SoMa Office Building Trades for $97M

SAN FRANCISCO-Hawthorne Plaza, a 418,668-sf office property here in the South of Market area has changed hands for $97 million, or about $231.70 per sf. The development is 99.7% leased to nine tenants paying market-rate rents.The new owner is Triple Net Properties, a Santa Ana-based tenant-in-common syndicate. The seller was GE Capital Real Estate of Irvine, CA, on behalf of a unit of Philadelphia-based ITW Mortgage Investments Corp. that took control of the property following a loan default.Hawthorne Plaza consists of two buildings; a 20-story office tower located at 75 Hawthorne and a five-story office building located at 95 Hawthorne. The former was built in 1987, the latter in 1910. The capitalization rate on the investment is believed to be about 7.2% based on in-place rents.GE Capital was represented by Edward Suharski, Robert Dumas, Edmund Najera and Daniel Cressman from Grubb & Ellis’ San Francisco office and Eric Berkman and Andrew Abramson from the firm’s Washington, DC office. Triple Net Properties represented itself in the transaction.Dumas tells GlobeSt.com the sale demonstrates what a stabilized A-/B+ asset will trade for in the city. By contrast, he says the largely vacant 770,000-sf Market Center development sold for about $100 per sf while the 1.2-million-sf Foundry Square development, which was filled with tenants paying above-market rents, sold for about $500 per sf.GE Capital foreclosed on the property for ITW Mortgage Investments II after the debtor, Hawthorne Plaza Ltd., defaulted on the loan. The debtor filed for bankruptcy protection in July 2001 to prevent foreclosure but the stay was eventually denied. According to a May 2002 bankruptcy court decision, Hawthorne Plaza Ltd. was initially unable to rent all of the space in the building, and was consequently unable to make debt service payments. The loan was modified six times to add unpaid interest to principal, according to court documents. The debtor finally achieved complete occupancy and made its loan payments but ultimately filed for bankruptcy protection because the ITW loan matured and the debtor was unable to find replacement financing due to the combination of the increased loan-to-value ratio from the loan modifications and the decreased value of the asset caused by the collapse of the San Francisco office market, according to court documents. The court held an evidentiary hearing at which it determined the value of the building to be $97 million and the balance on the debtor’s ITW loan to be approximately $99.5 million.