from 12.8 percent.

Tenants including Del Monte Foods Co., Brown & Toland Medical Group and Credit Suisse Group AG took advantage of low rates in the fourth quarter and leased about 1 million square feet of office space, said Tove Nilsen, research director for Colliers International in San Francisco.

South Korean Funds

The 657,115-square-foot Market Street high-rise is expected to provide “stable cash flow,” the South Korean funds said in the statement. South Korean pension funds also agreed to buy Berlin’s Sony Center from a Morgan Stanley real-estate fund in April for about $768 million and purchased two buildings in Tokyo and Yokohama, Japan this month for $116 million.

Wells Fargo, the biggest U.S. commercial property lender, will provide a $200 million loan to the buyers, according to Gaw. The purchasers are paying an interest rate of 4.5 percent on the loan, he said.

The capitalization rate for the transaction is close to 7 percent, Gaw said. The rate, a measure of real estate returns, is derived by dividing net operating income from the property by its purchase price.

Gaw’s Los Angeles-based Downtown Properties LLC owns the Roosevelt Hotel and Bradbury Building in Los Angeles and has operated offices, hotels and golf courses in Los Angeles, New York, San Francisco and Hawaii, according to its website.

He bought San Francisco’s 550 Montgomery St., a Class B office building built in 1908, for $12.65 million, or $134 a square foot, in February, according to Colliers.

To contact the reporters on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net Dakin Campbell in San Francisco at dcampbell27@bloomberg.net Saeromi Shin in Seoul at sshin15@bloomberg.net .