Griffin Capital Closes $36M Office Buy

EMERYVILLE, CA-A 127,246-sf flex office building here has changed hands for $36 million. The building is 80% leased, most of it on a long-term basis by the federal government. The five-acre property is located at 1650 65th St., two miles north of the Oakland-Bay Bridge and a few blocks south of Berkeley Aquatic Park.Griffin Capital of Los Angeles, arranged the acquisition for a group of 22 tenant-in-common investors, most of whom were completing 1031 exchanges. Griffin also owns a 5% stake in the property and will act as the asset manager. The cost of the property to the TIC was $40.9 million when acquisition fees, commissions and due diligence costs are included in the total.The seller was a joint venture of two San Francisco firms–Rockwood Capital, an institutional real estate money manager, and TMG Partners, a real estate owner, developer and manager. TMG Partners will manage the property. The property was originally built in 1951 and substantially renovated in 2004. Its largest tenant, occupying 82,000 sf, is the federal Department of the Treasury. Another 20,000 sf is leased to Ex’Pressions Center for New Media, an expanding media arts college that keeps its main campus adjacent to the property, through 2014. The remaining 25,000 sf of space is vacant, but Griffin president Kevin Shields tells GlobeSt.com he expects Ex’Pressions to take down the space this fall and begin paying rent next spring. The current cap rate is about 6.5%. When the excess space is leased, the cap rate will jump to about 7.7%, he says.The planned hold is 10 years and there are two equally viable exit strategies for the property, Shields says. At the end of the projected holding period, Shields says Griffin can either renew the existing leases or entitle the land for high-density residential development and take advantage of the property’s unobstructed San Francisco Bay Area views. “Entitled residential land sells for about $60,000 per door and this property could hold up to 500 units,” he says. “That’s $30 million worth of dirt.”Shields says the 22 TIC investors put up a combined $13.5 million in equity and borrowed $27.4 million of non-recourse, 10-year fixed-rate first mortgage debt from JPMorgan Chase Bank at an interest rate of 5.42%. The investors were represented by numerous broker-dealers, Shields says. The substantial majority of the equity was placed by 1031 Exchange Options of Walnut Creek; Omni Brokerage Inc. of Salt Lake City; and Berthel Fisher Financial Services Inc. of Des Moines. Griffin Capital specializes in the acquisition, financing and ownership of institutional-quality property for its own account and through its Co-Ownership in Real Estate investment program serving the 1031 exchange market. The company currently owns and manages a portfolio of over 5.3 million sf of space located in 14 states.