01/25/2012

JP Morgan Nabs San Francisco Office Complex

In the biggest sale of a California office property since the downturn, J.P. Morgan Asset Management has acquired the sprawling China Basin Landing complex in San Francisco from Calpers for $415 million.

J.P. Morgan completed the purchase of the 902,000-square-foot complex late last month via its $14 billion Strategic Property Fund. The $460/sf price is believed to translate into a sub-5% initial annual return for the open-end fund, which declined to comment. The property, at 185 Berry Street, is about 97% leased.

The unbrokered sale came together after J.P. Morgan, hungry for core assets on the West Coast, approached Los Angeles-based Canyon Capital, manager of the CalSmart portfolio of Calpers, which held the property since 2005.

The price is the highest paid for a California office property since 2007, when Morgan Stanley sold a 50% stake in the Spear and Steuart Tower, also in San Francisco, to Paramount Group of New York for $730 million. On the entire West Coast, there has been just one larger office deal since then, excluding portfolios: J.P. Morganís $479 million purchase last August of two adjacent Seattle buildings, at 1918 Eighth Avenue and 818 Stewart Street, from Schnitzer West of Seattle.

China Basin Landing consists of the 502,000-sf Wharfside Building, which was developed in 1920 and renovated in 1995, and the 400,000-sf Berry Street Building, developed in 1992 and expanded in 2007. About 70% of the total space is devoted to offices, and the rest is used for laboratories and classrooms. Tenants include University of California, Level 3 Communications, San Francisco Weekly and a variety of healthcare and life-sciences companies.

The property fills the block between Third and Fourth Streets, from Berry Street to the China Basin Water Channel. Itís directly across Third Street from AT&T Park, home of the San Francisco Giants baseball team. The China Basin neighborhood, once predominantly industrial, has seen a steady influx of restaurants, bars and apartment buildings in recent years, especially since the baseball stadium opened in 2000.

Calpers acquired the complex from Stockbridge Capital of San Francisco in September 2005 for $260 million, or $376/sf. At the time, the CalSmart portfolio was managed by RREEF. Calpers and RREEF took on McCarthy Cook of San Francisco as a managing partner for China Basin Landing, with a small equity stake.

The partnership spent about $100 million expanding the Berry Street Building by 170,000 sf to its current size. Calpers transferred management of the CalSmart portfolio to Canyon Capital from RREEF last year. Itís unclear whether McCarthy Cook continues to manage China Basin Landing or holds an equity stake.

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