Griffin Capital Makes Small, Strategic Acquisition

The building is located at 6601-3 Shellmound St., which is immediately east of Interstate 80, just north of the confluence of Interstates 80, 880 and 580 and close to the waterfront. Ex'Pression first leased the building in 1998 and has invested nearly $24 million of its own capital to significantly improve the building with a sound performance hall and 15 acoustically designed classrooms and laboratories for computer and Web streaming, motion graphics, recording systems, DVD authoring, film, animation, studio systems and sound recording.

Griffin Capital president Kevin Shields tells GlobeSt.com the building, which is small for his tastes, was attractive because Griffin also owns the Atrium, a 127,246-sf flex office building that sits across the parking lot. With unobstructed Bay views and direct frontage on I-80, the two parts are much greater as a whole, Shields says.

When Griffin acquired the Atrium in 2005, Ex'Pression occupied 20,000 sf in the building for administrative offices and classrooms, the US Treasury department occupied another 80,000 sf and 25,000 sf was vacant. Shortly thereafter, the college needed additional space to accommodate growing enrollment and an expanded curriculum, says Shields.

After a few months of negotiation, the two agreed to a deal wherein Ex'Pression signed a 10-year lease for the expansion space and extended its existing lease in the building to match, which made all three leases in the building co-terminus. Moreover, none of the leases had renewal options. "What's important about that it that, at the end of the day, the highest and best use for the property is high-density residential," says Shields. "It was real estate genius started by my predecessor."

Once the lease expansion and extension for the Atrium was complete Ex'Pression, on behalf of Wintzen, came back and asked if Griffin would mind refinancing its 63,273-sf building across the parking lot. Shields said he wasn't in that business, but instead offered to purchase the building, lease it back to the college and solve its long-term space needs by giving it the option to renew all of its leases in both buildings and giving it an option on the government space as well. As a result, come 2016, Griffin has the option of releasing all of the space in both buildings to Ex'Pression at then market rates or re-entitling 7.5 acres of view property for high-density residential, which would significantly increase its value.

"It promises to be a lot of fun 10 years from now when we are having that negotiation," says Shields, explaining that the college's rent likely will be way below market at that time. "In fact, they may want to negotiate that now because by that time my [now] 11-year-old daughter will be in charge and she's a really tough negotiator."

JPMorgan Chase Bank NA provided the $10.50-million first mortgage acquisition loan, including capital reserves. Griffin Capital raised $7.40 million in equity from individual investors, the majority of which were represented by four broker-dealers: OMNI Brokerage Inc.; 1031 Exchange Options; Berthel Fisher; and Independent Financial Group.

Shields says he liked the opportunity so much he kept $1.75 million of his own money in the deal, which didn't hurt the sales pitch. "I wanted to keep $3 million in but the investors were all over me," says Shields. "We sold out the offering in two hours."