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February 23, 2016

Investors behind big SoMa DNA testing company deal pick up a second S.F. warehouse for industrial play

San Francisco Business Times

Emily Fancher

SKS Partners LLC and ProspectHill Group picked up a 140,000-square-foot warehouse in the South of Market neighborhood for $47 million.

The San Francisco developers bought the McGuire Building at 1201 Bryant St. from Kohler Co., a manufacturer of plumbing fixtures, furniture, cabinetry and other products.

The plan is to invest in redeveloping the project, while keeping it as light industrial, or so-called "production, distribution and repair" space, according to a statement.

"It will be a significant redevelopment, and shows that the San Francisco market is a highly attractive location for innovative companies, " according to a release from Kidder Mathews, which brokered the deal. Gary Barboro and Tim Mason of Kidder Mathews, along with Gerald Norton of Binswanger, represented the seller in the sale.

The play sounds similar to what SKS Partners, ProspectHill Group and ASB Real Estate Investments pulled off last year with the McClintock Building at 1400 16th St. in Potrero Hill.

The partners bought the 103,000-square-foot McClintock Building in 2014 and spent $57 million on the purchase and upgrades. With the help of Pfau Long Architects, it reimagined the historic art deco warehouse space as a manufacturing and corporate office space. The investors leased the entire building in 2015 to DNA testing company Invitae(NYSE: NVTA) in a 10-year deal at $60 a square foot.

With the McGuire Building, it would make sense for the investors to chase similar types of tenants, said Barboro. He said that several users looked at purchasing the site, but ultimately the timing didn't work out or the complexity of the renovations scared them off. Those users could be prospective tenants for SKS and ProspectHill, he added.

"In terms of large scale 100,000-square-foot sites, I don't think there are many opportunities left," he said.

The industrial market in San Francisco has bifurcated into two types of manufacturers. One group, that includes breweries and apparel and other low-margin businesses, is being pushed out by venture-backed technology, health care or food companies that can pay more for industrial space. According to a report last year by SFMade, advanced manufacturers - defined as "companies that design and build products that incorporate digital manufacturing technologies and/or advanced materials" - doubled their job growth over the course of 2014.

Approximately 1 million square feet of PDR space is in San Francisco's pipeline, which may help alleviate the space crunch. Projects such as 100 Hooper, an office and industrial project from Kilroy Realty Corp. in SoMa, could break ground by the second quarter depending on pre-leasing activity.

Barbaro said that Prop. M was likely a factor in the decision by developers to chase this type of project. As office developers see a dwindling availability of office approvals in San Francisco under the 1980s law that limits approvals, they are open to different types of deals, he said.

Calls to SKS Partners and ProspectHill Group about the McGuire building purchase were not immediately returned.

For the full story, go to San Francisco Business Times.

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