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June 13, 2018  

UBS Tees Up Clorox's HQ Tower in Oakland

UBS Asset Management is preparing to shop Clorox’s headquarters in downtown Oakland, setting the stage for the city’s largest-ever office trade.

Bids could go as high as $270 million for the 521,000-square-foot Clorox Building, at 1221 Broadway, which has direct access to a BART commuter rail station. At that $518/sf valuation, the buyer’s initial annual yield would be about 4.25%. Newmark, which has the listing, is expected to begin the marketing campaign this month.

Oakland’s sales and leasing markets are benefiting from spillover demand from San Francisco. While the Clorox Building would likely set an overall price record, another office listing could establish a high per-foot valuation. That 320,000-sf property, at 1330 Broadway, has an estimated value of $550/sf, or $175 million. The owner, TMG Partners of San Francisco, has given the listing to Eastdil Secured.

The Clorox Building’s occupancy rate is in the low-90% area, and the weighted average remaining lease term is just over seven years. Clorox, rated Baa1/A- by Moody’s and S&P, leases about half of the space. Brown & Toland, a physicians group, occupies 60,000 sf. The Class-A property includes retail space on two floors, where the vacancies are concentrated.

The rents are 50% below the building’s current asking rates of $60-63/sf. Given the distant maturity dates on most leases, it will take some time to unlock that potential. But the pitch is that the low prevailing rents offer a buyer a low going-in basis and set the stage for a big opportunity to boost cashflow over the long term.

Clorox formerly owned and fully occupied the 24-story building, which was constructed in 1976. In 2015, the consumer-products company sold it to a Westcore Properties partnership for $110 million, or $199/sf, and reduced its footprint. Westcore then renovated the building and leased up most of the space vacated by Clorox.

UBS acquired the building in 2015 for $177.3 million, or $340/sf. At the time in Oakland, rent growth was stagnant, institutional and foreign investor demand was tepid and downtown’s revitalization was just getting started.

Class-A space downtown was 93% leased at the end of the first quarter, according to Eastdil’s marketing materials for 1330 Broadway. Market pros say the continued revitalization of downtown, combined with a strong residential construction pipeline and growing shopping and entertainment amenities, should continue to push rent higher.

Oakland’s record office deal came in 2016, when Clarion Partners of New York bought the 535,000-sf Lake Merritt Plaza, at 1999 Harrison Street and 1956 Webster Street, for $235.5 million, or $440/sf. Eastdil brokered that sale for DivcoWest Properties of San Francisco. The current per-foot high of $474/sf was set in December, when CIM Group of Los Angeles bought the 380,000-sf Uptown Station, at 1954 Telegraph Avenue, for $180 million. Newmark handled that sale for Uber Technologies of San Francisco. ?