Synapse Development Group and partner Aqarat has purchased an office building in San Francisco's Mid-Market neighborhood for $33 million, nearly double what the property sold for less than three years ago.
New York-based Synapse and Kuwait-based Aqarat bought 944 Market St., an eight-story office building. Investment firm Ullico Inc. provided a $21.7 million senior mortgage loan for the off-market acquisition. The seller was New Urban, which had previously sold the building for $10 million, only to buy it back again for $17 million in late 2013.
The building's sharp increase in value is based on around $1 million in renovations that a previous owner invested in the building, along with the Mid-Market neighborhood's revitalization and the city's soaring office market.
Justin Palmer, CEO of Synapse Development Group, said he specifically wanted to invest more in Mid-Market because he sees economic vibrancy, new retailers and economic opportunity in the neighborhood. Palmer also cited the nearby construction of Cypress Equity's 250,000-square-foot retail project Market Street Place at 935-965 Market St. as a boost, although no tenants have been announced.
"It's obvious to us that the transformation is happening," said Palmer of the neighborhood. "We saw, now's the time."
New Urban didn't respond to requests for comment. The 42,822-square-foot building was built in 1907, according to property records. Palmer said it was fully leased to tenants including tech training center Hack Reactor, e-signature company HelloSign and Brandon College. Rents are below market, around $30 to $40 per square foot, but leases will all expire within five years, which could be a way to increase revenue, said Palmer. The average Class A San Francisco rent is $72 per square foot, according to brokerage CBRE.
Broker Joe Cammarata of Kidder Mathews represented Synapse in the deal.
Synapse also has approvals to convert an office building at 1095 Market St. into a 203-room Yotel hotel. The project was appealed by hospitality union group Unite Here Local 2, but the Board of Appeals rejected the appeal in May and the project is expected to open in mid-June 2017, said Palmer. Skanska is the general contractor.
Palmer said he continues to look for more projects in the Mid-Market area, with a focus on renovation or conversion opportunities. He said he feels it's too late in the cycle to buy land.
"We prefer to go the conversion route or buy existing product," he said.
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