Lazard shopping stake in Philadelphia tower

Real Estate Alert, Feb 4, 2004

A Lazard Freres team is looking to cash out of its stake in a top Philadelphia office building, which is valued at about $170 million.

Lazard controls about a 50% interest in the 943,000-square-foot property, One Commerce Square. Thomas Properties of Los Angeles holds the remaining interest.

It's possible that Lazard might sell its stake to Thomas, which has been looking to increase its holdings in Philadelphia. Alternatively, Thomas might also put its stake up for sale, enabling a buyer to gain control of the whole property. Or Lazard might simply sell its stake to a third party.

Lazard has hired Cushman & Wakefield to advise it on its options. The brokerage declined to comment.

Located in the heart of Philadelphia's "Center City" district, the 41-story building is regarded by many as trophy-caliber, given its location near such well-known properties such as Liberty Place and Mellon Bank Center.

Demand for such properties is high, but few have been up for grabs in recent years. The last one available was the 1.2 million-sf Bell Atlantic Tower. Blackstone Group of New York last summer bought a stake of almost 50% for about $100 million from Dana Commercial Credit of Toledo, Ohio. Blackstone will likely try to buy the remaining interest from Textron of Providence, R.I.

One Commerce Square, located at 2005 Market Street, is 94% occupied. Long-term leases are held by a number of tenants, including Delaware Investments, Fiserv, Stradley Ronon and Pew Charitable Trusts. Rents average $25/sf.

The Class-A building was developed by Maguire-Thomas Partners in 1987, around the time that firm built the adjacent Two Commerce Square. In 1996, Maguire-Thomas principals Rob Maguire and Jim Thomas parted ways, splitting their assets between them. Thomas, who then founded Thomas Properties, got the two Commerce Square buildings.

Lazard later assumed a stake in the property.

The ownership of Lazard's interest is complicated. Rubenstein Co., a Philadelphia developer that occupies space in One Commerce Square, is involved in the ownership group. Lazard invests in Rubinstein through its two opportunistic equity funds: the $810 million LF Strategic Realty Investors I and the $1.5 billion LF Strategic Realty Investors II. In any event, Lazard is calling the shots on this offering.