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Chinese developer in $350m US office deal

Kylli has bought a majority stake in 225 Bush Street in San Francisco in the city’s largest office trade since 2012.

Chinese developer Kylli has closed San Francisco’s largest office sale since 2012, buying a majority stake in 225 Bush Street for $350 million, according to a statement from global property services firm Jones Lang LaSalle.

A little-known subsidiary of Shenzhen-based property and pharmaceutical company Genzon Group, Kylli has until now focused only on property development in China, and this represents the firm’s first deal in the US.

Parent company Genzon is best known for its golf clubs, one of which hosted the China Open Golf Championship in Shenzhen just last month.

The sellers were Chicago-based fund manager GEM Realty Capital and Scandinavian investment manager SEB Asset Management, through its open-ended German fund SEB ImmoInvest. The fund is in its divestment phase. San Francisco-based property firm Flynn Properties was also reported to have sold some of its 30 percent stake, but will remain a minority investor alongside Kylli and continue to act as the property manager and leasing agent.

This is the second time 225 Bush Street has changed ownership in two years, but the $350 million that Kylli paid for the building represents a 65 percent increase from the $212 million that GEM, Flynn Properties and SEB paid in 2012. The 583,000 square foot office was 68 percent occupied at the time of the 2012 acquisition, and is currently 99 percent occupied with numerous long-term leases.

“The business plan we executed included refreshing the amenity set [of 225 Bush] while repositioning the property to showcase its high ceilings, natural architectural elements, and large floor plates of 26,000 square feet, which uniquely support the open plan configurations of today’s higher density users,” said Greg Flynn, president and chief executive of Flynn Properties.

Some of the new tenants Flynn Properties, GEM and SEB have brought into 225 Bush include Lithium Technologies, Groupon, and Zillow. But Flynn added that with multiple lease expiries coming up, there continues to be opportunity for Flynn Properties and Kylli to reposition the asset.

Kylli is only the most recent of a flurry of Chinese developers to make its way to the US. In February, one of the mainland’s largest developers, China Vanke, teamed with Tishman Speyer to develop high-rise residential projects in San Francisco, and the Greenland Group recently unveiled plans for a Metropolis project in Los Angeles. Indeed, according to data from property services firm Savills, of the $7.6 billion of Asian capital invested in US real estate, about 60 percent was Chinese developers buying land.

“Over the past three years we have seen a dramatic surge in outbound activity from Chinese investors into global real estate markets, quadrupling since 2011,” added Alistair Meadows, head of JLL’s international capital group for Asia Pacific. The Chinese government’s ‘Go Global’ policy has also encouraged institutional and high net-worth investors to diversify into markets that were previously “unchartered territory,” he said, even the companies like Kylli that are not as well known.