SAN FRANCISCO BUSINESS | By Blanca Torres
Jackson Square investors shell out $60 million for two more buildings
Glenn Gilmore and Patrick Tostado remember walking past 450 Pacific St., a four-story brick office building in San Francisco’s Jackson Square, and thinking it would be cool to own that building
Four years later, they do.
Their firm, Brick & Timber Collective, spent more than two years working out a deal to buy the 28,586-square-foot building for $31.7 million, about $1,110 per square foot.
That sale closed this week on the heels of Brick & Timber buying 900 Kearny, a 31,200-square-foot building for $27 million, $865 per square foot.
“These acquisitions represent the growth of our foothold in this submarket,” said Jesse Feldman, Brick & Timber vice president. “Jackson Square is a slice of San Francisco that is architecturally unique in both its history and preservation.”
San Francisco-based Brick & Timber is betting on its high-end niche in Jackson Square, a quaint office submarket north of the Financial District, said Gilmore, founder and president of Brick & Timber. With both of those deals done, Brick & Timber now owns 11 buildings consisting of more than 200,000 square feet of office space in San Francisco and Pasadena. Seven are in Jackson Square or the nearby north waterfront.
The firm has reached $150 million in assets under management, and the staff has grown from a two-person operation of Gilmore and Feldman to six people. Tostado recently joined full time as general counsel after working on a contract basis.
Brick & Timber, founded about seven years ago, specializes in buying historic and boutique office buildings in Jackson Square and the North Waterfront. The firm typically looks for buildings to renovate into modern office space that can attract top-of-the-market rents.
The seller of 450 Pacific is Keesal, Young & Logan, which bought the building in 2007 for $7.8 million and renovated it in 2009. The firm will lease back the space for six months before moving out. Brick & Timber hired on commercial brokerage firm CBRE to find a single tenant to take over.
The 1906 building once housed a stable for a fire station across the street back when horses were used to fight fires. Now, the building features wooden paneling throughout and includes about three dozen private offices, various conference rooms, lounges and a ground-floor bar. Three atriums descend from the roof to the base of the building letting in swaths of natural light.
The sellers of 900 Kearny, Newcastle Partners Inc. and Drake Real Estate Partners, paid $17 million for the 1989 building in March 2017. The investors renovated the office spaces for a more creative office feel and fully leased up the building to tenants including EastWest Bank, package application company Bitmami, and information technology company Novani LLC.
“With an office vacancy hovering around 3 percent, Jackson Square is a vibrant, thriving submarket,” said Dennis Higgs, managing partner and founder of Newcastle Partners, in a statement.
Vacancy in Jackson Square hit a tight 3.2 percent during the second quarter, according to CBRE. The average asking rent of about $81.45 per square foot for Class A space comes in lower than the citywide average of $89.54 per square foot.
Brick & Timber aims for much higher rents by targeting venture capital firms, tech companies and law firms that are willing to pay a premium for buildings with high-end finishes and character, Gilmore said.
The Jackson Square and North Waterfront office market constitute about 7 percent of the city’s total office space, but Gilmore said he sees plenty of buildings that fit its niche. Other investors also see value in Jackson Square, including TMG Partners and Invesco Real Estate, which teamed up to pay $115 million or $958 per square foot for the 120,000-square-foot 600 Battery St. in January.
“There’s not a ton of opportunity to buy buildings in Jackson Square, but what Brick & Timber do well is that when there is an opportunity, they move quickly,” said Mike Taquino, a broker with CBRE who handled the sale of 450 Pacific along with Kyle Kovac, also of CBRE.
Taquino and Kovac also worked with Brick & Timber when the firm acquired the 45,000-square-foot 55 Green St. building for $29 million, or about $644 per square foot, according to property records. Six months later, car-sharing company Getaround leased up the entire building to move its headquarters.
At 353 Kearny, Brick & Timber revived a dilapidated building and leased it to Canopy, a high-end boutique co-working operator.
“We have built a track record of successful redevelopments due to a focused strategy,” said Gilmore. “These additional acquisitions are demonstrative of our focus and continued growth.”