Kilroy Sells Minority Stake in Two Office Towers in San Francisco for $452.9M

SAN FRANCISCO — Kilroy Realty LP, the operating arm of Kilroy Realty Corp. (NYSE: KRC), has agreed to sell minority interests in two Class A office towers in San Francisco to Norges Bank Real Estate Management for $452.9 million. Norges Bank is the real estate investment arm of the government pension fund of Norway.

Under the terms of the agreement, Norges Bank will invest in a 44 percent common equity interest in two existing companies that own the towers, which are located at 100 First St. and 303 Second St. in San Francisco’s SOMA district. The sales price is based on an appraisal value of $1.16 billion for both assets and includes Norges Bank’s proportionate assumption of the existing mortgage debt, or $55.3 million.

Kilroy will remain the majority owner of the two office towers and will continue to provide property management, leasing and construction management services for the properties.

The two office towers span approximately 1.2 million square feet combined. The assets were 96.4 percent leased as of July 31.

100 First St. in San Francisco's SOMA district (Photo courtesy of LoopNet Inc.)

100 First St. in San Francisco’s SOMA district (Photo courtesy of LoopNet Inc.)

The transaction was structured with a staggered closing, whereby the 100 First St. venture closed on Aug. 30 with a contribution by Norges Bank of $191.4 million. The 303 Second St. venture is scheduled to close in the fourth quarter when the remaining contribution, including Norges Bank’s share of the existing debt, will occur.

Norges Bank Real Estate Management has equity interests in more than 400 office and industrial assets throughout the United States in partnership with several high-profile real estate investors and developers, including Prologis, Met Life, Boston Properties, Prudential, TIAA-CREF and Trinity Wall Street Church. Norges Bank’s investments in U.S. real estate alone total more than $10 billion.

As of June 30, Kilroy Realty’s stabilized portfolio totaled 13.7 million square feet of office properties, all located in the coastal regions of metro Seattle, the San Francisco Bay Area, Los Angeles, Orange County and San Diego.

The REIT also had one 700,000-square-foot office project under construction, two office projects totaling 430,000 square feet in lease-up and a 200-unit residential tower in lease-up as of June 30. Kilroy’s stock price closed Wednesday, Aug. 31, at $72.63 per share, up from $63.41 one year ago.

— John Nelson

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