Key Takeaways: According to an article from Bloomberg, California utility PG&E is close to finally selling its San Francisco headquarters building to Hines Atlas US for about ~$800 million, or roughly ~$470psf. The company had been planning to monetize the asset, which is a 1.7msf complex consisting of several buildings along Beale and Market Streets, since 2019 as part of its overall restructuring efforts post-bankruptcy. PG&E will be moving to a new HQ at 300 Lakeside Drive in Oakland in 2022, and at the time of the announcement was one of the more high-profile SF tenants to plan an outward migration away from the CBD.
Before COVID several office brokers had pegged the valuation of the asset at roughly ~$1 billion, or roughly $588psf, so the revised pricing reflects an approximate ~20% discount to pre-pandemic pricing from a year ago. Although the psf price is not reflective of nearby Class A/Trophy assets given significant deferred capex/maintenance, we believe the discount is largely consistent with a similar decline in net effective rents in the market (combination of face rate + concessions), offset by persistently low cap rates. This discount has read-across implications for other large office landlords in the city, namely BXP, HPP, PGRE, KRC and VNO, but would note that most of these assets are higher-quality and in better locations so per pound pricing should obviously be stronger. VNO, for example, recently refinanced 555 California with a new $1.2 billion mortgage - assuming a 50% LTV (somewhat arbitrary) implies over $1,300psf.