RREEF Industrial Sale Repositions Bay Area Market
Submitted December 22, 2011, 2:50 PM
Better management in a better market is the simple formula that PS Business Parks plans to apply to the huge Bay Area industrial portfolio it has acquired from RREEF Real Estate.
Company President and Chief Executive Joseph Russell told analysts that occupancy in the 5.3 million square-foot portfolio could rise quickly from its current 82 percent. The Bay Area has a history of strong and fast economic turnaround, and his company’s existing Bay Area buildings are 93 percent occupied.
PSB paid $520 million for the 18 business parks, assuming an existing $250 million CMBS loan and securing a three-year, $250 million loan from Wells Fargo Bank.
The CMBS note has five years of remaining term, a 5.45 percent fixed interest rate and cannot be prepaid. The Wells note can be prepaid with no penalty and is based on LIBOR plus 1.2 percent.
The purchase balloons PSB’s Bay Area presence from 1.8 million square feet to 7.2 million. In one sweep, the region becomes the Glendale, Calif., company’s largest, approached only by a 6.5 million square-foot upper East Coast cluster. The company also owns four million square feet in Southern California and more in Oregon, Washington, Arizona, Texas and Florida.
PSB’s net income exceeded $100 million in fiscal 2010, which ended Dec. 31.
Russell and John Petersen, PSB’s chief operating officer, know the Bay Area real estate at a depth that few others in their positions could seem to claim. The two executives are graduates of Silicon Valley’s former Spieker Properties Inc., which owned many of the business parks that PSB is buying. Spieker’s merger with the former Equity Office Properties Trust in 2001 for many marked the apex of the commercial property boom that accompanied Silicon Valley’s dot-com expansion.
“We built some of these buildings. We leased them and managed them, and we understand them, and we are excited to get back at them,” Petersen said in an interview with The Registry.
Petersen has been away from Silicon Valley and with PSB since 2004. Russell became PSB president in 2002 and chief executive in 2003.
Nine of the buildings are in Silicon Valley including Milpitas and Fremont; the rest are in the East Bay with a heavy concentration in Hayward.
“The East Bay and the Silicon Valley are two of the strongest industrial markets on the West Coast,” Petersen said. “We think it is just starting to percolate—and there is no new construction, and there is not going to be because of the cost of land.”
