Located in the heart of San Francisco's financial district, 250 Montgomery is currently approximately 55% leased. Tenants include California Pacific Bank, the American Land Conservancy and Bay Street Research.

The building was completed in 1989 at a cost of about $41 million or $323 per square foot. In late 2006, Lincoln Property Co. paid approximately $47 million or $370 per square foot for the building. It defaulted on the loan in early 2009.

The principal remaining on the note was $40.8 million, according to G&E. Argonaut's purchase price for the note was approximately $175 per square foot, according to recent reports, which works out to approximately $22 million. Unofficial reports initially pegged the transaction price at approximately $25 million, or approximately $198 per square foot.

G&E's announcement states that Argonaut purchased the note "at approximately 25% of the building's replacement cost." Given the $175-per-square-foot number, G&E therefore believes replacement cost for that building in that location is approximately $700 per square foot.

In its first quarter filing with the SEC in March, Realty Finance said the loan matured in March 2009 without payment, pushing it into default. At the time, Realty Finance expected to lose between $0 and $11 million on the sale. The actual loss appears to be closer to $20 million. Whitehall Street Real Estate Funds had an additional equity position in the building that has been completely wiped out, according to some reports.

The brokers in the deal were Kurt Altvater of CB Richard Ellis on the sell side and Daniel Cressman of Grubb & Ellis on the buy side.

Chris Seyfarth, a partner in Ernst & Young's transaction real estate group told GlobeSt.com last month that the pricing of the 250 Montgomery note sale--50 cents on the dollar, just like the Hancock Tower sale in Boston--suggests that San Francisco is no different than any other major metro in that real estate values have plummeted. That having been said, he adds that the high vacancy in the building makes it hard to suggest that the new price point is definitely 50% of what it was at the peak.

"It is class A, and it is a transaction, of which there have been precious few, but this is just one transaction and there is significant vacancy--vacancy the buyer felt was lower than the market average, I suspect," Seyfarth said. "So while [the deal] is depressing to real estate owners it's too early to tell. Obviously we may see more of these [types of sales] as more maturities come due."

The transaction is depressing to real estate owners because the purchase price will allow the new owner to offer much lower rents and still achieve an above-average return on investment, local industry sources tell GlobeSt.com. The concern is that if many more of these distressed sales take place in a soft market with high vacancy rates that have already taken a toll on rents, it could force rents down even further, lowering building revenue even further, pushing even more owners into distress.

On Friday, TMG Partners and Pacific National Bank today announced that Alameda County Superior Court Judge Richard O. Keller has appointed TMG to act as the receiver for 814,000 square feet within the Watergate complex. Houston-based Hines has agreed to hand three of the complex's four buildings back to Pacific National in lieu of foreclosure after defaulting on a $152-million mortgage. TMG's appointment is effective later this week.

The Watergate building are one of three San Francisco investments Hines has given up on recently. Hines also is in the process of handing back 333 Bush St. a 43-story, 542,000-square-foot Downtown office building it owns with Sterling American Property. Previously, it lost Marin Commons, a 455,000-square-foot office complex in San Rafael.

A source with Hines declined to discuss the situation with the assets in detail, saying the company does not comment on ongoing discussions with lenders. However, the source did say that many of its other San Francisco assets--560 Mission St., 101 Second St., 101 California St., 100 Montgomery St. among them--are in good standing.

Argonaut's Kaiser is the president and chief executive of Oklahoma-based Kaiser-Francis Oil Co. He has an estimated net worth of $9 billion. Argonaut manages about $3.5 billion in capital.