Cousins team to offer 2 towers in SF

Real Estate Alert, June 9, 2004

A Cousins Properties joint venture is preparing to shop two office towers in San Francisco that have each bounced back following the loss of major tenants.

The buildings, at 55 and 101 Second Street, will be shopped as a package, although bids on the individual buildings will be considered. CB Richard Ellis has the listing.

Each property is worth about $380 a square foot. That would put a $147 million value on the 387,000-sf building at 101 Second, and a $142 million price tag on the 374,000-sf building at 55 Second. At those prices, the initial annual yield would be about 7%. If occupancy rates, which average about 83%, were raised to 95%, the yield would climb to about 9.5%.

Cousins, an Atlanta REIT, has at least a 90% stake in the venture. The remaining interest is held by Honolulu-based Myers Development, which is headed by Jack Myers.

The building at 101 Second was developed in 1999 on land Myers had acquired two years earlier from Canadian player Cambridge Shopping Centres for about $14 million. The 26-story limestone and reflective-glass tower, at the corner of Stevenson Street, was constructed at a cost of more than $100 million. Its current occupancy rate is 83%. The main tenant, law firm Thalen Reid, is leasing 140,000 sf through 2012. Asking rents are up to $40/sf. There is a 46-car underground garage.

The occupancy level peaked at 97% in 2002, when the owner agreed to a $1.4 million buyout of a 148,000-sf lease to Arthur Andersen. Three new tenants were then signed to fill part of that space. Nexant and Ziff Davis Media each took 35,000 sf, while Wealth and Tax Advisory Services leased 18,000 sf.

In 1999, the Cousins/Myers joint venture paid Jaymont Properties $22 million for the land under 55 Second. It then spent $113 million developing the 26-story art deco building. The property, which stretches from Market to Mission Streets, was 93% occupied, but the Cousins venture last year took a $20 million termination fee to end a 158,000-sf lease that Cable & Wireless inherited through its 2001 acquisition of Digital Island. KPMG signed a lease through 2015 on 90,000 sf that Cable & Wireless vacated, but the accounting firm will not begin paying rent until next year.

The property, known as the KPMG Building, is now 84% occupied. Other tenants include law firm Paul Hastings (which leases 75,000 sf through 2017), UPS (60,000 sf through 2012) and law firm Preston Gales (50,000 sf through 2010). Asking rents range up to $40/sf. There is a 100-car underground garage.

The two buildings, which are about a block apart, are located in the South Financial District, which has an 87% occupancy level (82.6% excluding sublease space).

The San Francisco listing is part of a larger disposition effort by Cousins. Also up for sale are:

* The 2.5 million-sf Wildwood Office Park, in Atlanta, which is jointly owned by Cousins and IBM. Value: $525 million. Broker: Eastdil Really.

* The 424,000-sf Pinnacle Building and the 279,000-sf Two Live Oak Center in Atlanta, which Cousins owns in partnership with Loret Holdings. Value: $200 million. Broker: CB.

* The 526,000-sf 101 Independence Center in Charlotte. Value: Up to $100 million. Broker: Cushman & Wakefield.

Also, the REIT last month sold Carlyle Gateway l&2, a 250,000-sf complex in Alexandria, Va., for $80 million. Trammell Crow brokered the deal.