The deal marks the 36th acquisition for Sterling American Property Fund IV, which Hines has a 10% interest in. In June 2005, the companies formed a joint venture to purchase a portfolio of properties from EOP in the San Francisco area. They acquired a portfolio of unstable Bay Area office properties for $329 million. The portfolio totals 1.36 million sf, of which 729,214 sf is empty for a overall 53.4% vacancy.
The 25-story Montgomery St. is approximately 59% occupied. Its roster of tenants includes the US General Services Administration, Wells Fargo Bank, the law offices of Trucker Huss and the Segal Co.
Sterling American plans to begin a comprehensive repositioning strategy to lease the property, which was constructed in 1955, at current market levels. In negotiating the transaction, Sterling American's managing directors coordinated the efforts of Tarak Patolia, SVP/head of acquisitions, Robert Watman, VP, acquisitions and Robert Bergman, SVP/asset management.
Patolia tells GlobeSt.com that the firm will spend between $8 million and $10 million to refurbish the property. The effort is expected to take approximately 18 months to complete and will take the site from its current class B status to an A minus one. He explains that the facade is currently clad in marble that has deteriorated over the years. The previous ownership had installed a scaffolding on the site. "We want to change its image and appearance." Other improvements are planned as well.
"We believe that the timing is right to continue to expand in this market because of our strong belief in its resurgence and the fact that it is a supply constrained market," Patolia says. "It's in a great location. It's our challenge and we're up to the task."
Sterling American is a real estate investment affiliate of Sterling Equities and American Securities LP. Since 1991, its four consecutive real estate funds have invested in more than $2.5 billion in assets in 43 states, often in conjunction with strong regional joint venture partners.
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