According to the Registry, two buildings located at 657 & 667 Mission Street in San Francisco’s South Financial District have sold for approximately $100MM to Align Real Estate and Vanke Holdings USA. “657 and 667 Mission Street total 130,000 square feet…are currently 65% occupied with short term leases allowing the new owners the flexibility to re-position the buildings as Class A creative office space with premier ground floor retail”, as reported by the article.

Registry has based the pricing of the assets on a press release from Square Mile Capital Management wherein the loan brokerage firm stated they originated a $70 Million loan for 657 & 667 Mission Street. According to the article, the loan “represented a 70 percent loan-to-value” which equates to approximately “$770 per square foot, or roughly $100 Million.”

Calco Commercial completed over 70 lease and sale transactions in 2016 totaling over 650,000+/- square feet of industrial, commercial, office and flex spaces in San Francisco and the Peninsula Areas. We are a leading industrial & commercial real estate firm, and consistently complete more transactions in the industrial market than any other firm in San Francisco. We have decades of experience in Landlord /Owner representation, helping Tenants find spaces to fit their needs, and assisting Buyers with net investment properties and trades. Calco Commercial is a full service firm that can help make the most of your real estate properties and investments.

If you would like to discuss your real estate options, or would simply like more information related to current market conditions, please call our office a 415.970.0000, or directly contact one of our professionals.

Source: CoStar News
By: Mark Heschmeyer
Date Posted: February 10, 2017

BGC Partners Inc. (NASDAQ: BGCP) will be the first to test the IPO market this year for a major commercial real estate firm after it submitted a confidential draft registration statement to the U.S. Securities and Exchange Commission to spin off Newmark Grubb Knight Frank (NGKF) as a separate public company.

Under the plan for a proposed initial public offering, BGC would offer Class A common stock in a newly formed subsidiary that will hold BGC’s real estate services business.

The number of Class A shares to be offered and the price range for the proposed offering have not yet been determined.

In the filing, BGC said it may choose to distribute the shares that BGC will hold of the newly formed subsidiary to BGC’s stockholders in a tax-free spin-off after a certain period following the expected offering. Very little else about the proposed public offering was disclosed in its announcement.

NGKF is a full-service commercial real estate platform that comprises BGC’s real estate services segment and includes such other operations, including Newmark Cornish & Carey, ARA, Landauer Valuation & Advisory, and Excess Space Retail Services Inc. Together with its affiliates and London-based partner Knight Frank, NGKF has more than 12,800 employees across more than 370 offices and manages 250 million square feet.

In its most recent quarterly report, BGC partners reported that real estate services segment generated approximately 44% of its revenues for the three months ended September 30, 2016. Real Estate brokerage revenues were $233.7 million, up 4% year-over-year, which included growth in real estate capital markets of 17%, partially offset by decreased leasing and other services revenue of 3%.

In that filing, BGC said it believes that BGC’s assets and businesses are worth considerably more than what is reflected in its current share price.

“As we have previously stated, we are actively working on ways to unlock substantial value for our investors,” the company said then.

BGC has been growing its real estate business with notable new hires, including atop investment sales team in New England in late 2015 and landing a top-producing Los Angeles office investment sales team, eight star brokers in Southern California and a pair of elite Chicago tenant rep brokers early last year.

In making the announcement, BGC seems to have beaten rival Cushman & Wakefield to the punch in going public. Cushman & Wakefield has been rumored to be eyeing an IPO this year as well.

Link to article: Real Estate Services IPO

On Tuesday, February 14, 2017, Federal Reserve Chair Janet Yellen testifed before the Senate regarding current economic trends, bank lending, and possible changes to Dodd-Frank. According to Bisnow, Yellen stated that due to “solid job growth, rising inflation, and healthy wages” that she may “recommend another rate hike” but did not provide specific timing of an increase. The Fed will be exploring the rate hike discussion at its upcoming meeting in March at which a clear timeline may emerge, however, as the article notes Yellen clarified that any future rate hikes would be steered by “economic trends alone” and not on “speculation on fiscal stimulus”.

In regards to bank lending, Yellen indicated that “commercial and industrial loans have surpassed” the number of loans made during the “2008 peak”. Although U.S. institutional lending had decreased, according to the article, capital for commercial projects has been buoyed by “foreign investment and rising interest from institutional investors.” Further, “commercial and industrial loans have been on the rise…increasing by an average rate of 10.6% a month over the last five years.”

According to Dodge Data & Analytics, commercial real estate construction will witness a “6% increase on top of the 12% gain estimated for 2016”. The report also indicates increases in construction activity in the single-family, institutional, and manufacturing plant markets ranging from 6%-9%. Conversely, Dodge Data estimates that the multi-family and utility plant construction markets will decrease by 2% and 29%, respectively.

Source: CoStar News
By: Mark Heschmeyer
Date Posted: December 20, 2016

Fred’s Inc. (NASDAQ: FRED) has signed an agreement with Walgreens Boots Alliance Inc. (NASDAQ: WBA) and Rite Aid Corp. (NYSE: RAD) to purchase 865 stores and certain assets related to store operations located across the eastern and western United States for $950 million in cash.

