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Hudson Pacific Forms JV for Iconic Ferry Building’s Buyout


Hudson Pacific Properties, Inc. HPP recently formed a joint venture (JV) with Allianz Real Estate to acquire leasehold interest in the iconic Ferry Building from Equity Office, an affiliate of the investment behemoth Blackstone Group. The JV shelled out $291 million in an all-cash transaction, excluding prorations, credits and closing costs for the buyout.

Hudson Pacific owns a majority stake in the JV with 55% interest, while Allianz owns 45% stake. Also, Hudson Pacific will manage the day-to-day operations of the property and serve as the managing member. The transaction has been approved by the Port of San Francisco — the owner of the land under the Ferry Building. Also, the remaining ground lease on the building is 49 years.

The Ferry Building offers Class A office space spanning 192,532 square feet. It is leased out mostly to top-tier companies such as SS&C Technologies, Inc., Meltwater, Inc., Meritage Group LP and Niantic, Inc. Further, 75,486 square feet of retail space includes tenants like The Slanted Door and Blue Bottle Coffee.

Notably, the property is uniquely located along San Francisco’s popular waterfront Embarcadero and captures business from a large and diverse demand base. Additionally, a public food market —The Ferry Building Marketplace — is organized along the Nave, an indoor street, that draws more than 8.8 million visitors annually.

The trophy office building is the focal point of San Francisco’s waterfront. Hence, acquisition of such a recognizable asset is a notable foot for the company, enabling it to improve portfolio quality.

Per management, “The acquisition of the Ferry Building fits perfectly with our strategy of identifying creative ways to improve the performance of exceptional real estate within global centers of tech innovation.”

In addition, the Ferry Building’s waterfront neighborhood is a transit hub that connects surrounding neighborhoods and bay communities. Hence, the location attracts interest from a number of top-class companies.

Understandably, the new owners of the property are exploring ways to increasingly add value through key redevelopment opportunities and drive footfall. Moreover, it enhances the company’s ability to re-lease space at higher rents, once the existing lease expires.

Hudson Pacific carries a Zacks Rank #3 (Hold), at present.

Also, shares of the company have depreciated 1.7% as compared with the industry’s loss of 3.8%, over the past year.

Stocks to Consider

A few better-ranked stocks from the real estate investment trust (REIT) space are Corrections Corp. of America CXW, Douglas Emmett, Inc. DEI and W. P. Carey Inc. WPC. All three stocks carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Corrections Corp.’ Zacks Consensus Estimate for 2018 funds from operations (FFO) per share remained unchanged at $2.32 in the last month. Its shares have gained 16.2% in the past six months.

Douglas Emmett’s current-year FFO per share estimates remained unchanged at $2.02 over the last 30 days. Its shares have appreciated 5.7% over the past six months.

W. P. Carey’s FFO per share estimates for 2018 remained unchanged at $5.43 in 30 days’ time. The stock has returned 3.3% in six months’ time.

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