Updated 9/21/2021, 4:45 p.m. [Adds comments from Hines senior managing director.]
Hines and the National Pension Service of Korea (NPS) closed on their $800 million joint purchase of PG&E’s longtime San Francisco headquarters on Tuesday, part of a more-than-$2.5 billion bet the companies are making on the city’s office and apartment markets.
The Hines-NPS partnership paid roughly $500 per square foot to acquire the 1.6-million-square-foot complex, which consists of two adjacent office buildings and a parking garage in the Financial District. The pair had been under contract to buy the PG&E campus since May, but the deal couldn’t move forward until the California Public Utilities Commission signed off in late August.
Last week, Hines filed preliminary plans detailing how it and NPS intend to reimagine the block-sized property at and around 215-245 Market Street and 77 Beale Street, which will be renamed 200 Mission Street. Hines, which is responsible for the project’s development, plans to repair existing facades and modernize building systems at the 18-story complex at 215-245 Market Street, according to the proposal.
Located next door is a 35-story, approximately 1-million-square-foot office tower at 77 Beale Street that was completed in 1971. Hines plans to dress the high-rise in a glistening crystalline skin, which, once completed, will be an “iconic moment in the city’s skyline and a welcoming beacon within the heart of the city,” the firm said in its plans. The building envelope, as well as new elevators and restrooms, among other upgrades, are intended to create a high-performance office environment suitable to the needs and expectations of today’s tenants, Hines’ proposal said.
The project is expected to add about 25,000 square feet of office space and 5,000 square feet of retail space to the building while reducing its underground parking area from 110,847 square feet to 25,203, although the exact impact on the structure’s parking supply has not been determined. A design team led by Pickard Chilton is responsible for reimagining both properties as part of Hines and NPS’ vision for the former PG&E site.
The pair expect the modernized complex and the extensively renovated tower to reopen in 2024 and 2025, the Wall Street Journal reported Wednesday. Paul Paradis, senior managing director at Hines and the firm’s project officer for the PG&E campus redevelopment, said in an interview Wednesday that that timeline is “generally accurate,” adding that the pair has not established a firm schedule yet. He said now is the ideal time to start the process of designing and constructing the project because, assuming all goes according to plan, Hines will be able to deliver it “once San Francisco has returned to its normal greatness.”
The companies also plan to add a residential component to the PG&E site by demolishing a two-story garage at 50 Main Street and constructing a 761-unit apartment building in its place. The proposed 75-story structure would be 818 feet tall, which would make it either the third- or fourth-tallest project in San Francisco if completed, depending on the fate of Oceanwide Holdings’ troubled Oceanwide Center development.
Of the structure’s 761 units, 156 would be designated as affordable while the rest would be priced at market rates, according to plans Hines filed for the skyscraper last week. Its other features include about 5,000 square feet of retail space and 380 parking spaces. Hines and NPS hope to open the building in 2026, Paradis confirmed. Foster + Partners — whose resume includes designing Apple Inc.’s circular “spaceship” headquarters in Cupertino — is designing the Main Street apartment project with Kendall/Heaton Associates.
Tying that project with the PG&E site’s reimagined workspace is a roughly 1.5-acre, street-level open space, Paradis said. Hines plans to demolish certain facilities previously used by PG&E to create the space, which will be accessible to office workers, apartment tenants and the general public in a section of the city that lacks that type of amenity, he said.
CBRE’s San Francisco Investment Sales team of Mike Taquino, Kyle Kovac and Giancarlo Sangiacomo represented PG&E in the sale, according to a Tuesday news release. Mike Walker and Brad Zampa of CBRE’s local debt and structured finance team arranged a $630 million acquisition loan on behalf of Hines, the release said.
The headquarters campus “was heavily sought-after by the global investment community,” Kovac said in the release. “Hines will be taking advantage of a generational opportunity to reposition an entire city block in one of San Francisco’s very best locations,” Kovac said.
Walker declined to disclose the name of the lender that provided Hines and NPS with the acquisition loan or divulge its term and interest rate. He said in the release that the financing process was “incredibly competitive” and involved both international and domestic lenders.