Hudson Pacific Properties has cut ties with another property weighing on its office portfolio as the landlord frees up capital to pay down lingering debts.
The Los Angeles-based office owner sold 625 Second St., a roughly 138,000-square-foot building in San Francisco's tech-concentrated South Beach area that had been one of Hudson's highest vacancy properties. The $28 million deal with Frontline Realty Capital and Triyar Realty Group represents a substantial discount to the roughly $56.5 million price tag Hudson paid for the property in 2011.
The deal is the latest disposition Hudson Pacific has made to strengthen its portfolio. The firm has closed roughly $95 million of office sales so far this year.
Hudson Pacific has used net proceeds from the sales to repay some of its outstanding debts. Executives said similar deals are waiting in the wings as the company looks to capitalize on an improving investment landscape.
"We continue to make strong progress in our efforts to monetize non-core assets at favorable pricing and in a timely manner," CEO Victor Coleman said in a recent statement, adding that Hudson has "additional non-core asset sales in process."
Value-add plays
Discount aside, the Second Street building was still able to meet initial pricing expectations established when Hudson began quietly marketing the property late last year. It was officially added to the real estate investment trust's disposition pipeline earlier this year, with Hudson executives telling analysts last month it had been put under contract as part of a deal expected to close within the first half of the year.
The four-story building is about 36% vacant, according to CoStar data and information filed with the Securities and Exchange Commission.
Hudson Pacific has so far this year offloaded a two-building office complex in the Los Angeles Arts District for $46 million and closed several deals across the Silicon Valley area, all part of a domino line of sales that could yield the landlord up to $225 million.
For Frontline, the 625 Second St. acquisition is part of the company's push to take advantage of discounted office properties. The REIT earlier this year snapped up a distressed 10-story office building in downtown Oakland for just over $5 million — down from its $43.5 million price tag back in 2018.
The company is targeting "well-located assets with significant potential to create value through thoughtful repositioning and patience," Frontline said in a statement at the time of the Oakland acquisition.
Betting on a rebound
Office investment volume is quickly gaining traction across the nation as buyers place their bets on the sector's rebound. More than $42 billion of deals closed last year, according to CoStar data, marking a 20% jump compared to the previous year.
Office sales volume this year has more than doubled compared to the same period last year, preliminary CoStar data from April shows, an early indication that investor demand is holding firm despite widespread uncertainty about the economy or the national office market's trajectory.
That improving investment climate has been especially pronounced in San Francisco, a market hit hardest by the impacts of the pandemic, but one that now appears poised for a turnaround.
Real estate mogul Flynn Properties recently finalized a $177 million deal to purchase the two-building Market Center complex in the city's financial district, an acquisition that marked San Francisco's priciest sale in years. That purchase closed just a few weeks after LendingClub, a digital banking platform, finalized its bid to acquire the 21-story tower at 88 Kearny St., with plans to house its future headquarters there.
And in a separate deal, developer DivcoWest and investor Blackstone Real Estate teamed up last month to purchase a vacant 25-story building at 300 Howard St. in the city's South of Market Street neighborhood for $111.3 million with plans to attract artificial intelligence tenants.