In July , the building's former owner Hines told GlobeSt.com that it and JV partner Sterling American Property would be exercising its right to deed the class A property back to lenders in lieu of foreclosure. At that time, it was expected that Brookfield would assume operational control given its stake in the asset and its ownership of approximately 75 million square feet of CBD office properties including World Financial Center in Manhattan, Brookfield Place in Toronto, and Bank of America Plaza in Los Angeles.
The acquisition is Brookfield's first in the San Francisco market; a stated goal of the company is to build a portfolio of assets in San Francisco. Bert Dezzutti, Brookfield's SVP in charge of California was not immediately available Wednesday for comment. Angus Scott and Jim Ousman with the CAC Group have the leasing assignment.
Values for Bay Area office properties have fallen by approximately 50% during the recession, according to some reports, and rents and occupancies also have suffered mightily. In many cases, the debt on the property is now greater than the value of the property and/or the revenue stream is no longer enough to cover the interest payments on the debt. As a result, instead of investing additional cash in the building in order to cover the mortgage or restructure the debt some owners are choosing simply to sell at a loss or walk away.
Some $5 billion of new office distress in November ended three month where distress was relatively in check, and was the highest since August, according to a recent report by Real Capital Analytics. The total included $3.8 billion in assets taken back as REO, most notably Morgan Stanley's surrender of Crescent Real Estate Equities to Barclays. The $93-million of resolutions in the month was the slowest since May, according to RCA. The Northeast, West and Southwest each have more than $5 billion in office distress, with the Northeast well in the lead.
There is currently 386,000 square feet available in the building, including three significant blocks of contiguous space, according to a marketing brochure. The largest block is 142,000 square feet on floors 27 through 34. The two others are an 88,000-square-foot block on floors 7 through 11and a 70,000 square-foot block on floors 16 through 19. The brochure did not provide an asking lease rate.
Hines and Sterling paid $281 million or $518 per square foot for 333 Bush in mid-2007. At the time, the building was 75% leased to Heller Ehrman and America Online, among others, and the 135,000 square feet of vacancy was seen as an opportunity. Hines reportedly began missing payments on the mortgage secured by 333 Bush late last year after Heller Ehrman defaulted on its lease and then filed for bankruptcy. It was handed back after the JV and lenders could not agree on a mutually beneficial way to restructure the debt. Hypo Bank provided the senior debt on the property while the Brookfield fund provided a junior piece.
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