Chinese developer to buy iconic First and Mission site for $300 million

Chinese developer to buy iconic First and Mission site for $300 million

A Chinese property developer is set to buy the high-profile First and Mission streets development site that will house San Francisco’s second-tallest office tower and remake the city’s skyline.

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Beijing-based Oceanwide Holdings has an agreement to purchase the site for $296 million from developer TMG Partners and capital partner Northwood Investors LLC, according to a news release by the Chinese company.

The region’s major development projects have started to attract a flood of Chinese capital in the past two years, but this may be the largest investment yet. Oceanwide will pay hundreds of millions of dollars more to build the mixed-use development that will span 2 million square feet next to the future Transbay Transit Center.

The complex’s total size makes it larger than the Salesforce Tower, which will be the city’s tallest tower at 1,070 feet. First and Mission will include two highrises soaring 910 and 605 feet tall when construction is done by 2019.

“A lot of Chinese investors are looking for projects that would make them stand out. In San Francisco, they can’t have the (Salesforce) Tower. What’s the second best? First and Mission,” said Darlene Chiu Bryant, executive director of China SF, a nonprofit that works with the city’s Office of Economic and Workforce Development to promote economic links between the city and China.

Chiu Bryant said TMG, Northwood and Oceanwide have signed the sale agreement, “but they’re still negotiating the construction management part,” so TMG could still stay on as the local developer. The project is going through the city’s entitlement process and is already far along in the architectural design process.

TMG declined to comment on the deal.

Chiu Bryant said China SF, which works to connect Chinese investors with San Francisco companies, helped bring TMG and Oceanwide together last spring. She said many other foreign investors were interested, but Oceanwide was most serious about the deal.

A Chinese-language release that announced the news went out to real estate players in China on Dec. 30, saying that the financial terms of the deal had been finalized in November. China SF posted a rather awkward translation of the release on its website last week, but didn’t alert U.S. media.

“This investment will improve (Oceanwide’s) image and influence in the United States, as well as expanding its overseas business,” according to the release.

Oceanwide, which is traded on the Shenzhen stock exchange and has $5.6 billion in revenue, doesn’t only come in with heaps of capital. It also is one of China’s most experienced developers and had 11 million square feet of projects under construction in Asia in 2012, according to its website.

This deal marks its second major play in the United States. Oceanwide spent$200 million on an undeveloped mixed-use site called Fig Central across from the Staples Center in downtown Los Angeles in December 2013, the Los Angeles Times reported. Oceanwide is investing $1 billion in that site.

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TMG still in the game?

The TMG-Northwood joint venture paid $122 million for the site a year and a half ago, getting an approximately 143 percent return without even breaking ground, signing tenants or gaining full entitlements.

TMG is adept at spinning this kind of mega-deal. In 2012, TMG attracted major tenants to an empty building at 680 Folsom St. before selling it to Boston Properties for $300 million. It also capitalized on the Mid-Market rejuvenation in the same year by selling 1275 Market St. to Dolby Laboratories for $109 million after buying it for $44 million.

“Our strategy is to do opportunistic development where we add value to the project with no care for what product type it is,” TMG CEO Michael Covarrubias told the Business Times in October. “We’re talking to capital partners about having money for the next cycle so we can take advantage of things like we did last time.”

TMG submitted its application to the Planning Department for an environmental review last summer. Even though the development includes some of the city’s tallest towers – usually a contentious political issue – it should have mostly smooth sailing toward getting entitlements and a Prop. M allocation, John Rahaim, San Francisco’s planning director, told the Business Times on Wednesday.

He said the proposed development fits the Transit Center District Plan rezoning plan that allow more office space to pour into SoMa. The Planning Department may request that the developer more closely examine the site’s wind impact, Rahaim added.

“That project could get entitled by the end of the year,” Rahaim said.

Covarrubias, who declined to comment for this story, said last summer that the developer was already receiving lease inquiries from office tenants.

Starchitect Norman Foster of Foster + Partners and team Heller Manus Architects also will probably stay on board, according to a source close to the deal who declined to be named because TMG and Oceanwide are still negotiating.

Oceanwide and Northwood didn’t return requests for comment.

Chinese money hits the market

Chinese firms have pumped more than $600 million into Bay Area real estate during the last two years to overtake Japan and Singapore as the hungriest overseas investors, according to Real Capital Analytics. Chinese investment in U.S. commercial properties increased almost 10-fold between 2012 and 2013 after that country’s government relaxed foreign direct investment rules.

Those companies, flush with cash, usually only eye the biggest U.S. real estate prizes in major urban areas.

The first major partnership between a Bay Area developer and a Chinese investor came in 2013 when Zarsion Holdings agreed to partner with Signature Development Group on the $1.5 billion mixed-use Brooklyn Basin project on the Oakland waterfront.

That same year, New York-based Tishman Speyer made a splash by getting China Vanke to invest $175 million for a 70 percent stake in the Lumina condo project. China-based also Genzon Group paid $350 million for 225 Bush St. last year.

More developers, not just investors, from China have also jumped in. Last month, China Harbour Engineering Co. Ltd. won the bid to build offices and retail on top of the West Oakland BART station.

The $296 million purchase by Oceanwide isn’t the biggest buy from a Chinese firm in the Bay Area, but it could become the biggest Chinese investment when the towers are topped off and the cost of construction is factored in.

“The amount of investment (Oceanwide) will put into it will exceed what anyone has done today. It just shows there are companies in China willing to invest that kind of money,” Chiu Bryant said.