Investment manager Pacific Investment Management Co. appears to be following through on its plans to expand its real estate investment portfolio, with a new blockbuster office buy in San Francisco pegged at $310 million.
The Newport Beach-based bond and mutual fund giant, which counts some $1.9 trillion of assets under management, in March said it would take over management of Allianz Real Estate, the real estate arm of Pimco’s parent company Allianz Group of Germany.
The move is part of a push to grow the firm’s private strategies platform, which includes opportunistic real estate equity and private lending efforts.
Just a few months later, the company has agreed to acquire a 346,000-square-foot largely vacant San Francisco office tower from e-cigarette maker Juul.
If completed, the $310 million deal would be among the most expensive real estate transactions on the West Coast since the onset of the pandemic.
The deal is valued at nearly $900 per square foot, more than double the going per-square-foot rate for a high-end office in Orange County.
The acquisition is expected to bolster Pimco’s diversified real estate investments, which total $100 billion in assets under management following the Allianz transition.
Brokerage Newmark Knight Frank is advising Juul in the sale, which has yet to close.
Pimco officials declined to comment on the pending transaction.
Value-Add Opportunity
Pimco is reported to be partnering with Menlo Park-based Lane Partners for the deal, which while pricey, marks a 20% discount to the $400 million that Juul paid for the office tower last June.
Juul had planned on using the 29-story Mission Street tower as its headquarters, but quickly began exploring options to sell the property prior to the COVID-19 pandemic amid scrutiny over the company’s role in the youth vaping crisis, which local reports indicate resulted in $1 billion in losses for Juul.
The company a few months ago announced plans to lay off 650 employees, including 245 in the Bay Area.
In March, the company appeared poised to recoup its original investment in a $400 million deal with a venture between Prudential affiliate PGIM Real Estate and Madison Capital of New York, but the pandemic ultimately put the kibosh on the deal the following month.
The company has since vacated the property with plans to move its headquarters to Washington, D.C., leaving the San Francisco building at 35% occupancy and in need of a renovation, according to trade publication Real Estate Alert.
The value-add opportunity brought several investors to the table, including Pimco, which bested a $290 million offer from Angelo, Gordon & Co.
Reports indicate that Pimco has yet to place a deposit on the San Francisco bid.
Real Estate Focus
The deal would make Pimco one of the first notable Orange County firms to move ahead on large real estate bets during the pandemic, which has largely stalled sales transactions in the commercial real estate market since shelter-in-place orders were mandated in March.
“Pimco sees tremendous long-term value for clients in real estate, particularly in private strategies which continue to offer patient investors the opportunity to achieve excess returns,” Dan Ivascyn, Pimco’s group chief investment officer, said in a March statement at the time of the Allianz transition announcement.
In recent years, Pimco has diversified from managing bonds for large institutional investors into new investment areas such as real estate.
“Real estate has been, and will continue to be, central to the development of our private strategies platform, which we consider essential to providing our clients with alternative approaches to achieving their long-term investment objectives,” Pimco CEO Emmanuel Roman added in the statement.
In OC, Pimco has one large real estate investment, the Intersect office campus in Irvine, which it owns in a venture with Hines. The venture in June said they got $182 million refinancing deal for the airport-area campus through MetLife Investment Management.
The four-building property, at the intersection of Main Street and Von Karman Avenue, was listed for sale last year but a deal was not completed.
