Hines' Funds Buy 1M SF in Northern California

SACRAMENTO-In its first acquisition, Hines’ US Office Value Added Fund has paid $69.5 million for Capital Center II and III, a 10-building, 529,000-sf portfolio of low-rise office space located a few miles west of the city in Rancho Cordova. The seller was publicly traded Trizec Properties Inc.; the properties were the company’s only assets in the metro area.The closed-end Hines US Office Value Added Fund was formed in December 2003 to acquire office properties in CBD and suburban markets where value can be created through leasing, redevelopment and operating strategies. It’s equity comes from major public and private pension funds, foreign and domestic insurance companies, a university endowment, and a group of high-net-worth, individual investors.  Capital Center II and III are located adjacent to each other in the Highway 50 Corridor. Capital Center II is a six-building, 312,357-sf campus consisting of two two-story buildings and four single-story buildings. Capital Center III is a four-building, 216,384-sf campus consisting of four matching two-story buildings situated around a large central courtyard with a water feature. Both campuses were completed in 1984 and have a combined current vacancy rate of 26.5%. Published net lease rates at the property range from $12 to $22 per sf. Tenants of the two campuses include Bank of America, MCI Telecommunications, McKesson Heath Solutions, St. Paul Travelers and Wachovia Bank. “We see growth potential in the prosperous Sacramento market and hope to expand our presence here further,” says Hines executive vice president Jim Buie. The purchase is the second Northern California acquisition that Hines’ funds have made this week. On Tuesday, Hines announced that its US Core Office Fund paid $287 million for two Downtown San Francisco office buildings totaling 766,000 sf. The fund paid $140.6 million for 101 Second St., a 387,000-sf building completed in 1999, and $146.4 million for 55 Second St., a 379,000-sf building completed in 2002. Both buildings are located in the Mission Street Corridor of San Francisco’s South Financial District and were 84% leased at the time of sale. Hines’ US Core Office Fund is a partnership of Hines and Sumitomo Life Realty (NY) Inc., a wholly owned subsidiary of Sumitomo Life, the third largest insurance company in Japan. The fund was formed to acquire a portfolio of class A, geographically diverse core office buildings in the US. Already this year, the fund has acquired an interest in 600 Lexington in New York and One and Two Shell Plazas in Houston. In 2003, the fund acquired interests in 499 Park Ave. and 425 Lexington in New York, and 1200 19th Street NW in Washington, DC.