The transaction follows a two-year repositioning program by the sellers that raised occupancy in the building to 98.5% from 71%. One of the tenants added to the building was Barclays Global Investments, which leases all of Foundry Square I. The anchor tenant is Orrick Herrington, a law firm that occupies nearly half of the building for its global headquarters on a lease that was signed near the bottom of the market and does not expire until 2019. Other major tenants include Moody's and Continental Casualty.
The Sterling-Hines JV acquired the building as part of an unstable four building, 1.7 million sf from Equity Office Properties in 2005 for approximately $397 million. The other properties are 301 Howard St. and 120 Montgomery, also in San Francisco, Parkside Towers in Foster City, CA and San Rafael Corporate Center in San Rafael, CA. Earlier this year the JV sold 301 Howard to Archon for $129 million. The other buildings remain in Sterling's portfolio but probably not for much longer given the company's value-add strategy.
As part of its value-added business plan for 405 Howard, the company installed additional floor-to-ceiling windows on the second floor, improved the outdoor plaza and re-tenanted the retail with New Resource Bank and Peets Coffee. Sterling American Property's senior vice president of acquisitions Tarak Patolia, who spoke with GlobeSt.com Wednesday, says the sale of the 405 Howard, also known as the Orrick Building, provides its investors "a significant return" while the new owners get a building with "outstanding tenants and a stabilized yield" that could rise with "opportunities to increase below-market rents as they roll over."
The building is the first San Francisco acquisition by Ashforth Pacific, the Portland, OR-based West Coast affiliate of the Stamford, CT-based Ashforth Co. Ashforth Pacific president Scott Langley tells GlobeSt.com the company has been looking to expand beyond Portland, where it has a significant stronghold, and San Francisco and Seattle are its target markets. In the past 18 months, the company has acquired four buildings, including two in Portland, one in Seattle and 405 Howard in San Francisco.
"The Seattle and San Francisco purchases are not stand-alone acquisitions," says Langley Wednesday from his rental car in the San Francisco area, on his way to look at another potential acquisition. "They are catalysts for future growth, for creating a critical mass of properties in those markets."
As for 405 Howard, Langley says he was drawn to its striking architectural design, the fact that it's part of the larger, mixed-use Foundry Square development, and its location within the South Financial District, an area that is coming on strong.
"For the last five years the South Financial District has caught on fire for a bunch of reasons, but primarily due to transportation convenience relative to access to the Bay Bridge, BART, CalTrain and the bus system," Langley says. "Whether you're going east or south, there's just a tremendous advantage to being in the South Financial District versus the North Financial District."
The future of the area looks even brighter. One block from 405 Howard, is the Transbay Terminal, for which an international design competition recently got under way for its redevelopment. That redevelopment plan includes a 1,000-foot tower rising from a new state-of-the-art transit hub. Next door to the Terminal, a group is seeking approvals for a 2.9-million-sf, mixed-use cluster of five skinny skyscrapers, two of which would rise 1,200 feet into the sky. The two developments would be home to the tallest buildings in the West.
"So all of this is in the works right now, which in itself will be a catalyst for further positive growth and development in the area," Langley says. "The South Financial District is really on the move right now and clearly the Orrick Building is the one of the newest, nicest and most prominent buildings in the area. It's everything we were looking for."
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