The owners of a premier San Francisco office tower plan to forfeit the property to their lenders, the city's second distressed transaction involving a major commercial building in recent weeks and another sign of the growing pressures in the sector.
Hines and Sterling American Property decided to transfer their interest in 333 Bush St. to the original financers, following the surprise dissolution of law firm Heller Ehrman in September, according to a letter Hines sent to local real estate brokers and obtained by The Chronicle. The 118-year-old law firm defaulted on its 250,000-square-foot lease, leaving the nearly 550,000-square-foot property 65 percent vacant.
More distressed deals are expected. Nearly three-quarters of Class A office buildings downtown sold between 2005 and 2007, a bonanza that drove up prices to all-time highs and squeezed the ratio of rental income to cost to record lows. But the economic collapse sharply reduced rent and occupancy levels, making it increasingly difficult for landlords to meet their debt obligation.
This brings us back to one of this blog's favorite maxims compliments of Howard Marks:
Leverage + Volatility = Dynamite
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