Pimco Outbids Rivals for Juul's SF Offices
A Pimco partnership has agreed to pay e-cigarette maker Juul just over $310 million for a San Francisco office building, besting an offer from Angelo, Gordon & Co.
The tentative deal marks Juul’s latest effort to salvage the sale of the 346,000-square-foot property after abandoning a plan to use it as its headquarters. Pimco’s bid values the largely vacant building, at 123 Mission Street, at just over $900/sf. Newmark is advising Juul.
The price under discussion is considerably higher than the $290 million valuation an Angelo Gordon partnership had been eyeing in a proposed preferred-equity deal. But it represents more than a 20% discount to the $400 million, or $1,157/sf, that Juul paid for the property just last year — and was poised to sell it for in a deal that collapsed amid the coronavirus pandemic.
Pimco, of Newport Beach, Calif., has yet to put down a nonrefundable deposit. While the Angelo Gordon team had been negotiating a deal to invest some $100 million of preferred equity in the property, Pimco and a local partner are poised to make an outright acquisition. It would mark one of the nation’s biggest value-added bets since the crisis hit: the building is only about 35% leased and requires a major renovation.
Juul acquired the 29-story, Class-A tower in June 2019 from Northwood Investors of Denver and planned to use the property as its headquarters. However, a backlash over health problems linked to its products caused the firm to slash costs. Instead of expanding its presence in the property, it vacated the building and announced plans to move its headquarters to Washington.
The e-cigarette maker tapped Newmark in December to market the building. With its large block of vacant space, it was viewed as a prime opportunity in San Francisco, where tenant demand was sky-high amid limited development and a booming technology industry.
In March, a PGIM Real Estate partnership agreed to pay roughly $400 million for the property, setting the stage for a relatively smooth exit for Juul. PGIM, a unit of Prudential, teamed with Madison Capital of New York on the negotiations. However, the economic uncertainty caused by the coronavirus upended the talks by recasting the vacancy as a huge risk. The Prudential team walked away during the due-diligence period in April.
By May, Angelo Gordon stepped in and began working with Madison, which is led by Richard Wagman and J. Joseph Jacobson and planned to act as the operating partner. However, before the deal was consummated, several other investors — including foreign players — began circling, also eager to pick up a value-added San Francisco office property at a hefty discount. The Pimco team emerged on top.
In terms of both leasing and sales, San Francisco was among the strongest markets in the nation before the current crisis. The city’s 84.3 million-sf office market was 96.8% occupied at yearend, while Class-A average asking rents were $92.41/sf, up 7.7% for the year. In the first quarter, occupancy dipped slightly to 96% and comparable rents fell to $91.95/sf.