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San Francisco Sale May Result in Highest Per-Foot Price

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Feb. 3 (Bloomberg) -- A San Francisco office building may sell for about $185 million, resulting in the city’s highest per-square-foot price since the 2007 commercial peak as demand from technology firms pushes rents up.

Foundry Square IV, a 10-story building in the tech-heavy South of Market area, may bring bids of as much as $800 a square foot, said Kenneth Rosen, chairman of Berkeley, California-based real estate adviser Rosen Consulting Group. The Class A property has 233,000 square feet (22,000 square meters) of space and is fully leased to Oracle Corp., which has sublet the building, according to broker Jones Lang LaSalle Inc.

“San Francisco is the hottest office market in the U.S.,” Michael Knott, managing director at research firm Green Street Advisors Inc., in Newport Beach, California, wrote in an e-mail. “It’s the only place where investors can find rapidly rising rents, and accelerating appreciation reflects that attribute.”

Asking rates in South of Market climbed 22 percent in the fourth quarter from a year earlier to $46 a square foot, the fastest growth rate for that area since 2000, said Colin Yasukochi, research director for Jones Lang LaSalle. San Francisco and New York led U.S. cities with the biggest year-over-year gains in effective rents in the fourth quarter, Reis Inc. said in a Jan. 6 report.

San Francisco’s citywide office vacancy rate was 14.7 percent in fourth quarter, the ninth-lowest among 79 metropolitan areas surveyed by Reis. Washington led at 9.4 percent, followed by New York at 10.5 percent, the New York-based data firm said.

Four Buildings Planned

Foundry Square IV is a “core plus” asset attractive to global investors, Rosen said. The building, completed in 2002 as part of a planned four-building complex, sits at a corner of First and Howard streets near the Foundry Square I and II buildings. The final structure was never built. Bain Capital LLC’s Gymboree Corp. subleases Foundry IV from software maker Oracle, which never moved in, according to Jones Lang LaSalle.

Palmer Capital Inc., based in Sacramento, California, is brokering the sale of Foundry IV, said David Smith, a partner at the company.

The building was acquired by the Utah Retirement Systems in 2003 for $119 million, or $480 a square foot, according to research firm Real Capital Analytics Inc. Jeff J. Allen, chief information officer for the Salt Lake City-based fund, didn’t immediately return a telephone call seeking comment.

The peak office sale in San Francisco was Morgan Stanley’s purchase of the two-building One Market complex for $1.46 billion, or $1,001 a square foot, in 2007, according to New York-based Real Capital. The property was part of a San Francisco portfolio sale by private equity firm Blackstone Inc., following its buyout of Sam Zell’s Equity Office Properties Trust.

To contact the reporter on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net

To contact the editor responsible for this story: Daniel Taub at dtaub@bloomberg.net