Posted by: BayAreaComRE | August 16, 2010

San Francisco-Based DivcoWest Makes Moves in Sacramento and Boston

DivcoWest has been active recently, acquiring buildings in Sacramento and Boston. The real estate investment firm with offices in San Francisco and Boston, has mostly been buying debt due to the dearth of supply and fierce competition, but stepped back in the ring recently.

The first purchase came in downtown Boston with a 147,751 square foot, 11-story office property atop Boston’s historic Beacon Hill. Commenting on the purchase, DivcoWest principal and founder Stuart Shiff said that the firm was a strong believer in the long-term potential of the Boston area market and that 11 Beacon provided the opportunity for the real estate operator to add value over time. “We see this as a jewel of an asset in a timeless and highly desirable part of the city which will benefit over the long-term from the three main economic drivers surrounding it: education, government and finance,” Mr. Shiff said. DivcoWest completes purchase of Boston’s Historic 9-11 Beacon Street, (Boston / SF).

The second purchase came in Sacramento.  According to Divco’s website, the Prospect Green Portfolio has six Class A buildings with a total of 642,262 rentable square feet.  Developed in phases between 1990 and 2001, the Prospect Green buildings sit within a 33-acre office campus featuring a 2.5-acre redwood park. The property also features numerous on-site amenities, including a workout facility, showers, and cafés.

While Boston is one of five top investment markets in the US, Sacramento, and particularly the Highway 50 corridor, has been hit extremely hard with little signs of improvement, which begs the question why DivcoWest selected this property.

The Registry attempts to answer this question. As reported in The Registry, “Divco paid $68 million for the property, or about $107 a square foot. According to industry sources, the capitalization rate or yield on the purchase was 9 percent. This return is based on the existing net operating income in the property.   This return could be goosed to 11.5 percent or even 12 percent if more of the property is leased, sources said. The present occupancy rate approaches 70 percent. Tenants include Barclays Bank plc, NEC Corp., Pearson plc, Allstate Insurance Co., Moss Adams LLP and Aerojet, a GenCorp Co. Divco is in talks with the State of California to lease space in the property. If successful, it could move occupancy to 75 percent, sources said. DivcoWest Moves onto Sacramento’s Highway 50 Corridor, The Registry.

Clearly, 9% is an above market cap rate. Time will tell if these investments pan out. They both seem to be long-term holds as 11 Beacon needs significant improvements and Prospect Green Portfolio will take time to lease up. It is a good sign that the SF-based real estate firm is back in the game and we will track further purchases by Divco.

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