BofA Center Back on the Market

SAN FRANCISCO-The majority owners of the 1.8-million-sf Bank of America Center are looking to flip the three-building landmark for a few hundred million more than they paid for it in 2004, according to industry sources in New York and San Francisco. A New York investment group that includes David Werner and Mark Karasick acquired 89.5% ownership of the three-building complex last year in separate transactions in the spring and fall that totaled about $870 million. Now it’s back on the market at a list price of $1.25 billion or $694 per sf.The broker with the disposition assignment is Douglas Harmon of Eastdil Realty in New York City. Harmon could not be reached Monday morning for comment. One New York source familiar with the property tells GlobeSt.com that even though it does not seem that long ago, when Werner and Karasick bought Bank of America Center it was a different asset in a different market. “Very few people could have handled it the way it was sold the first time,” the source tells GlobeSt.com. “It was a complicated by tax structures and never really broadly marketed, but the new owners have cleaned all that up.”The Werner-Karasick group acquired a 50% stake in the complex last summer from Bank of America for slightly more than $400 million, sources close to the transaction told GlobeSt.com. The recapitalization of the partnership included a refinancing of the debt on the building, which sources told GlobeSt.com was in the $700-million range. BofA exercised an option to be the lender, thereby essentially shifting its position in the building from equity to debt.At the time the deal was announced, locally based Shorenstein Co., owner of the other half of the building, said it had no plans to sell. However, just a few months later in October, Shorenstein announced it had sold its 50% stake in the landmark Financial District complex to the Karasick-Werner group (Pacific Gold Equities LP) for a price very similar to the first deal while retaining the property management and leasing assignment.Both Shorenstein and Pacific Gold’s broker in the transaction, Carlton Advisory Services, were vague about the transaction, with neither using the word “sale” in their announcements nor making themselves available for further comment. Based on the announcements and conversations other sources, it appears that Shorenstein was forced to shed its interest due to the passage of the Federal omnibus tax bill on Oct. 11, which somehow reclassified the complex partnership between Shorenstein and Pacific Gold Equities. “The co-ownership arrangement provided for a variety of circumstances in which the co-owners’ interests could be modified in the future,” reads a statement released by Shorenstein. “One of the circumstances was a change in law that could adversely affect one or more of the parties. Shorenstein exercised this provision due to the omnibus federal tax bill.” In between those two transactions, Toronto-based IPC US REIT made a $51-million, seven-year preferred equity investment in the complex and, as part of the deal, will result in OPC owning a 10.5% interest in the asset. Industry sources tell GlobeSt.com that IPC US REIT’s guaranteed stake is part of the current offering, meaning the buyer will own 100% of the asset. An IPC US REIT executive could not be reached Monday morning for comment, and neither could representatives of the Werner-Karasick group.”I don’t think anyone really knows how much it can sell for; it might sell for $1.1 billion, it might sell for $13 billion,” a San Francisco investment broker tells GlobeSt.com. “It’s such a special asset that with all the ownership complications eradicated and the market dramatically better, prospects are good.”BofA and Shorenstein tried to sell the tower for $1 billion in late 2000 at the height of the dot-com real estate boom but the property was never tied up. The market moved steeply downward from that point on, with annualized rents sliding from a high of $80 per sf into the $30s on average and premier product like BofA Center commanding rents closer to $40 per sf.Since the Karasick/Werner acquisition, occupancy at the complex has risen to 96% and effective rents have improved. Most recently, AIG Global Investments reportedly inked a five-year lease for the 26th floor of the 52-story main tower at a full-service rate of $46.50 per sf per year. Details of the concessions package were not available. The tower still has about 100,000 sf of sublease availability related to downsizings by Bank of America and Ernst & Young. One source tells GlobeSt.com that upside for the new owner could be had in negotiating new leases for the upper floors of the building, which reportedly will see significant tenant rollover in the next few years.