9-figure deals on the rise
22-story tower’s sale is fifth of year in S.F.
When San Francisco’s 111 Sutter St. opened in 1927, it was the city’s fourth-tallest building.
Almost a century later, the 308-foot tower has been surpassed in height by dozens of high-rises that peer down on its 22 stories. But its value has continued to swell alongside much of the city’s office market.
Investors Harbor Group International and Paramount Group said Wednesday that they bought the 293,000square-foot tower for $227 million, or $775 per square foot. That’s more than double its valuation of $110 mil-
lion in a 2012 deal, reported at the time by Commercial Real Estate Direct. Chicago investor JLL Income Property Trust, an affiliate of the major real estate brokerage JLL, was the seller.
The deal marks the fifth nine-figure San Francisco building sale in 2019, according to real estate data firm CoStar. A number of major historic buildings have sold, including the I. Magnin building’s trade for $250 million in January. Last year, control of the 1898 landmark Ferry Building was sold for $292 million.
The Sutter Street tower was an appealing buy in part because 30 percent of it is vacant, giving the new owners a chance to boost rents, said Richard Litton, president of Harbor Group International. Half of the current tenants in the Financial District building have leases expiring by 2021.
Existing rents average $58 per square foot annually. The new owners plan to spend $18 million on renovations to the building’s exterior, lobby and offices to attract new tenants. New leases are expected to achieve rents in the low $80s per square foot, Litton said.
“We do see that as an upside. It’s clearly underperformed the market,” he said. “We see growth potential.”
Tenants include nonprofits Natural Resources Defense Council and Save the Redwoods League, and a 24 Hour Fitness. Former tenants include the late San Francisco Mayor Joseph Alioto’s law offices and the FBI.
It’s the first San Francisco acquisition for Harbor Group International, a Norfolk, Va., company that owns two buildings in Cupertino.
Its partner in the deal, Paramount Group of New York, already owns 2.9 million square feet in San Francisco in some of the city’s most valuable buildings: One Market Plaza, which houses Google, Visa and Autodesk; One Front Street; and the former Bechtel headquarters at 50 Beale St.
Total San Francisco office sales volume fell in 2018 to $2.3 billion, down 22.6 percent from 2017, with the drop attributed to China’s restrictions on foreign investment, according to brokerage Kidder Mathews. But 2019 is expected to rebound, and the recent wave of building sales reflects continued high tenant demand and low supply, said Jerry Holdner, director of research at Kidder Mathews.
“I don’t see pricing coming down,” he said.