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CPPIB forms JV with Hudson Pacific

Under the new partnership, the Canadian pension plan has made its first direct investment in the San Francisco office market.

Canada Pension Plan Investment Board (CPPIB) has created a joint venture with Hudson Pacific Properties, a Los Angeles-based office real estate investment trust focused on California and the Pacific Northwest. Under the partnership, CPPIB has acquired a 45 percent interest in 1455 Market Street in San Francisco from Hudson for $219 million.  

“1455 Market Street marks our first direct investment in San Francisco office real estate, one of the best performing US office markets and a key strategic market for CPPIB in that country,” said Peter Ballon, the pension plan’s head of real estate in the Americas, in a statement. “We look forward to building our relationship with Hudson, a well-aligned partner with a strong operating platform, as we expand our office portfolio on the West Coast.” 

Hudson Pacific, which purchased the property in December 2010, will retain a 55 percent ownership interest and general partner status in 1455 Market Street. “At 1455 Market Street, we’ve completed a major renovation and employed Hudson’s aggressive leasing philosophy to capitalize on the submarket’s rapidly improving fundamentals,” said Victor Coleman, Hudson's chairman and chief executive officer. “A joint venture with CPPIB unlocks a significant portion of the value created for shareholders to date, and lays a strong foundation for our firms to explore additional investment opportunities together.” 

1455 Market Street, which was built in 1976 and previously functioned as a data center for Bank of America, now serves as the headquarters for technology firms Uber and Square. Plans are to begin repositioning and expanding the property’s ground-floor retail early this year. 

Hudson Pacific plans to use proceeds from the joint venture in a like-kind exchange, which could include properties the Northern California portfolio of Equity Office Properties. The company agreed last month to buy the assets from The Blackstone Group’s Blackstone Real Estate Partners V and VI for $3.5 billion in stock and cash. The portfolio comprises 53 properties in the San Francisco peninsula and Silicon Valley totaling approximately 14.6 million square feet.  

The firm will be funding the transaction with $1.75 billion of bridge financing and approximately 63.5 million of its common shares and operating partnership units, which will give Blackstone a major stake in the company. In an announcement last month, Hudson Pacific was said to also be exploring alternatives to fund the cash needs of the Equity Office portfolio acquisition, including existing asset sales and joint ventures. The transaction is expected to close in the first half of 2015.