Beacon Capital Seen as Buyer of San Francisco's Rincon Center

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By Jillian S. Ambroz, Commercial Real Estate Direct Senior Writer Beacon Capital Partners LLC is said to be buying the sprawling mixed-use office and residential complex in San Francisco known as Rincon Center. The Boston investment firm is believed to be paying about $275 million for the 1.2 million-square-foot complex near the waterfront in the city's Financial District. Beacon declined to comment. The property, which consists of about 533,000 sf of commercial space and 320 apartments in three buildings, is being sold by a venture between Blackstone Real Estate Advisors and Glenborough Realty Trust. It went on the market late last year through Eastdil Secured. At the time, the residential and office portions were being offered separately, according to sources. The office portion was expected to pull in between $150 million and $200 million, while the residential portion .quot; shopped as a condo-conversion play .quot; was valued at north of $77 million, based on area comparables. The Blackstone venture acquired the property in 1999 through foreclosure from lender Citigroup. The venture acquired the land beneath the buildings from the U.S. Postal Service before the property's loan went into default. Rincon Center was constructed in two phases in the late 1980s by Perini Group and Pacific Gateway Properties for an estimated $200 million. Three years ago, the Blackstone venture tried to shop the complex through Eastdil, but pulled it off the market when it didn't reach its strike price of $175 million. At that point, the property was refinanced with an $83 million loan that was securitized through GS Mortgage Securities Corp. II, 2003-GSFL VI. The loan matures in August. The property is also encumbered by $37 million in mezzanine debt. Rincon Center consists of a five-story office building at 101 Spear St. and two 22-story office and multifamily towers at 121 Spear St. and 88 Howard. The office portion totals about 470,000 sf, with ground-floor retail totaling about 63,591 sf. The property also has an underground parking garage. It occupies a full city block bounded by Mission, Howard, Spear and Steuart streets. The property's office occupancy rate was about 90 percent at the end of 2005, according to Realpoint. But the property is facing the possibility of major lease roll-over in the next year. Pacific Bell Directory, the largest tenant at the property, recently renewed its lease through 2013, but downsized its space to 163,889 sf from 203,824 sf. The second-largest tenant, National Union of Fire Insurance, occupies about 30 percent of the office space and is facing a lease expiration in July 2007. The upside is the San Francisco office market is on the upswing. Asking rents climbed 8 percent to $31.16/sf in the first quarter of 2006, compared to $28.85/sf a year ago. And vacancy dropped to 14.2 percent in the quarter from 15.6 percent in the fourth quarter of 2005, and 19.4 percent for the first quarter of last year. About 838,000 sf of space was absorbed this year through March, according to Reis Inc., building upon last year's 3.6 million sf of absorption. If a sale goes through, it would be an unusual buy for Beacon, which primarily invests in high-profile office properties. But the firm is branching out a bit into the residential sector with a condominium project in Seattle and some residential development in the Fort Point Channel area along Boston's waterfront.