- February 28, 2001 - The Bank of America Center in San Francisco will likely be sold this month and fetch between $800 million and $1 billion, said sources close to the auction.
At the top end of that range, the complex's 50% owner, privately held Shorenstein Co., could stand to make a 33% return on its original investment.
The timing couldn't be better for the real estate investment firm and its chairman and CEO, Doug Shorenstein. The company is trying to raise $500 million to launch its sixth real estate fund this summer.
Shorenstein acquired the 1.8 million-square-foot BofA Center from Bank of America Corp. for $660 million in 1985, before the dot-com revolution sent San Francisco real estate prices sky high. The bank reacquired a 50% stake in the complex in 1992 for roughly $380 million.
If the office property is sold for $1 billion, giving Shorenstein a $500 million cut, then the firm since 1985 will have reaped $880 million in sales proceeds for the BofA Center. That $220 million gain would represent a 33% return on its original $660 million investment.
Shorenstein's father, Walter, renamed the old Milton Meyer & Co. in 1960 after taking over as owner and president. The younger Shorenstein made his mark in the past decade by launching five successful real estate funds which have quadrupled his company's assets under management to more than $5 billion and its portfolio to more than 25 million square feet.
Shorenstein, 45, rarely chases trophy properties, acquiring high-profile real estate only when he could buy the property at a discount and in secondary markets such as New Orleans and Miami.
"In short, we are painfully boring," Shorenstein said. "But that's how you make money in real estate."
Shorenstein first acquired the BofA Center at $366 per square foot, compared with the $500 per square foot-plus the building's partners would fetch if the complex sells for $900 million or more. Mortimer Zuckerman's Boston Properties Inc. recently dropped out of the bidding.
Shorenstein's other trophy property is the John Hancock Center in Chicago, which he bought for $220 million in 1998. He reportedly beat billionaire Marvin Davis and New York private equity giant Blackstone Group to win that property.
But aside from those two deals, Shorenstein has stayed true to his fund's strategy of buying low-profile Class A office space and using lower leverage than other, riskier real estate opportunity funds.
Shorenstein's funds, for example, use 50% to 60% leverage, while opportunity funds use 75% to 80% leverage. In addition, the Shorenstein family contributes 10% to 20% of the equity for each fund.
"Our strategy is to buy very high quality Class A assets that we can keep leased when the real estate market is up or down," Shorenstein said. It has earned Shorenstein a following of investors that includes high-net-worth investors, pension funds and academic endowments, including Yale University's.
A wave of acquisitions is occurring among real estate investment trusts. Equity Office Properties Trust announced Friday a $7.2 billion acquisition of Shorenstein's Bay Area rival, Spieker Properties Inc. In New York, Vornado Realty Trust was picked Thursday to acquire the 99-year net lease on the World Trade Center for $3.25 billion.
But Shorenstein isn't likely to get caught up in the furor. Though dot-com turmoil has roiled Bay Area real estate, Shorenstein's properties are not vulnerable to losing tenants.
That's because about 98% of his company's San Francisco tenants are financial services or similar firms.
Another hedge against the dot-coms was the property development and management capabilities that the company has added to its corporate structure.
Shorenstein joined the family business in 1983 after a short apprenticeship practicing real estate law at the New York offices of Shearman & Sterling. He took the reins of the company in 1992 and shortly thereafter launched the first fund.
From there, he has created a broader profile for Shorenstein. Said Roy March, president of the San Francisco-based Eastdil, the real estate investment bank owned by Wells Fargo & Co.: "[He] transformed Shorenstein from a dominant local presence to a major presence in money management."
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