Kilroy Realty to Sell San Francisco Office Asset for Record $1B

The deal could mark the highest price per square foot ever paid for a major commercial property in the city.

Kilroy Realty Corp. has signed a definitive agreement to sell The Exchange on 16th, a 750,000-square-foot office property at 1800 Owens St. in San Francisco’s Mission Bay neighborhood, for $1.08 billion, or about $1,440 per square foot.

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According to Kilroy, local brokers say that the price per square foot would be the highest ever paid for a major commercial property in the city.

The transaction is currently in escrow and expected to close at the end of March. A Kilroy spokesperson confirmed to Commercial Property Executive that the buyer’s identity is not being disclosed at this time.

John Kilroy, chairman & CEO of Kilroy Realty, said in a prepared statement that this transaction demonstrates that quality assets in quality locations remain highly attractive to buyers.

Kilroy Realty began developing The Exchange in late 2015. The project’s total development cost was about $585 million or $780 per square foot.

In 2017, Kilroy signed a 15-year lease with Dropbox Inc. for all of the property’s office space. At the time, it was the largest single Class A commercial lease transaction ever completed in San Francisco.

Subleasing undermines market

Kilroy touts sustainability as one of its priorities, and The Exchange on 16th seems to live up to that. In late 2018, the property was awarded LEED Platinum status under the USGBC’s Core & Shell criteria. Some of the complex’s eco-features include extensive green roofs, highly efficient water fixtures and the use of FSC wood.

Like so many other office markets, San Francisco continues to see creeping negative absorption, from both direct vacancy and increases of sublease space, as leasing remains at low levels and rents slip, according to a fourth-quarter report from Colliers International.

Interestingly, the quarter’s largest sublease, the report states, was when Vir Biotechnology (which is doing coronavirus research) took nearly 134,000 square feet—at 1800 Owens St., or The Exchange on 16th. According to local media reports, that was about one-third of the space that Dropbox had put on the sublease market.

The Mission Bay office submarket has a total vacancy of 8.1 percent, a quarter of that from sublease availability, on an inventory of 4.0 million square feet, also according to the Colliers report.

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