With this deal, the investors have successfully flipped one of San Francisco’s most prominent office assets. In 2004, they bought the tower for $900 million. The same investor group sold a collection of properties on New York’s west side last summer for $1.76 billion. The property has withstood San Francisco’s volatile leasing market over the past decade, with an average vacancy of 3.6% since 1991.

This is the first time that a major San Francisco office tower has been held for a short period and sold for a strong profit.

1B Flip of BofA Center Closes

2006 - The $1.05-billion sale of Bank of America Center here closed on Wednesday. On behalf of a trio of Hong Kong investors, Hudson Waterfront Associates acquired the building from a New York investment group led by David Werner and Mark Karasick.

Werner and Karasick's 555 California Owners LLC consolidated ownership of the three-building complex in 2004 for approximately $875 million, or about $175-million less than Hudson Waterfront Associates paid for the asset. Also involved in the JV was Toronto-based IPC US REIT, which provided $49 million of equity that helped the Werner-Karasick JV cobble ownership through multiple transactions. IPC this week received $85 million in proceeds from the deal for a 54% IRR over an 18-month hold.

Broker Eastdil Secured represented the Werner-Karasick JV in both the original acquisitions and the re-sale to Hudson Waterfront Associates. Harmon did not return a phone call seeking comment. Hudson Waterfront Associates acquired BofA center with 1031 exchange money from its sale of 77 acres along the Upper West Side of Manhatten between 59th to 72nd streets.

As reported by GlobeSt.com in October, IPC's investment entitled it to an annual return of 12% for a certain number of years and, after full repayment of capital, a 10.5% interest in the property. Because the JV did not hold the asset very long, part of the REIT’s proceeds came in the form of a prepayment penalty. IPC is the only REIT in Canada that invests exclusively in US commercial real estate. - CITY FEET.com      2006 Mar 2

Bank of America tower on block for $1.2B

2005 July 8 :   New York investors David Werner and Mark Karasick have put a $1.25 billion price on the 1.8 million-square-foot trophy building less than a year after acquiring it, according to report in Real Estate Alert, a trade journal.

At $700 a square foot, the deal would far exceed any commercial office sale in San Francisco history, if the sellers get their price.

A sale of 555 California St. would mark the first time a landmark office building in San Francisco has been flipped -- acquired and put back on the market in rapid-fire fashion.

The New Yorkers, who acquired the tower and its adjoining building for less than $900 million in separate deals with Bank of America and Shorenstein Cos. last year, have hired broker Douglas Harmon in New York's Eastdil office to find a buyer. Werner and Karasick have flipped other buildings in New York and made large, quick profits.

Werner and Karasick's bold move is likely to attract domestic institutional investors and foreign buyers. It's unlikely a major real estate investment trust would stake that much on a single property.

If the seller can get its price, the transaction will be a testament to how much the San Francisco market has improved. The deal could trigger a second wave of selling after many of the top buildings in the city's financial district have traded in the last 12 months. The Bank of America building is the first one to go back on the market.

Stunning move

"I'm surprised. It's unusual for an owner to turn around that quickly and sell a building of that scale," said Class A office developer Jack Myers. "There may be enough margin in that original deal and enough room for profits for the future investor to make good, but it's a little out of my league. These are interesting times that defy normal business practices."

Myers doubts there will be a wave of flips here, partially because the market -- while improving -- hasn't come all the way back from its 2000 high. The Bank of America tower is an internationally known building that can create its own demand. Nevertheless, prior to the 2004 sale, the building had been marketed by Shorenstein and the bank, but didn't fetch its price and was pulled off the block.

Under the Karasick/Warner ownership, the tower and its building annex have reached a 96 percent occupancy, and rents have climbed in the past six months.

Among the most recent rent deals: AIG Global Investments taking a five-year lease for $46.50 a square foot on fairly pedestrian 26th floor space.

As several leases will expire on upper view floors, a new owner may be able to command higher rents well above the $50 a square foot currently in place on several upper floors. The tower still has in excess of 100,000 square feet in sublease space because of downsizing by Bank of America and Ernst & Young.

Karasick and Werner bought half the building from Charlotte-based Bank of America last July and bought out Shorenstein's half soon after. The combined price was said to be between $850 and $890 million.

