The entity taking on the risk is Forward One, a Burlingame-based LLC whose parent company is based in Taiwan. The buyer paid cash for the building in order to complete an IRS 1031 exchange that began with the sale of a property in Hawaii.
The main federal tenant in the building is the Department of Labor. The government leases 151,716 sf in the building and pays an annual rent of $4.41 million or about $29 per sf, according to the General Services Administration. The lease expires April 19, 2007, but may be extended through the summer, when the new federal office building at Seventh and Mission streets is scheduled for completion.
Built in 1986, the building is somewhat hidden behind the high rises that front it along the 500 block of Market Street. The GSA's leasehold is on floors two through 10, the 17th floor and part of the 18th floor. Current market rates for the lower floors are in the low to mid-$30s on a full service basis, says Qui, who has the leasing assignment for the building going forward.
The buyer's broker, TRI Commercial senior vice president Anton Qiu, tells GlobeSt.com that it may not be hard to backfill the imminent vacancy because 71 Stevenson will be the only class A office building in South Financial District with 135,000 sf of contiguous office space for lease next year.
"We'll be in a very good position to compete," he says. "Increased leasing activity has vacancy coming down dramatically, especially in the class A market, and a year from now it will be better because no new Downtown buildings will be completed for two or three years."
The $325-per-sf sales price is below replacement cost in Downtown San Francisco, which including land is estimated at between $500 and $550 per sf, Qui says. Due in part to the leasing risk, the sale price is also below the recent average sales price for San Francisco office buildings, which according to locally based Global Real Analytics is approximately $428 per sf. Next door to the property, 560 Mission St., a newer 665,000-sf building leased to JP Morgan Chase for the next 11 years, recently sold for about $575 per sf, according to local sources.
Embarcadero Capital Partners acquired 71 Stevenson around the end of 2004 for about $62.5 million. The property was about 76% leased at that time. The seller at that time was a partnership of Lehman Bros. and Michigan developer Michael Kojaian, which acquired the building in late 2000 for about $85 million, according to published reports at that time.
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