Deutsche Bank Lends $160M on San Francisco Office Acquisition
Harvest Properties closed on its purchase of the recently repositioned, mixed-use office property for $175M this month. The firm also sealed a separate $25 million mezz loan in the transaction.
Harvest Properties’ $175 million splash this month to buy 360 Spear Street, a recently repositioned mixed-use office property in San Francisco, was funded by a $184.7 million debt package led by affiliates of Deutsche Bank.
Deutsche affiliates DBR Investments Co. Limited and German American Capital Corp. supplied Harvest with $159.7 million in senior debt to cover the $175 million gross price of the five-story, roughly 180,000-square-foot office, life sciences, data center and retail development. It underwent a $17 million repositioning in February 2019, and is leased to credit tenants like AT&T; Verizon; tech platform Lattice; and health care company Vitalant, which will utilize more than 33,000 square feet for a medical laboratory.
Harvest bought the property from a joint venture (JV) between Madison Capital and PGIM Real Estate; the JV bought the property for $95.1 million in September 2018, according to Madison’s website.
Harvest also nabbed a $25 million mezzanine loan that rounded out the $184.7 million acquisition financing package, according to information from Fitch Ratings. It’s unclear who provided the mezzanine debt.
The senior debt is a 10-year, fixed-rate, commercial mortgage-backed securities (CMBS) loan, with five years of interest-only payments that pays interest at a rate of 2.77 percent; $55 million of the senior debt will be issued as non-pooled rake bonds, while the remaining $104.7 million in A-notes will be securitized in the BMARK 2021-B23 CMBS deal. The mezzanine loan is interest-only with a 7.4 percent coupon.
Altogether, the debt bundle, as well as just $6.4 million of equity from Harvest and $9.5 million worth of credits from Madison and PGIM to cover ongoing tenant improvement and leasing commission costs, funded the purchase and also took care of $23.7 million in upfront reserves for “outstanding landlord obligations” to Vitalant, Lattice and Verizon, per Fitch. The financing also covered an $8 million earn out reserve and $2.2 million in closing costs.
The former data center was previously repositioned by the sellers in order to transform the Rincon Hill-area property into a mixed-use development fit for not only data center needs, but for life sciences, office and retail uses. Built in 1924, the property first served as a Navy and Marine headquarters.
Madison Capital Senior Vice President Justin Cesario said in a statement last November that the repositioning was “multifaceted and a balance of thinking outside of the box, while remaining focused on creating a universally appealing product. Coupled with the property’s flexible zoning and historic industrial characteristics, which we brought back to life, the strategy that we implemented at 360 Spear allowed our team to pivot in response to changes in the market.”
Verizon Communications, by far the largest tenant at the property, who just recently extended its lease to 2040, and AT&T, who renewed its nearly 17,000-square-foot lease for data center space last September, were attracted to the property due to the fact that it sits at a primary junction for underground fiber optic cables, which Fitch analysis said “provides Verizon and AT&T with connectivity to the fiber cable network and as a result, serves as a link between the telecommunications network and the smaller subnetworks.”
The asset is located just south of the city’s Financial District, at the base of the San Francisco-Oakland Bay Bridge (on the San Francisco side). It also sits across the street from Google’s corporate office in the city.
The purchase marks a continuation of Harvest’s push to grow its already impressive commercial property footprint in San Francisco and within its dense central business district. The firm currently owns or manages more than 9 million square feet of office, industrial and research and development real estate in the Bay Area.