Hudson Pacific Buys Out San Francisco Tower Stake at 80% Discount

Hudson Pacific Properties has bought out its partner’s 45% share of a Market Street office tower at an 80% discount from the purchase price.

The Los Angeles-based REIT paid about $44M for the Canada Pension Plan Investment Board’s 45% share in 1455 Market Street, a 22-story building that once housed Uber’s headquarters.

In 2015, Hudson Pacific sold the 45% share in the 1M SF building to the Toronto-based pension fund for $219M-meaning that this month’s sale amounts to an 80% drop in the value of the building since the 2015 deal, from about $471/SF to $93/SF, according to a report in the San Francisco Business Times.

Hudson Pacific purchased 1455 Market in 2010 for $93M and spent another $50M on renovations before selling the stake to the Pension Board.

Last month, Hudson Pacific reach a deal with the city of San Francisco on a long-term lease for 157K SF at 1455 Market-a deal that includes an option to buy the tower, according to a report in the San Francisco Chronicle.

Under the lease agreement, the city will initially lease about 52K SF of the seventh floor at 1455 Market, and all of floors 12, 13, 15 and 17. The term of the lease is 21 years, with two five-year renewal options.

Base rent for the city’s lease will start at $40 per square foot and escalate to $72 per square foot in year 21. Concessions include an allowance for tenant improvements of $100 per SF; the city may also acquire furniture left behind by the building’s departed tech tenants for $1, the report said.

The city also has been given an option, which it must exercise by the end of 2027, to expand its footprint in the building by leasing the sixth floor, which encompasses 132K SF; the fourth and fifth floors, with 98K SF and 99K SF, respectively; and a 66K SF sublevel floor.

On the condition that the city occupies at least 400K SF at 1455 Market as of Dec. 21, 2027, a purchase and sale agreement between Hudson Pacific and the city’s Real Estate Department will allow the city to purchase the 1M SF office tower. The purchase price would be set at a market value to be determined by an appraiser but may not fall below $200 per SF, the report said.

Mid-Market office towers have been trading at steep discounts for the past year, including a deal last month that saw a 90K SF Market Street tower acquired from nearly 90% less than its last trade.

An affiliate of Florida-based LNR Partners, a subsidiary of Starwood Property Trust, acquired a 16-story office tower at 995 Market Street at a public auction on April 18 with a bid of $6.56M, or about $72 per SF. Last year, New York-based building owner Bridgeton stopped make payments on a $45M CMBS loan backed by the building, which Bridgeton bought in 2016 for $62M.

The office vacancy rate hit 36.6% in San Francisco during the first quarter of 2024, up from 35.6% in the fourth quarter of 2023. Total availability, which includes occupied space, ticked up to 38.7% from the 38.5% recorded at the end of 2023.