Hudson Pacific buys out partner in SF office building for $44M

Hudson Pacific Properties has bought out its partner’s stake in a 1 million-square-foot office building in San Francisco for $43.5 million — an 80 percent drop in value. 

The Los Angeles-based real estate investment trust purchased a 45 percent share of the 22-story building at 1455 Market Street, the San Francisco Business Times reported, citing a first-quarter earnings call.

The seller was the Toronto-based Canada Pension Plan Investment Board, which bought its stake from Hudson Pacific in 2015 for $219.15 million. That price valued the building at nearly $500 million, or $471 per square foot.

The $43.5 million buyout places the building value at $96.6 million, or $93 per square foot, which calculates to an 80 percent drop in value in nine years.

Hudson bought the tower at 1455 Market in 2010 for $93 million and spent another $50 million in renovations before selling its stake to the Pension Board, according to the Business Journal. 

Record office vacancy after a pandemic shift to remote work, coupled with higher interest rates and falling rents, have diminished office values in San Francisco, once among the highest in the nation.

The offices at 1455 Market — once a hub for both Uber and Block, surrounded by offices since vacated by other tech firms — join a spate of buildings in Mid-Market to sell at major discounts.

Last month, Miami-based LNR Partners snagged a 90,500-square-foot office building at 995 Market by winning an auction with a bid of $6.56 million, or $72 per square foot — nearly 90 percent less than its last traded price.

At the same time, Washington, D.C.-based ASB Real Estate Investments listed a 117,200-square-foot, six-story office building that once served as the headquarters for Zendesk at 989 Market for a reported $12 million, or $102 per square foot.

Hudson executives said on the earning call it plans to lease up and later sell the building.

“We continue to believe in the long-term demand drivers for San Francisco office space and our ability to create further value at 1455 Market at a very attractive all-in basis and with no leverage,” CEO Victor Coleman said in an email to the Business Times.

The deal with the Canada Pension Plan board comes two months after Hudson Pacific agreed to give the City of San Francisco a cut-rate deal for offices at its LEED Gold building with commanding views of the Bay.

The city signed a 21-year lease for 157,000 square feet at the former data center for Bank of America, with an option to buy it by 2027, the San Francisco Chronicle reported. The long-term lease sets base rent at $40 per square foot, rising to $72 per square foot by year 21.

— Dana Bartholomew

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