Shorenstein, Partners Selling Three Downtown Properties

SAN FRANCISCO-Three Financial District office properties here totaling more than two million sf are being sold by their ownership, with the common thread being locally based Shorenstein Co., which developed and manages the assets. The 632,000-sf 333 Market St. building is owned equally by Shorenstein, IBM and Fremont Properties, which is part of Fremont Group). The 905,000-sf 425 Market St. tower is owned unevenly by Shorenstein, IBM, Fremont and MetLife in a condominium arrangement wherein the partners each own certain floors in the building. The 600,000-sf Hills Plaza Complex on the Embarcadero is one of two remaining assets in Shorenstein’s very first fund. Local sources tell GlobeSt.com that Walton Street Capital of Chicago has offered $148 million for two-thirds of 425 Market St.–MetLife is holding onto its piece–and that Wells Fargo is reportedly under contract to buy all of 333 Market St.; however, GlobeSt.com was not immediately able to obtain confirmation of the information from ownership Friday morning. The two properties are being sold because Fremont Properties, which co-developed the buildings with Shorenstein, had structured sales for their interests in the properties and the other partners, including Shorenstein, decided not to exercise their buy-out options. For Shorenstein, the properties represent and ownership structure that it abandoned some 14 years ago in favor of funds and now is looking unwind as opportunities arise.No information was immediately available regarding a buyer for the Hills Plaza complex, a two building mixed-use development of office, retail and residential developed on the former site of a waterfront coffee factory. The asset is in Shorenstein Realty Investors LP, the company’s first fund formed in 1992. The fund had $160 million in committed equity and invested the money in six assets over a two year period. The only other asset still in the fund is Phoenix Plaza in Phoenix.While Shorenstein has been a net seller as of late, it is no doubt looking to buy, and San Francisco is on the radar screen despite these pending dispositions, according to one company source. Earlier this year the company closed its seventh fund with $775 million in equity supplied by foundations, college endowments, pension funds and high net worth families. With Shorenstein typically using acquisition debt in the range of 60% to 65% of cost, Shorenstein Realty Investors Seven LP will have capacity to acquire approximately $2.2 billion in office assets. The new fund was first opened to subscription in July 2003 and held its final closing in February. No funds have yet been invested. The fund will pursue the same strategy as Shorenstein’s previous funds, seeking to acquire large, complex and management-intensive office properties in major US markets wherein Shorenstein believes it can add value via its in-house investment, asset management, leasing and operating staff. Since 1992, Shorenstein has initiated six previous funds that attracted $1.5 billion in total equity. Four of which are fully invested and none have been fully liquidated. The funds have acquired and developed about 16 million sf of class A office properties throughout the US. The equity invested in Shorenstein Realty Investors Seven, the company’s largest fund to date, is equal to about 50% of all equity invested in the previous six funds.