Located at California and Montgomery streets -- and covering a block -- the building's crenelated brown marble facade is more than 30 years old, but continues to have the most corporate cache, despite a host of newer office buildings in San Francisco. - BIZ JOURNALS    2005  July 8

SAN FRANCISCO

Bank of America Center
Address: 555 California St.
Height: 52 floors, 779 feet
Construction: 1969
Floor space: 1.8 million square feet, including 16-story annex
Rank: Second-tallest building in San Francisco, 49th-tallest in the United States, 136th-tallest in the world               - Source: Chronicle research

For sale: Landmark, $1.25 billion
Bank of America Center owner seeks to cash in on hot commercial market

San Francisco's iconic Bank of America Center could be on the block again -- this time for the staggering asking price of $1.25 billion.

Building owner Mark Karasick is seeking to sell the 52-story Financial District landmark less than a year after acquiring it from Bank of America and Shorenstein Co., according to Real Estate Alert, a closely watched industry newsletter. Eastdil Realty, the broker for Karasick in the previous BofA deal, declined comment and referred the matter to Karasick, who did not return a phone call.

If Karasick achieves the reported asking price on the 1.8 million-square- foot high-rise and annex, it would work out to $700 per square foot -- by far a record for a San Francisco office building.

The highest price to date was $501 per square foot paid in 2003 for 500 Howard St., also known as Foundry Square I. The buyer was a Utah state pension fund.

"If any single building in town can command (more than $1 billion), that's the building," Joe Cook, head of the Cushman & Wakefield services firm in San Francisco, said of the BofA tower. "When you get into that range, it's a rarified air in terms of who can afford it and make that kind of commitment."

The report of a possible sale comes amid a red-hot market for institutional grade real estate nationwide. During the past 12 months, about $4.2 billion worth of San Francisco commercial property has been sold or put under contract, according to Real Capital Analytics, a New York research firm.

Pension funds, foreign buyers, real estate investment trusts and real estate syndicators such as Karasick have continued to pour money into commercial property at a record pace, despite slow rent growth and declining yields.

"The institutional psychology for real estate is becoming similar to individual psychology," said John Dudeck of Guardian Equity Gowth in Los Altos. "They are reducing their expectation for cash flow and relying on pie-in-the- sky appreciation. They are playing into the greater-fool theory."

Karasick groups have made quick killings before, but not from a building as prominent as the BofA tower. Built in 1969, the distinctive reddish brown high-rise is considered the city's trophy asset. It even starred in a movie, the 1974 thriller "Towering Inferno."

The tower was co-owned for years by Bank of America and Shorenstein and houses investment bankers, lawyers and consultants. During the dot-com boom, the former owners put the building on the market for a reported $1 billion, but pulled it when there were no takers.

BofA rents are some of the priciest in the city, about $10 per square foot more than average Class A rent in the Financial District.

A recent lease with AIG Global Investors for 10,000 square feet on the 27th floor -- about the middle of the building -- was signed at a rental rate of $46.50 per square foot, according to Grubb & Ellis Corp. Rents in the upper stories are in the $50s per square foot.

The building is 96 percent leased. One of the choicest blocks available for rent is 25,000 square feet on the 50th floor.

Commercial rents in San Francisco are on their way up, but many leasing experts say they do not justify the high prices being paid for buildings. "Today's purchase prices are not based on today's rents," said broker Frank Fudem of BT Commercial. "They are based on extremely optimistic rent projections."

But if a buyer did decide to pay a super-premium for the BofA building, it may not affect the overall market, said Cook of Cushman & Wakefield. The average sales price for a Class A San Francisco office building is about $300 per square foot -- far below the price sought by Karasick.

"I think (the BofA's asking price) is awfully high, and it would be somewhat of an isolated event," Cook said. "I don't think it would tend to pull prices up." - by Dan Levy     SAN FRANCISCO CHRONICLE     9 July 2005

Bids Could Exceed $700 per sq ft
With the first round of bids to purchase the Bank of America building already topping $1.1 billion, San Francisco's biggest office tower could easily hit $700 a square foot -- an all-time high for the city.

While sources bidding on the trophy indicate a final buyer is still two to three weeks from being selected, the short list of likely contenders is becoming more clear.

Topping that list, according to sources within the investment community, are property giant Tishman Speyer, pension fund TIAA-CREF and a handful of advisers like JP Morgan, Morgan Stanley and Goldman Sachs acting on behalf of foreign investors and pension funds. Other bidders are thought to be on the list as well.

Tishman Speyer declined to comment and calls to TIAA-CREF went unreturned.

