07/04/2012

Brookfield Shops SF Office Condo With Upside

Brookfield Asset Management is marketing the office space at 333 Bush Street in San Francisco, the latest in a steady stream of high-profile offerings in the city.

The 543,000-square-foot condominium could attract bids of up to $500/sf, or $272 million. At that price, the capitalization rate would be slightly under 5.5%. Toronto-based Brookfield has given the listing to Eastdil Secured.

The office space is on 31 floors of the 42-story building. The remaining floors are separately owned residential condos.

While multiple other San Francisco properties are on the block, 333 Bush Street has the most upside potential. The tower is only 82% leased, well below the 90.2% average for its North Financial District submarket.

A Brookfield fund assumed the property three years ago when a partnership between Hines of Houston and New York-based Sterling Equities defaulted on debt. The duo had acquired the tower from Prudential Real Estate Investors at the top of the market in 2007, paying $281 million, or $517/sf. It lined up a $224 million financing package, of which Brookfield Real Estate Finance Fund 1 held a junior piece.

The partnership was dealt a major blow in 2008 when the anchor tenant, white-shoe law firm Heller Ehrman, plunged into bankruptcy and vacated 14 floors, severely reducing the building’s cashflow. By 2009, at the market’s nadir, the partnership stopped making loan payments and turned over the keys to Brookfield.

Brookfield has signed new leases or renewals totaling 370,000 sf over the past 18 months as the San Francisco market roared back to life. The tenants include law firm Sedgwick (89,000 sf until 2021), the U.S. National Park Service (59,000 sf until 2021) and AOL (31,000 sf until 2017).

San Francisco has emerged as an investor favorite this year, with more than $1 billion of completed office trades so far. And a host of other properties are on the block, including the 662,000-sf building at 50 Beale Street, the 283,000-sf building at 550 Terry Francois Boulevard and the 424,000-sf building at 100 Montgomery Street, which is owned by Hines and Sterling. Also, Abu Dhabi’s sovereign wealth fund is expected to list the 347,000-sf building at 475 Sansome Street soon.

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