[BTinSF]

Friday, July 24, 2009
Hines, Sterling to surrender S.F. building
San Francisco Business Times

Hines and Sterling American Property will give 333 Bush St. back to lenders Brookfield Real Estate Finance and Munich Hypo Bank, according to a statement from Hines executives.

In a letter sent to commercial real estate brokers, Hines executives Norman Spencer, David Eaton, and Merredith Treaster said the decision to give the 542,000-square-foot San Francisco building back to the lenders on the property was driven by the failure last year of anchor law firm tenant Heller Ehrman. “We were as shocked as you were when Heller Ehrman, a 118-year-old law firm and the major tenant leasing 250,000 square feet defaulted on its lease and eventually entered into bankruptcy,” stated the Hines executives. “We diligently worked with the lender but were not able to come to a mutually satisfactory restructure of the existing debt.”

Hines and Sterling did not make a scheduled loan payment on June 9. The lenders are expected to initiate foreclosure proceedings.

The foreclosure comes at a time when downtown office values are in free fall. Sterling and Hines bought 333 Bush St. in 2007 for $281 million, about $520 a square foot. The last significant office building to sell in San Francisco, 250 Montgomery St., sold for $173 a square foot, 57 percent less than it traded for in 2006.

The building is the third Bay Area property Hines has defaulted on in the past two months. On June 5, Connecticut General Life Insurance Co. foreclosed on Marin Commons, a 455,000-square-foot office complex in San Rafael. And on July 15, Hines and joint venture partner CalPERS defaulted on a $152 million mortgage secured by the 814,000-square-foot Watergate office complex in Emeryville, according to a notice of default filed in Alameda County by Pacific National Bank.

Hines, the developer picked two years ago to build a Transbay Terminal and Tower at Mission and First streets, also owns interests in 560 Mission St., 101 Second St., 101 California St., and 100 Montgomery St., which recently underwent a $30 million renovation.

Hines and Sterling American Property “are financially sound and well positioned,” according to the letter.

“Despite the unexpected disposition of 333 Bush, Hines and Sterling are fortified by our overall success in San Francisco and look forward to identifying additional opportunities for future investment,” said the letter.

Sterling recently shut down its San Francisco office, laying off its Bay Area executive, David Ash. Ash was hired in October 2008 to handle the disposition and financing of office and multifamily properties in the western United States.

For Toronto-based Brookfield, the transaction represents a chance to own a significant downtown San Francisco office building. Brookfield owns 108 properties totaling 75 million square feet in the downtown cores of New York, Boston, Washington, D.C., Los Angeles, Houston, Toronto, Calgary and Ottawa. The company has unsuccessfully bid on a number of properties in San Francisco in the past. The company owns the World Financial Center in Manhattan, Brookfield Place in Toronto, and Bank of America Plaza in Los Angeles. Brookfield’s Bert Dezzutti will handle leasing on the property.

Source: http://sanfrancisco.bizjournals.com/.../daily100.html

333 Bush

Source: http://www.socketsite.com/archives/2...oing_back.html

These defaults are essentially tactical moves and do not indicate, as the article says, that Hines is in trouble. But they do mean that the office market in San Francisco is not conducive to new development and certainly not by Hines. As I have now said several times, I would not even be surprised to see them try to sell their equity in the TransBay project.