Hong Kong Group Buys
Iconic Building in San Francisco
A group of Hong Kong investors and developer Donald Trump have purchased the iconic Bank of America Center in San Francisco for $1.05 billion, a record price for office space in the city.
The center includes a 52-story tower that is the second-tallest building on the skyline after the Transamerica Pyramid and is home to prominent tenants such as Bank of America and Goldman Sachs.
The Hong Kong buyers group includes real-estate moguls Vincent Lo and Henry Cheng. The sellers were a group led by New York investor Mark Karasick. Mr. Karasick bought the property in 2004 for $879 million, or $489 a square foot. This week's deal went for $583 a square foot. In Hong Kong, office space goes for roughly $1,200 a square foot in comparable neighborhoods, according to real-estate brokerage firm Jones Lang LaSalle.
The high price tag is a sign that the Bay Area market has regained much of its strength since the technology crash damped the market in the early part of the decade. "It's probably one of the best properties on the West Coast. It shows that there's a strong, fundamental belief in the short-term and long-term outlook for San Francisco," said Michael Seifer, a managing director at Jones Lang LaSalle who runs the capital markets group in San Francisco. He wasn't involved in the transaction.
The deal marks the second change in ownership in recent years. The Shorensteins, a San Francisco real-estate family, and Bank of America have jointly owned the building since 1989 and had tried to sell it in 2001 for at least $800 million, according to an internal report issued by Newmark Pacific, a real-estate brokerage firm. They received three offers at the time, but none at the price they were seeking.
In 2004 a group of investors led by Mr. Karasick bought the complex. Then as the San Francisco real-estate market heated up, Mr. Karasick and his fellow investors shopped the property to see if they could flip it for an even higher price.
While Mr. Karasick was shopping the property on the West Coast, the Hong Kong investors and Mr. Trump sold one of the most expensive pieces of land on the East Coast, a 77-acre plot on the West Side of Manhattan in New York, for $1.76 billion.
Mr. Trump, who had no equity in the property but maintains an interest that entitles him to certain profits, sued the Hong Kong group alleging that the group ignored offers to buy the property for nearly $3 billion. A New York judge recently dismissed Mr. Trump's claims.
That cleared the way for the Hong Kong group, which can make decisions without Mr. Trump's approval, to apply the proceeds of the New York sale to the Bank of America Center, thereby taking advantage of a tax strategy called a 1031 exchange. That strategy allows real-estate investors to avoid paying taxes on the profit from a property by reinvesting sales proceeds in similar properties.
"I cannot believe the price at which the West Side yards were sold," said Mr. Trump, who didn't comment on the purchase of the Bank of America Center.
The Hong Kong investors said the local property manager, Shorenstein Realty Services, will continue to manage the center and that there won't be any major changes. "It is the purchaser's intention to continue to operate the business in a manner that befits their status as the premier West Coast business address," according to a joint statement from buyer and seller.
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