The acquisition includes 801 Market St., a 10-story building anchored by Old Navy's 100,000-sf flagship retail store and topped with the 198-room Palomar Hotel, and 22 Fourth St., a 207,000-sf 16-story office building anchored by Macy's West, which will occupy just over 60% of the building following an expansion later this year. The properties are located adjacent to San Francisco Centre, which is undergoing a $410-million renovation and expansion by Sydney-based Westfield Holdings Ltd.
The new owner is Atlanta-based Jamestown, which plans to package the asset with four others to create a new fund that, like all of its funds, will be marketed to large groups of individual German investors. The seller is Pacific Resources, a Taipei, Taiwan-based real estate investment group that hadn't planned on selling the building.
"When we completed the Macy's West lease in mid-2003 (to achieve 100% occupancy), selling the property was the furthest thing from our minds," says Kevin Wu, senior vice president of Pacific Resources. "After working for many years to stabilize the asset, our plan was to hold the asset for the long term."
What changed the company's mind was a "hold versus sale" analysis by San Francisco-based Transwestern Commercial Services showing that current capital market conditions presented an opportune time to consider selling the fully leased asset. "After analyzing the stability and diversification of the property's revenue stream, prevailing interest rates, and the surplus of capital seeking secure property investments, we recommended that Pacific Resources proceed with the sale of the property as soon a possible in order to take advantage of this window of opportunity," says Transwestern SVP Donald Polishuk, who worked on the analysis with managing director Mark Terzian and senior associate Richard Dougherty. "We also wanted to leverage off of the revitalized energy and interest in the area associated with the start of construction on the new San Francisco Centre."
Polishuk tells GlobeSt.com that Transwestern took the property to market in October after convincing Pacific Resources "that we could achieve a pretty attractive price and still keep it somewhat confidential" because there is only a small pool of investors that could afford it. Transwestern was under exclusive negotiations with Jamestown by December; the sale closed last week.
Polishuk says the sale is not an indication of recovery in real estate, but rather an indication of the surplus capital that is out there hunting for secure real estate opportunities. And Jamestown is particularly interested in such assets located in the US because its clients, thanks to the US-German Tax Treaty, get to eschew their country's onerous tax on income and distributions--which can run as high as 60%--in favor of the relatively paltry US tax rate.
Pacific Place will be one of four assets in Jamestown 25. The other assets are the IBM Southeastern Headquarters Building in Atlanta, Georgia; a majority partnership position in 111 8th Avenue in the Chelsea District of Manhattan; and a majority partnership position in the Ritz Carlton Hotel in Key Biscayne, near Miami, Florida. The combined acquisition cost of these properties is in excess of $1 billion, of which Jamestown will finance 60%.
Jamestown's legal counsel in the transaction was Holland & Knight LLP while Baker & McKenzie served for Pacific Resources. Fidelity National Title served as the title insurer and escrow agent.
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