Whichever bidder ultimately buys the 1.8 million-square-foot property, be it a syndicate like current owners David Werner and Mark Karasick -- who acquired it from Shorenstein last year -- a real estate company or a fund adviser, the motivation will be similar: Bragging rights.

"Nobody is going to buy this for the yields. They're going to buy it for the romance so they can put it on the cover of their annual report," said Cushman & Wakefield's Chris Aust.

Added colleague and senior director of investment sales Russ Sherman: "This would be a tough purchase for a REIT to justify with such small yields. They would be concerned about what it would to do stock price."

Indeed, although the building is well leased, the cap rate -- the building's rate of return -- is below 6 percent through at least 2012, according sources within the investment community.

That protracted low return, along with carrying the in-place debt on the building -- a number most place around $750 million -- makes the deal unattractive to some organizations as does the final price tag.

Others, like Tishman Speyer, which already boasts a trophy case packed with prime properties in London, Paris and Berlin, may be looking beyond cap rates.

Although it holds the Chrysler Building, Rockefeller Center and the MetLife Building in New York, Tishman owns nothing of the same caliber on the West Coast.

In San Francisco, it owns 595 Market St. and One Bush St. and has plans to develop an office building at 555 Mission St. -- an arrangement that shows Tishman is interested in the city and could be well positioned for a purchase, according to some industry players.

TIAA-CREF is also a strong runner.

Based in New York, it's one of the world's largest retirement systems, with more than $325 billion in assets and a penchant for commercial real estate. One on the most active real estate investors nationally, TIAA-CREF purchased 50 Fremont St. early this year and is sitting on a $4 billion-or-so fund for 2005 and an even larger one expected in 2006. It has yet to make a major investment in San Francisco, a market widely considered among the hottest nationwide.

Equity Office Properties, one of the city's largest office landlords, which is in the process of upgrading its portfolio, is bidding on the property, but Sondra Courey, EOP vice president of acquisitions, said she's unsure how far EOP will get in the process.

"The competition is crazy, and it could get even more crazy," she said.

Beacon Capital Partners, one of the most active buyers in the S.F. office market this year, is also taking a look at the property, but is unlikely to place the highball bid given its depleted war chest.

Although the private REIT is bullish on the city, having snapped up One Sansome St., 50 Beale St. and 100 California St. so far this year, it has already invested 90 percent of the $1 billion fund it raised last summer -- 20 percent of it on San Francisco buildings.

CEO Alan Leventhal declined to comment on plans however, saying only: "We're always looking at assets. In the past year we've identified San Francisco as a market where rents are really recovering. We view it as a very healthy market."

Hines, another likely candidate given its commitment to increasing its Bay Area presence thus far in 2004 and 2005, is not bidding on the property, although Senior Vice President Paul Paradis noted, "things could change."

He added: "Right now, we don't have a capital strategy that works for that size acquisition at that pricing."

Then there's Shorenstein.

The S.F.-based real estate firm has whittled its holdings here dramatically in the past year, selling more than 3 million square feet of assets, culminating with the BofA building sale just over a year ago.

While CEO Doug Shorenstein has indicated the sales were part of the company's effort to better balance its holdings nationwide to diversify its risk, not every sale was choreographed.

Many, like the sale of 425 Market St. and 333 Market St., came together unexpectedly as deal partners pushed for a sale or an owner-user made an unsolicited offer, according to Bob Underhill, managing director of capital transactions at Shorenstein.

Shorenstein's decision to sell its remaining 50 percent share in the BofA building in 2004 to New York investors Werner and Karasick was also triggered by outside events.

Exact details of the sale are still unclear -- the company indicated tax concerns prompted the move -- as are Shorenstein's final profit on the building.

What is clear is that Shorenstein remains sweet on San Francisco, and may even be having a twinge of seller's remorse, given that the price of Class A assets has continued to increase.

"Would we like to have Hills Plaza back today? You bet your bottom dollar we would," said Underhill, adding he would not comment on specific assets it is considering. "Our interest here remains quite high. As a rule, we look at everything in San Francisco that fits within our investment strategy." -  by Lizette Wilson   BIZ JOURNAL    8 Aug 2005 

A New York investment group headed by Mark Karasick is trying to make a quick profit on the BofA tower. Here is what it has done in the past year.

-- Today: Reportedly seeking $1.25 billion for the 52-story tower and annex.

-- September: Purchased 50 percent stake from the Shorenstein Co. for $400 million to $450 million.

-- July 2004: Purchased 50 percent stake from Bank of America for $400 million to $450 million.                      - Source: Chronicle research.

