Value-Add Play Pays Off in Oyster Point

SOUTH SAN FRANCISCO—Buchanan Street Partners purchased Dubuque Center, a three-building 112,000-square-foot flex office and R&D campus, in 2015 as a value-add investment that would capitalize on the strong demand for flex office space surrounding the biotech-focused Oyster Point submarket. In addition to physical improvements, Buchanan Street focused on converting underperforming industrial space into laboratories and other life science uses.

“We understood early on that the property’s strategic location within the heart of San Francisco’s burgeoning life sciences and biotech hub supported repositioning the asset to meet the high demand from biotech users in a supply-constrained market,” said Robert Dougherty, partner, Buchanan Street Partners.

Fast forward to the present, when the Newport Beach, CA-based real estate investment management firm recently sold Dubuque Center to SFF Realty Fund III, an affiliate of San Francisco-based PSAI Realty Partners, for $47.5 million. Dubuque Center, located at 800-890 Dubuque Ave., was 93% leased at the time of sale to Walmart, Emerald Cloud Lab and Thermo Fisher Scientific, among others.

Dougherty, who worked closely on the Dubuque transaction, says dramatic supply-demand imbalance for lab space is what really drove the premium pricing.

“The Dubuque Center sale was a value-add investment play for Buchanan Street. The site is located within the Oyster Point submarket, a hotbed for tech and life science businesses. Based on Buchanan Street’s research, the firm decided to make improvements to the property’s dated buildings and optimize them for flex/R&D office use by providing updated spaces for research and laboratories,” Dougherty tells GlobeSt.com.

Dubuque Center’s three buildings are consistent with last-mile logistics criteria–small box industrial properties, typically less than 200,000 square feet in size, located in areas surrounded by executive housing that are accessible to larger transportation routes. Dubuque Center sits along the east side of Highway 101 a couple miles north of the San Francisco International Airport. Several densely populated neighborhoods are adjacent to the 101.

“Demand for industrial space in densely populated areas such as San Francisco and the Bay Area has increased exponentially in recent years as e-commerce companies try to maximize efficiencies by establishing warehouse locations closer to consumers,” Dougherty tells GlobeSt.com. “However, based on thorough market research and identifying the demand for biotech space, Buchanan Street opted to position the property for R&D office uses.”

Buchanan Street was represented in the sale by Michael Leggett, David Dokko and Ben Bullock of HFF.