Closing of the transaction is expected to take several months after Walgreens Boots Alliance’s proposed acquisition of Rite Aid is completed. The deal is also subject to approval by the Federal Trade Commission as well as customary regulatory approvals and closing conditions.

The pending $17.2 billion merger between Walgreens and Rite Aid first proposed in the fall of last year has lingered while the FTC analyzed its competitive impact. This past October, Walgreens Boots Alliance and Rite Aid announced an extension of their end date for the merger agreement to Jan. 27, 2017.

Walgreens executives continue to signal their confidence in closing the merger and have always expected that they would have to sell from 500 to 1,000 stores to help seal federal approval.

Shareholder approval is not required.

The store divestiture to Fred’s Pharmacy, if approved, is targeted to close during the first half of 2017 and will position Fred’s as the third-largest drugstore chain in the U.S. and create a new national competitor. Memphis-based Fred’s Pharmacy currently operates 647 discount general merchandise stores and three specialty pharmacy-only locations in 15 states in the southeastern US.

In connection with this transaction, the company said it has received financing commitments from BofA Merrill Lynch and Regions Bank to fund the purchase price, transaction-related costs, ongoing business operations and anticipated capital investments.

“This will be a transformative event for Fred’s Pharmacy that will accelerate our health care growth strategy,” said Fred’s Pharmacy CEO Michael K. Bloom, “We have been working for several months on integration plans to ensure a seamless transition.”

Fred’s appointed Michael Bloom as its new CEO last summer. One of his first moves was to hire Chris McDonald as vice president for real estate. McDonald previously was senior category manager at CVS and has extensive real estate experience from her time at Chase Bank and Walgreens.

In aggregate, the 865 stores are generally representative of Rite Aid’s pre-divesture store performance with respect to both sales and EBITDA. Fred’s Pharmacy expects that the acquired stores would be accretive to earnings and generate substantial cash flow.

Fred’s Pharmacy said it expects to keep certain store and certain field and regional team members, contingent on consummation of the transaction. Post-acquisition, the company will operate the acquired stores and will retain the Rite Aid banner through a 24-month transition.

A.T. Kearney served as a strategic advisor to the CEO and board and provided financial and operational diligence related to the transaction.

Link to article: Walgreens Rite Aid Merger

Federal Reserve Chairwoman Janet Yellen indicated in November that a raise to the U.S. interest rate could be happening “relatively soon.” The “soon” came just a month later with the announcement by the Federal Reserve yesterday that the rate will increase by an initial 0.25%. However, as reported by the Wall Street Journal, the rate could increase by as much as 0.75% over “three quarter-point moves” in 2017.

Financial analysts are suggesting that the move to increase the rate is a signal by the Fed of its optimism about the strength of the economy and “pointed to a strengthening labor market nearing full employment and inflation moving more rapidly towards targeted levels,” according to the article. This latest increase by the Fed is only one of two in the last decade.

But what the increase to the interest mean for commercial real estate? According to Bisnow, rate hikes usually lead the way to “higher borrowing costs…impacting profitability and future acquisitions.” However, as the article points out, this particular increase was long in the making and investors, REITS and property owners have anticipated this increase and have planned/priced accordingly. Therefore, the impact of the first .25% jump “may not have as great an impact” on commercial real estate activities as the effect that “comes from long-term rates.”

Achaogen, an antibacterial drug developer, has found new digs at the Genesis tower in South San Francisco. According to the San Francisco Business Times, Achaogen leased 47,000+ square feet comprised of the “entire third floor and part of the fourth floor,” all while scoring a “$5.6 million” tenant improvement package.

Genesis-South San Francisco

The Genesis building, formerly known as “Centennial Towers”, has historically been marketed as high-end office space and has experienced long swaths of vacancies. But, given the high demand for biotech/lab space, Phase 3 Real Estate Partners coverted the building from office to research and development as reported by the San Francisco Business Times earlier this year.

Achaogen is expected to employ over 200 employees at the site with other biotech companies expected to join the tenant roster early next year, according to the article. Phase 3 also intends to complete a “neighboring 21-story tower” in 2018.

Merck has signed at 15-year 294,000+/- square foot lease in South San Francisco’s West Coast R&D Center, as reported by The San Francisco Business Times. Merck could take occupancy as early as 2019, and paid what is estimated to be $57+/- per square foot for the building, according to the article.

Aerial Overview of 213 E. Grand Ave:  Future site of Merck's 9-story R&D building

Aerial Overview of 213 E. Grand Ave: Future site of Merck’s 9-story R&D building

The South San Francisco’ location leased by Merck neighbors Rinat Neuroscience Corporation, Genentech, Alphabet Inc and Verily. AstraZeneca also recently leased a large swath of space in South San Francisco as reported by the Business Times. Both Merck and AstraZeneca are expected to employ a total of roughly 650 workers at their new locations. In following with other R&D and biotech firms in South San Francisco, Merck’s building will be “first class” including a “300-seat auditorium” to “host scientific conferences, fitness center, a cafe and upper-floor terrace with views of the bay to the east.”