A Palo Alto developer and a Boston-based real estate management company have teamed up to buy a San Francisco office building for $82 million.
REDCO Development and AEW Capital Management, L.P. closed on a deal to acquire One Montgomery St., a 100,000-square-foot office building, from 601W Companies. 601W, which is based in New York City, was represented by brokerage CBRE on the sale.
The building — currently occupied by Wells Fargo — sold for about $820 per square foot.
REDCO plans to reposition the building’s place in the market but would not divulge further details .The bank’s below-market lease is up at the end of the year. The Palo Alto-based development company specializes in value add commercial opportunities and sees One Montgomery as a unique opportunity in the North Financial District, said Chris Freise, managing partner with REDCO. “We think it’s in one of — if not the — best locations in San Francisco,” Freise said, citing the proximity to the Montgomery BART station and other amenities in downtown San Francisco.
Any potential development would mark yet any change in the building’s long history of adaptation. Originally built by well-known San Francisco architect Willis Polk in 1908, the building was occupied by the First National Bank of San Francisco and stood 12 stories high. Later acquired by Crocker Bank, the building’s top ten floors were remodeled to match modern aesthetics in the 1960s.
In the 1980s, top 10 floors were removed in conjunction with the construction of the adjacent Crocker Galleria and the 500-foot-tall One Montgomery Tower, which sits across the street. On the roof of the — now two-story — building, a deck and garden was built, which is still a privately-owned public open space (POPOS) today. Wells Fargo has leased the entire building since 1984. Remnants of its long history as a bank are scattered throughout the building, including a board form concrete shell, columns from earlier architectural eras and a massive vault left over from the 1908 design.
In 2016, 601W Companies submitted a proposal to build a 33-story hotel and residential tower atop the historic building that would rise to 500 feet. The San Francisco Planning Commission recommended against that proposal, citing concerns about the effects of its height on the surrounding area and a need to take “care in remodeling older buildings to enhance rather than weaken their original character” in its report.
The building currently has a 250-foot height limit and is zoned for high-density, making future development a possibility — though anything as big as the 500-foot proposal from 2016 would require a change in zoning.
In addition to representing 601W in the sale, CBRE also arranged for $76.6 million in acquisition financing for REDCO and AEW in the form of a five-year loan from Square Mile Capital. The loan will finance part of the acquisition, along with some of the funding for capital expenditures and re-leasing costs.
Office tenant demand in San Francisco rose to 7.1 million square feet in the first quarter of 2019 with the average asking lease rate of $82.88 per square foot marking a record high, according to CBRE’s statement.
CBRE Executive Vice Presidents Michael Taquino and Kyle Kovac represented the sellers and CBRE Senior Vice President Mike Walker was the financing broker on the deal.