01/09/2013

Pension Lists SF Tower With Maturing Leases

A pension system is marketing a San Francisco office building with a significant amount of below-market leases coming up for renewal.

The 254,000-square-foot tower, at 601 California Street in the Financial District, is expected to attract bids of about $400/sf, or $102 million. Illinois Teachers has given the listing to Eastdil Secured.

The Class-A property is fully occupied, but leases on about 40% of the space expire this year. The rents on that space are as much as 25% below the Class-A average in the Financial District, so the rollover should provide a buyer with a chance to boost the income. The tenants include law and investment-services firms.

Illinois Teachers marketed the 22-story property in mid-2008, when the thinking was it might fetch close to $400/sf. But the real estate market was still sliding, and Northern California’s all-important technology industry was in a slump, so no deal was struck.

Now, however, San Francisco’s office market is one of the best in the country. The Financial District has an 89% average occupancy rate, and demand for space has driven Class-A rents up 9.5% in the past year.

In June, two nearby California Street office buildings traded for well over $400/sf. Clarion Partners of New York paid $501/sf, or $180 million, for the 359,000-sf property at 600 California Street. And Tishman Speyer of New York paid $456/sf, or $223 million, for the 489,000-sf tower at 650 California Street.

The building at 601 California was constructed in 1990 and last renovated in 2002.

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