Hong Kong investors to buy BofA building for $1.05 billion—unless they get Trumped
Dan Levy [email@example.com]
San Francisco Chronicle [www.sfgate.com]
September 23, 2005
San Francisco’s Bank of America Center is being sold to a group of Hong Kong investors for $1.05 billion—but the deal that could be affected by a New York court challenge from celebrity developer Donald Trump.
Hudson Waterfront Associates, a partnership led by Hong Kong property moguls Henry Cheng and Vincent Lo, has signed an agreement to buy the 1.8-million-square-foot BofA office complex from Pacific Gold Equities, a New York group headed by Mark Karasick and David Werner.
If the deal closes, it would be the first billion-dollar sale in San Francisco since the Embarcadero Center was sold for $1.22 billion in 1998. It would also be the largest real estate investment made by Asian buyers in the United States in the last five years.
But the BofA sale could be stalled by a protracted real estate soap opera pitting the super-wealthy Cheng and Lo against Trump, star of TV’s “The Apprentice.”
Trump, a 30 percent limited partner with Cheng and Lo in a sprawling waterfront site in Manhattan called Riverfront South, has challenged the Hong Kong tycoons over the $1.76 billion sale of that property.
A New York State Supreme Court judge ruled against Trump earlier this month, but Trump has appealed the decision. In the meantime, Cheng and Lo are reinvesting proceeds from the Manhattan sale in a tax-deferred exchange for the BofA complex, a transaction that will allow them to avoid paying capital gains tax.
“Trump has already tried twice to preclude the reinvestment of the proceeds, and he has failed miserably both times,” said Jonathan Lerner, a partner at Skadden, Arps, Slate, Meagher & Flom, lead attorney for Hudson Waterfront Associates in the Trump litigation. “There is no reason to believe he will do any better in any future attempt.”
Trump could not be reached for comment Thursday. But he has argued in court papers that the $1.76 billion sale price is too low and that he had received offers from other parties for nearly $3 billion—a contention that the judge rejected.
Cheng and Lo are well-known Hong Kong businessmen with vast property holdings in Asia. Lo, chairman of the Shui On Group, even has a Hong Kong television show called “The Winner,” which was inspired by Trump’s success on TV.
Bob White, president of the research firm Real Capital Analytics in New York, who is familiar with the proposed BofA deal, said the sale would be “the first significant Asian purchase (in the United States) that I’m aware of in quite a while.”
He added that only $1.2 billion in Pacific Rim investments, mostly from Singapore, had gone into U.S. real estate in the last five years, a relatively modest amount considering the global popularity of American commercial property.
The BofA center, which includes a 52-story tower and banking hall at California and Kearny streets and two small office buildings on Montgomery Street, is 96 percent leased. For years, it was co-owned by Bank of America and the San Francisco realty giant Shorenstein Co.
But the bank and Shorenstein each sold their 50 percent stake last year, to take advantage of the booming market for institutional-grade office property. The buyer in both cases was the Karasick and Werner group, which paid $800 million for the entire complex.
Less than a year later, the center was on the block again—this time with a reported asking price of $1.25 billion. Sales brokers Thursday were understandably giddy about the proposed Cheng and Lo deal, despite the announced price of $1.05 billion.
“I think it confirms the perception that there is a globally held belief in core markets,” said Grant Lammersen, a sales broker for the Cushman & Wakefield services firm in San Francisco.
But tenant representatives were skeptical. Many tenant advocates say the huge premiums paid by office-building buyers are out of line with the San Francisco’s low commercial rents. At the end of the second quarter, the average Class A rent in downtown buildings was $31 per square foot—about the same as rents 20 years ago, when adjusted for inflation.
“The underlying leasing market absolutely does not support the assumption that buyers are using to justify the prices they’re paying,” Dan Mihalovich, principal at Mihalovich Partners, a San Francisco firm that represents tenants in lease negotiations. “The new owners must be anticipating an average of $70 to $80 per square foot in rents from 2006 forward. A lot of magic needs to happen to make this fly.”
The average office rent in the BofA tower in 2004 was $48.31 per square foot, according to a report by the Newmark Pacific brokerage.
The billion-dollar building
Highlights of the Bank of America building’s 35-year existence.
In the beginning: The BofA headquarters is built in San Francisco in 1969, amid some controversy, rising 52 stories above the Financial District and covered in carnelian granite. (People didn’t like the dark color of the granite, hence the controversy.) The building wows the crowds with 1.3 million square feet of office space.
Building double: The structure has a brief brush with fame when Hollywood uses its exterior to represent the entrance to “The Towering Inferno.” Even the all-star cast, featuring Steve McQueen and Paul Newman, were dwarfed by the fictitious, 138-story Glass Tower that goes up in smoke in the movie.
Stone cold: The north plaza features a polished black granite sculpture by Masayuki Nagare, dubbed “The Banker’s Heart” by a disaffected citizen.
A matter of feet: The BofA tower and the 48-story tapered TransAmerica Pyramid vie for the title of San Francisco’s tallest building. The Pyramid comes in at 853 feet, compared with 779 feet for the BofA tower. But the Pyramid’s needle is 212 feet, which BofA partisans insist shouldn’t be counted. BofA is the 49th-tallest building in the United States, 136th-tallest in the world.
BofA bails out: In September 1985, Bank of America sold the building to Walter Shorenstein for $660 million, at that time the highest price paid for a single office complex in U.S. history. The bank needed the money to shore up its capital because of mounting loan losses. Claire Giannini Hoffman, daughter of BofA founder A.P. Giannini, resigned as an honorary director, calling the sale “appalling and unpardonable.”
Big mistake: One of the partners of the architectural firm that designed the tower publicly slammed the building a few years after it was completed. At a panel on urban design, Nathaniel Owings, a partner in the firm Skidmore, Owings & Merrill, said: “What we need in our cities is people. Now you tell me what the hell the Bank of America building has to do with one little human being.”
Source: Chronicle Research
©2005 San Francisco Chronicle