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Historic FiDi Building Goes For $77.5M

400 Montgomery

San Francisco's most in-demand office submarket continues to attract major investors.

Intercontinental Real Estate Corp. and Harvest Properties have acquired the 12-story office building at 400 Montgomery St. in San Francisco's North Financial District for $77.5M, according to two sources familiar with the deal. 

The 86K SF building's $900 per SF price tag makes it one of the priciest FiDi properties to trade hands this year, only behind REDCO Development and AEW Capital Management's July purchase of One Montgomery St. for $1,081 per SF.

Harvest originally acquired the building in 2016 in a joint venture with global investment manager Nuveen. The pair renovated more than half of the building as creative office space — with 13-foot open ceiling heights and polished concrete floors — before Nuveen exited and Harvest and Intercontinental recapitalized the building.

"The market is obviously pricey and we're at year eight or nine of the current expansion," said JLL Senior Vice President Erik Hanson, who was on the team that brokered the deal. "That being said, 400 Montgomery is a truly irreplaceable building in an iconic location at the corner of Montgomery and California. You can't build buildings like that anymore."

Intercontinental's offer for the property came amid several from a mix of deeply interested foreign and domestic investors that still see San Francisco as a high-growth market, Hanson said. 

Based in Boston, Intercontinental is a Securities and Exchange Commission Registered Investment Adviser with a growing focus on the Bay Area, according to Director of Acquisitions Allen Logue.

"We invest across the risk spectrum in the Bay Area," Logue told Bisnow. "We're currently developing an office in downtown Oakland called The Key at 12th at one end of the spectrum, and at the other end is 400 Montgomery." 

San Francisco's Financial District, shown here next to Embarcadero and North Beach, has drawn a lot of investor interest as of late

Intercontinental and Harvest will gradually continue renovation at the mostly leased building, which is 91% occupied by a mix of tech, media and banking tenants that includes Swedish tech company Hexagone, the logistics company Clearmetal and Bank of Guam. 

Intercontinental's interest in the Bay Area will likely persist across  property types, Logue said. The company partnered with Harvest in 2016 in the purchase of 60 South Market, a 234K SF Class-A office tower in downtown San Jose. Its partnership (The Key at 12th) with San Francisco-based developer Ellis Partners has already paid dividends as it heads to a 2020 opening: In April, Credit Karma pre-leased 106K SF of the Oakland tower at 1100 Broadway.

The Boston-based company's acquisition of 400 Montgomery is a bet that tenant demand for FiDi space will remain red-hot. Average asking rents for Class-A office space in the district topped $95 per SF in Q2, according to Colliers International

"Combining the historic character of the building with the modern and creative renovated interiors presents a unique combination that will appeal to tenants," Logue said.

Harvest is an Oakland-based developer working primarily through joint ventures across Northern California, like its redevelopment of a 540K SF Sunnyvale office space with Invesco

JLL’s Hanson, Rob Hielscher, Michel Seifer, Cheri Pierce, Kristina Wollan and Michael Manas served as exclusive advisers on the acquisition and recapitalization.