A San Francisco investment firm is adding the latest dose of optimism to the battered California Bay Area office market after finalizing a $162 million deal for a two-building complex in Walnut Creek.
PSAI Realty Partners' deal with seller Clarion Partners, closed earlier this month, marks the largest multitenant office acquisition to close along the entire West Coast since 2022, according to CoStar and Newmark data.
The deal is a welcome boost for the broader Bay Area office market that has struggled to find its post-pandemic footing. The impacts of remote work, tenant downsizings and evaporated demand have fueled a record spike in regional vacancy rates, and valuations have collapsed under the pressure of an unprecedented volume of available space.
In the East Bay, which includes Walnut Creek, the area's 15.5% vacancy rate is the highest reported over the past quarter century, according to CoStar data, and is ahead of the national 13.9% vacancy average.
Since hitting the market earlier this summer, the listing for the roughly 363,000-square-foot complex saw “some of the strongest investor interest we have seen in the last three years," said Newmark's Steve Golubchik, president of western regional capital markets and one of the brokers involved in the deal.
“Despite general pullbacks in occupancy and rental rates in the office sector, The Plaza at Walnut Creek has bucked the trend and recorded meaningful occupancy and rental rate gains since 2019," Golubchik said in a statement to CoStar News.
Institutional suitors
The portfolio, which includes the buildings at 1331 and 1333 North California Blvd., last sold in the late 1990s for $58.5 million. The 1980s-era buildings were collectively 93% leased at the time of the deal with a diverse mix of financial and professional services tenants such as Edward Jones, Morgan Stanley and FM Global, according to CoStar data.
The property's list of potential suitors included both institutional and foreign capital, Golubchik notes, groups of investors that have largely stuck to the sidelines as many have waited for the right balance of improving economic conditions and attractive valuations.
Walnut Creek's record vacancy rate has caused most investors to adopt a hands-off approach to deals in the region. Sales volume plummeted from the market's 10-year annual average of about $1.6 billion to just $742 million over the past year, according to CoStar data.
For PSAI, however, the Plaza at Walnut Creek deal provided the chance to further stretch the firm's local portfolio and place a larger bet on its recovery. The investor earlier this year paid $73.5 million to acquire the Pleasanton Corporate Center, a six-property campus located in the nearby East Bay suburb of Pleasanton, California.
The firm closed that deal at a steep discount compared to the office complex's 2016 price tag of $113.5 million, another measure for how much has changed for the office market over since the start of 2024.
For the record
Newmark's Steve Golubchik, Edmund Najera, Darren Hollak and Francesca Zappula represented Clarion Partners in the deal with PSAI Realty Partners. Breck Lutz, Alex Grell and Danny Bartz, all with Newmark, will stay on as leasing advisors for the property.