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Landmark BofA Building On the Block
Analysts say it could fetch $1 billion in hot S.F. market
By Sam Zuckerman [szuckerman@sfchronicle.com]
San Francisco Chronicle [www.sfgate.com]
October 3, 2000
The Bank of America building, one of the landmarks of the San Francisco skyline, has been put up for sale in a deal that analysts say could bring more than $1 billion.
The owners, Shorenstein Co. and Bank of America, have put the 52- story monolith on the block to take advantage of soaring commercial real estate prices.
The BofA building, with its distinctive brown-and-red granite and glass profile, is the anchor of the city’s Financial District. It houses such tony tenants as the investment banks Goldman Sachs and Morgan Stanley Dean Witter in addition to BofA.
The bank and Shorenstein each own 50 percent of the 779-foot-tall, 1.5 million-square-foot building. They are expected to announce today that they are exploring a “recapitalization” of the building and two adjacent properties that all form the Bank of America Center.
Such a deal could include refinancing, selling or arranging a joint venture to own the complex. Shorenstein officials said an outright sale is most likely, provided potential buyers are prepared to pay up.
“I personally expect this building will get a tremendous amount of investor interest,” said Shorenstein chairman and chief executive Doug Shorenstein.
TROPHY PROPERTY
Real estate specialists describe it as a trophy property that is hard to value because there are few buildings to compare it to in the local market.
“This may be a once-in-a-lifetime opportunity to own this unique piece of San Francisco,” said Jay Sholl, an executive of the commercial real estate firm CB Richard Ellis. The price “could just blow through the roof.”
Sholl said, he does not expect a sales price to surpass the $1.2 billion Boston Properties paid for the Embarcadero Center in 1998, the most expensive real estate deal ever in the area. Embarcadero, which consists of several buildings of about 3 million square feet, sold for about $300 million more than analysts had expected.
Still, on a square-foot basis, a BofA complex sale is likely to be the most pricey major office transaction in San Francisco history, easily topping the roughly $400 per square foot the bank paid when it bought a 50 percent share in 1992 for about $380 million.
Banc of America Securities, formerly known as Montgomery Securities, is advising Shorenstein and BofA on the transaction.
THREE BUILDINGS OFFERED
The BofA property consists of the California Street tower and two adjacent buildings on Montgomery Street totaling about 1.8 million square feet. The main building, designed by the architecture firm Skidmore Owings & Merrill, was completed in 1969.
Shorenstein and BofA officials said they put the complex on the block to take advantage of the city’s white-hot property market.
“Given the strong real estate market in San Francisco, this is a good time to be looking at potential alternatives,” said BofA spokeswoman Betty Riess.
New technology businesses are hungry for office space in the city, and their explosive growth has stimulated expansion of finance, law and consulting firms as well. The result is a historically minuscule vacancy rate of just over 1 percent for prime Financial District space and rents that have longtime San Francisco real estate pros shaking their heads.
The average Financial District rent of about $80 per square foot is “twice as high as what we once thought had to be the absolute top of the market,” said Dan Mihalovich of Mihalovich Partners, a San Francisco commercial real estate firm.
For the Shorenstein Co., a sale of the BofA complex fits with its strategy of regularly turning over its real estate portfolio. The firm so far this year has bought buildings in New Orleans and Chicago, and sold its interest in 50 Fremont Street in the city.
“We don’t hold assets for ever,“ Doug Shorenstein said. “When the investment market is opportune, we sell.“
The bank’s willingness to put the property on the block stems directly from the takeover of San Francisco’s BofA by North Carolina’s NationsBank two years ago.
COMMISSIONED IN 1960S
The old BofA commissioned the tower in the 1960s and viewed it as a signal of its dominant role in the city.
At the time, critics complained that the dark, huge tower was out of character for San Francisco and a blot on the city’s skyline. On the other hand, BofA’s longtime chief executive A.W. “Tom” Clausen was especially sentimental about the building. He was known to solicit compliments on its beauty from guests at outdoor receptions.
NationsBank, which adopted the BofA name, has no such attachment. “They have hundreds of millions of dollars of equity tied up in this asset,” said Sholl. “They want to redeploy those dollars in places that better serve the bank.”
BofA occupies the property on a long-term lease that has about 15 years remaining. The bank said it will continue as the largest tenant, and the center will carry the BofA name if the property is sold.
BofA has always been the major tenant in the California Street building. The bank sold the property to Shorenstein for $660 million in 1985, when it was on the ropes from bad loans.
But in 1989, when it had stabilized financially, BofA bought an option to buy back a 50 percent stake in the building. It exercised that option in 1992, under Clausen. Shorenstein and the bank then created a new organization, 555 California Street Partners, to own the building.
THE BANK OF AMERICA BUILDING
The landmark:
The former Bofa headquarters complex has nearly 1.8 million square feet of rentable space in the block bounded by California, Montgomery, Pine and Kearny streets.
The offer:
Included in the deal are BofA’s 52-story carnelian granite tower with nearly 1.5 million square feet of rentable space; an adjoining office building, and the bank’s main branch.
Original cost:
The main tower cost about $100 million to build in 1969.
The tallest?
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 to 779 feet for the BofA tower. But the Pyramid’s needle is 212 feet, which partisans of the BofA building insist shouldn’t be counted.
Sold in ’85:
In September 1985, Bank of America sold the building to Walter Shorenstein for $660 million, at that time the highest price ever paid for a single office complex in U.S. history. The bank needed the money to shore up its capital after mounting loan losses. Claire Giannini Hoffman, daughter of BofA founder A.P. Giannini, resigned as an honorary director calling the sale “appalling and unpardonable.”
Called a mistake:
One of the partners of the architecture 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, called the tower a mistake. “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.”
©2003 San Francisco Chronicle
