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KKR lands $600M to close on its acquisition of Dropbox HQ

KKR has secured $600 million in debt from Goldman Sachs + JPMorgan Chase to close on its $1.08 billion acquisition of The Exchange on Sixteenth in San Francisco’s Mission Bay neighborhood, according to Moody’s. The 750,000-SF office campus is 98.4% leased to software storage giant Dropbox.

Financing details: The five-year, floating-rate first lien CMBS loan is set to be securitized in a single-asset, single-borrower deal. KKR invested roughly $496 million of equity in the asset, which puts the transaction’s loan-to-cost at 54.7%, CO noted.

Why it mattersDropbox signed a 15-year lease for its corporate HQ at the campus in 2017. The company listed 270,000 SF of its space for sublease as the pandemic caused most of its staff to work remotely. Other tech firms reducing their office footprint nearby include Yelp, Digital Realty, Pinterest, Gap, and Salesforce. 

Long Live Office: The seller, Kilroy Realty, began construction in late 2015 with a total development cost of $585 million. Dropbox’s 15-year lease was reportedly inked at $75 per SF (NNN assumptions), which means this deal traded at an impressive 5.2% cap rate. The property also has about 12,300 SF of vacant ground-floor retail space.

Secular decline in retail is accelerating: E-commerce sales in February surged 54.7% when compared with the same month last year. Online clothing sales spiked 47% year over year, as consumers continued to rapidly adapt to online shopping. Digital jewelry sales also jumped 63%. 

E-commerce is the future: A new Mastercard report expects the trend to continue to take shape even as the economy reopens and more people venture outside the home. While the shift to digital was in the making for years, the adoption has accelerated ahead of schedule. [SFChronicle+CO]

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