A U.S. subsidiary of a 400-year-old Japanese corporation paid $144 million for the STS Tower in downtown Minneapolis, a move one Twin Cities real estate expert says likely came out of a need to stash some cash.
The Sumitomo Corporation of the Americas paid cash for the 31-story, Class A office tower at 333 Seventh St. S., according to a certificate of real estate value made public on Wednesday. The purchase is the company’s first in the Twin Cities. Sumitomo also owns the 47-story Miami Tower in Miami, the 20-story 450 B Street building in San Diego, the 15-story 203 North LaSalle in Chicago and the 19-story Atlanta Financial Center in Atlanta.
The company’s parent is Tokyo-based Sumitomo Corp.
The seller was the California State Teachers Retirement System, which paid $94.75 million for the 655,070-square-foot building in 1999, according to CoStar. SPS Tower takes up a 2.5 acre city block bounded by Fourth Avenue South, Third Avenue South, Seventh Street South and Eighth Street South.
The transaction, which closed on Feb. 1, works out to $219.82 per square foot. Hennepin County values the building at $90.5 million for tax purposes. New York-based Kohn Pedersen Fox designed the building, which Golden Valley-based M.A. Mortenson Co. completed in 1987. Floor plates range from 13,200 to 23,500 square feet.
Sumitomo is the latest foreign investor to buy a marquee office building in downtown Minneapolis. South Korea-based Samsung paid $320 million in June for the 51-story 33 South Sixth office tower and the City Center retail complex.
Portfolio managers at investment companies like Sumitomo have been coming to buy Twin Cities real estate because they have cash they need to invest, said Herb Tousley, the director of real estate programs at the University of St. Thomas.
“A lot of these are investment funds where they’re pooling money to buy these trophy assets,” he said in Thursday interview. “They look at these trophy, Class A buildings because the risk is pretty minimal.”
Michelle Mussuto, a spokeswoman for the pension fund, declined Thursday to comment on the transaction, saying in an email to Finance & Commerce that the fund was “under a confidentiality agreement” and could not confirm the deal or comment on it.
Sumitomo did not respond to requests to comment on the purchase, but did issue a press release confirming the purchase.
“This is our first real estate investment in Minneapolis and we believe the expertise we’ve cultivated throughout our several years within the U.S. real estate market will allow us to bring insights and improvements related to building management and tenant relationships,” said Yurika Sugimoto, real estate manager for Sumitomo Corporation of the Americas.
SPS Tower has a number of large office users and is nearly 96 percent occupied, according to CoStar. Cloud-based supply chain management software maker SPS Commerce is the biggest tenant, with about 121,000 square feet of space. The tower was renamed after the company early last year.
Global management consulting company Accenture is the second-largest tenant at SPS Tower, with about 41,000 square feet of space. The building had previously been named Accenture Tower and 333 South Seventh Street.
The high occupancy rate was likely a draw for Sumitomo, Tousley said. Although the SPS Tower is somewhat smaller than some other towers downtown, a solid cash flow makes it a good buy, he said.
“Maybe it isn’t the IDS Center, but it’s pretty close,” Tousley said. “These aren’t the kind of guys that would go in and do a value-add.”
The downtown Minneapolis office space vacancy rate is 20.5 percent, according to the Minneapolis office of CBRE.
Other major investment transactions of downtown Minneapolis office property in the past year include the $255 million sale of Capella Tower at 201 Sixth St. S. to San Francisco-based Shorenstein Cos. in February 2018, and the $171 million sale of Target Plaza III at 900 Nicollet Mall to Menlo Park, California-based Menlo Equities in October.
Sumitomo Corporation of the Americas invests in commercial office buildings, multifamily communities, planned developments and single family homes, according to the news release.
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