Landmark sale

Bank of America may sell its stake in the 52-story Bank of America building in downtown San Francisco. The bank and real estate giant Shorenstein Co. each own half of the building.

The tower, an adjoining office building and the bank's main branch have about 1.8 million square feet of rentable space.

The Bank of America Center is a trophy 1.8 million square-foot office complex in the financial core of San Francisco. The property is 92 per cent leased as at August 2004 

Tenants of the building on long-term leases include the Bank of America, Goldman Sachs, Morgan Stanley, Lehman Brothers as well as prominent law firms Jones Day, Sidley Austin and Kirkland & Ellis.

The Toronto-based trust, IPC US Income Investment Trust, which invests exclusively in U.S. commercial real estate, said it will spend $51 million in a seven-year preferred equity instrument (an investment of $49 million, net of deferred fees earned) on the property to participate in the acquistion.

The trust "will be entitled to an annual minimum return, as well as certain additional amounts based on the property's performance,'' IPC said in a release.    In addition to its preferred return, IPC will own a 10.5 per cent interest in the property, once IPC and the common equity investors have received a 12 per cent annual return and full repayment of their capital.  - The Canadian Press (CP)   10 Aug 2004

An interesting story about Bank of America: According to the prominent San Francisco architect John Ellis, its official approval took all of 20 minutes — and this for what was to be the tallest building west of the Mississippi. "They just said, 'Nice job, young man,'" Ellis — who knew SOM's lead designer on the project — recounted to a class  at the California College of Arts and Crafts. "'You've got a wonderful building there. Good luck.'"
BofA might cash out its share of downtown office complex

Bank of America may sell its 50 percent share of the mammoth Bank of America Center, the premier office high-rise in San Francisco.

"A sale is under consideration," BofA spokesman Harvey Radin said Wednesday. "This could be a good time."

Brokers said the building could fetch anywhere from $375 to $600 per square foot -- a wide range that attests to both the shaky nature of the San Francisco market and the huge investor demand for commercial property.

Given the building's 1.8 million square feet of rentable office space, that would value BofA's stake at between $337 million to $540 million.

Investors ranging from pension funds to college endowments and high-net-worth individuals have been seeking prime commercial property as a relatively stable alternative to the stock market and other investments.

Experts say that San Francisco buildings are seen as a good long-term buy, despite depressed rents and office vacancy rates of more than 20 percent in the central city. The BofA Center vacancy rate was 18.7 percent during the first quarter, according to the CB Richard Ellis real estate services firm.

"If you were going to ask for one building in San Francisco, the BofA is that building," said office broker Frank Fudem of BT Commercial. "There are a lot of great buildings in town, but there's only one BofA."

BofA and co-owner Shorenstein Co. tried to sell the tower in late 2000 at the height of the dot-com real estate boom. Average commercial rents at the time had climbed to record levels, and some real estate boosters were predicting a sale price of $800 million to $1 billion.

But no suitors came forward at that price, and the tower was pulled from the market.

Since then, the market has suffered a historic slide, with rents falling from $80 to about $30 per square foot.

But premium space rents for considerably more. Law firm Kirkland & Ellis, for example, signed a lease at the BofA building last quarter at $39.50 per square foot.

Radin said that a sale is only one of the options being considered by the bank. BofA may also refinance or recapitalize the property.

"There is a cycle of investment, and timing is everything," Radin said. "We're getting back to a much stronger market now, and we're trying to create the maximum benefit for the company and shareholders."

BofA sold its data center at 1 South Van Ness Ave. last year to American Financial Realty Trust, which paid about $44 million for the 460,000-square-foot building.

Radin said the bank is sensitive to the perception that a sale could mean it is trimming its operation in California.

"This has no bearing on our commitment in the Bay Area and California," Radin said. "It's the most important segment of our national franchise."

For its part, co-owner Shorenstein Co., the city's largest landlord, said it is not selling its stake in the BofA building. A source close to the company said a recapitalization is under way that could result in a new partner for Shorenstein.

Elsewhere in the city, Shorenstein has been shedding some of its assets. It put two Market Street office towers and the mixed-use Hills Plaza complex on the market last month.

The last trophy tower to sell in San Francisco was the Embarcadero Center, which was bought in 1998 by Boston Properties, a real estate investment trust. The price for the 3-million-square-foot complex was $1.2 billion, still the most expensive price paid for a San Francisco property.    -  Dan Levy   SAN FRANCISCO Chronicle  June 17, 2004

 

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