Invesco Buys San Francisco Office Tower from Hines

Invesco Real Estate closed this week on the purchase of 101 Second Street in San Francisco, a 26-story office tower at Second and Mission streets, from a subsidiary of the Hines U.S. Core Office Fund LP. While financial terms of the deal or a definitive sales price were not disclosed, a source familiar with the deal told Bloomberg that the building traded hands for $291 million, which, at $750 a square foot, would make it San Francisco's most expensive deal for a stabilized office property in the past year. The sales price is nearly 10% higher than the price tag that the seller was targeting, according to market sources.

"It was a very competitive process but an asset we think makes a lot of sense to own long-term as this location and quality is rarely found in San Francisco," Greg Kraus, a managing director at Atlanta-based Invesco, said in an e-mail. He declined to comment on the price. 101 Second Street is roughly 90% leased, with major tenants including Reed Smith LLP, Ziff Davis Media Inc., Nexant Inc. and wealth management firm Aspiriant.

Hines, in partnership with Sumitomo Real Estate of Japan, originally acquired the property along with its companion building at 55 Second Street for $282 million from a Cousins Properties partnership in 2004. According to a San Francisco Business Times article, the two buildings were developed together, and are two of the strongest assets in a portfolio that is being recapitalized. While Hines has retained Eastdil Secured to market 55 Second Street, some speculate that the strength of the 101 Second Street transaction may allow Hines to hold on to the second property.

"I would be very careful of buying anything above what it costs to build," said Ken Rosen of the the Fisher Center for Real Estate and Urban Economics at UC Berkeley, who suggested that area pricing had become a bit inflated. "It makes me uncomfortable that we are seeing that again in San Francisco. It's a mistake. You can't rely on interest rates staying low forever. There is no question in my mind that by 2017 we will have moved back to a 4 or 5 percent treasury bond. Maybe it won't happen as quickly as I think, maybe it will happen sooner. So if you are buying something based on 2.6 treasury, it's a mistake. You have to look at replacement costs."

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