DivcoWest to Buy San Francisco Office Buildings
Submitted November 3, 2011, 10:03 AM
San Francisco-based DivcoWest Real Estate Investments has committed to buying the Howard-Hawthorne Center, two lesser-quality office buildings in the city’s South of Market on the cusp of the rapidly improving Yerba Buena and South Financial districts.
The buildings, now in escrow, are currently owned by RREEF LLC, the real estate asset manager for Deutsche Bank AG.
Neither the buyer nor the seller would comment on the pending transaction. RREEF has a regional office in downtown San Francisco.
According to a third-quarter report published by Cassidy Turley Commercial Real Estate Services, 55 Hawthorne is a Class B asset originally developed in 1970, and 631 Howard is a Class C building developed in 1929 that has been renovated several times.The overall occupancy of the two properties is 84 percent.
The Yerba Buena submarket, whose main public landmarks are the Yerba Buena Gardens and Yerba Buena Center for the Arts, saw a 4 percentage point drop to 22.5 percent in its office vacancy rate from the end of the second quarter to the end of the third, according to Cassidy Turley. Of 10 key lease transactions the brokerage highlighted in the third quarter, half were in the South Financial District or Yerba Buena. The vacancy rate in the South Financial District at the end of quarter was 10 percent, down slightly from the quarter before.
RREEF owns the San Francisco buildings via RREEF America REIT III, a value-add, open-ended commingled investment fund established in 2003. There are a total of 118 institutional investors in the fund.
The real estate manager stated in its third-quarter report for the REIT that one of its goals for the fourth quarter was to finalize the disposition of the two buildings.
RREEF America III had assets valued at $771.5 million at the end of the third quarter. It owns a total of 79 properties including many office and research and development buildings acquired from Silicon Valley’s Peery Arrillaga, a private Palo Alto office landlord with deep financial ties to the region, and the Sunnyvale Town Center. Not quite a quarter of the fund’s assets are in the West.
