Donald Trump's Business Is Booming In San Francisco - Forbes

MAY 2, 2018 @ 11:40 AM 5,185 2 Free Issues of Forbes
Donald Trump's Business Is Booming In San Francisco
   
Chase Peterson-Withorn , FORBES STAFF

By Chase Peterson-Withorn and Dan Alexander

While several of Donald Trump’s properties—particularly those in midtown Manhattan—remain in a retail market-induced slump, things are looking pretty sunny for the president in California, where his San Francisco skyscraper continues to benefit from a strong market for office space.

Occupancy, rents and net operating income all rose in the first quarter of 2018 at 555 California Street, where Trump owns 30% of a three-building complex that includes the 52-story former Bank of America Center and two smaller buildings next door.

Now nearly fully rented, the property’s occupancy rate climbed to 97.8% in the first quarter of 2018, according to a recent filing—the highest it’s been since at least 2010.

For that Trump can thank his partner, billionaire Steven Roth, whose publicly traded REIT Vornado Realty Trust owns the remaining 70% of the property and manages its day-to-day operations. Vornado recently struck a deal with a new tenant: the Blue Shield of California Foundation. In March the charitable arm of health plan provider Blue Shield announced it will take two floors at 315 Montgomery Street, a 16-story building next door to the tower at 555 California Street in the heart of San Francisco’s financial district, beginning in the fall.

The building’s average annual rent jumped by 7%, to $67.59 per square foot, this quarter, suggesting that new tenants are paying more for space than existing tenants. According to Cushman & Wakefield, the average asking rent for Class A office space in the city was $74.55 per square foot in the first quarter.

The building at 315 Montgomery Street is now fully leased, according to the quarterly report. Nearby 345 Montgomery Street, a 64,000-square-foot retail space, remains shuttered while it undergoes a multimillion-dollar renovation. But next door at 555 California Street’s main tower, 97.4% of the skyscraper’s 1.5 million square feet are currently under lease. Tenants include Bank of America ($14 million in estimated annual rent), Goldman Sachs ($6 million), UBS ($4.6 million) and Microsoft ($3.6 million).

Those leases helped the property produce $19.3 million in quarterly net operating income—a key profitability metric in the real estate industry—up 12% from the same period a year ago. Total net operating income over the past 12 months reached $66.8 million, up from $57.8 million in the preceding 12 months.

Vornado and Trump appear to be using some of that cash to pay down the property’s debt. In the first quarter of 2018, the partners reduced their mortgage by $2.5 million; it now stands at about $567 million. When Vornado bought its 70% stake in the property in 2007, the debt totaled $1.1 billion.

Trump was cajoled into purchasing 30% of 555 California Street and 1290 Avenue of the Americas, an office building in Manhattan, in 2006 when the Hong Kong-based majority investors in his troubled Riverside South project decided to sell the property over Trump’s objections. They reinvested the proceeds into the two properties, then quickly sold their 70% stake to Vornado for $1.01 billion plus the assumption of $797 million of debt.

Today Forbes estimates that Trump’s 30% share of the 555 California Street complex, which he did not want to purchase, is worth $347 million net of debt—making it his third most valuable holding.

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