SAN FRANCISCO-The former Gallo Salami plant at 250 Brannan St. is reverting back to office use. A Don Peebles entity acquired the two-building development in May 2006 for $19.8 million and spent the next year and approximately $2 million entitling it for an office-to-residential conversion. Last month, an affiliate of Denver-based real estate and railroad magnate Pat Broe’s Broe Group reportedly paid $31.2 million for the building, intent on scrapping those plans and riding the resurgent SoMa office market.

Located within three blocks of the Giants baseball stadium, the property consists of the fully renovated 1907 brick and timber Gallo Building and an adjacent, three-story building with parking for 175 cars on the first and basement levels and office space above. The Gallo Building was fully renovated in 2001, the same time the adjacent building was increased from one to three stories.

The additions attracted Double-Click Inc. as the primary tenant. In 2003, Double-Click paid $24.5 million to terminate its 10-year lease in the building. Zapulski & Rudd acquired the building vacant in 2004 for $14 million and sold it to Peebles two years later.

Broe’s acquisition and lease-up is being financed with a $32.1-million, three-year loan from Capmark Finance. Loan officer Kevin McCormack tells that Capmark has thus far provided a little over $24 million for the acquisition and a few million more to complete capital improvements in the building such as HVAC upgrades that were never completed beyond Double-Click’s space.

The remainder, for tenant improvements and leasing commissions, is being held back until there are signed leases in place, which McCormack says may be sooner rather than later. “There are four deals in play, two with full-building users,” he says.

The project was underwritten for an average full service lease rate of $36 per sf, McCormick says, but there are deals in play in SoMa that are over $40 per sf. “We’re assuming a stabilized value of about $43.5 million,” he says.

The Gallo plant is one of three properties that were entitled for office-to-residential conversions but will remain office thanks to the resurgent office market in SoMa, where office vacancy has fallen into the single digits. The other buildings are 153 Kearney St. and 717-721 Market St. Office-to-residential conversions remain underway at 74 New Montgomery and 733 Front St.

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