SAN RAFAEL, CA-San Rafael Corporate Center, a two-building, 157,723-sf office property here with the potential for an additional 230,000 sf of development, has changed hands for $90.2 million. A joint venture of Sterling American Property and Hines sold the asset to a JV of Seagate Properties and JP Morgan Investment Management.

The Sterling-Hines JV acquired the San Rafael Corporate Center as part of an unstable five-building, 1.7-million-sf portfolio from Equity Office Properties in 2005 for approximately $397 million. The other properties were 405 Howard St., 301 Howard and 120 Montgomery, all in San Francisco, and Parkside Towers in Foster City.

The Sterling-Hines JV is now re-trading the properties following a two-year effort to add value to the assets. Last week, it sold 405 Howard St. to a joint venture of Ashforth Pacific Properties and GE Asset Management for $247 million or $490 per sf. It sold 301 Howard to Archon in March for $129 million, leaving Parkside, which has been leasing up quickly as of late, and 120 Montgomery, which it acquired several months after the other properties. Both properties are expected to come back to market in the near term. Eastdil Secured has been getting the disposition assignments.

As for San Rafael Corporate Center, Sterling American’s VP of acquisitions Tarak Patolia tells the property was approximately 50% occupied and had some physical issues when they acquired it for about $48 million. Since that time, the physical issues have been corrected and 15 new tenants totaling 95,000 sf have been added to the building, increasing occupancy to approximately 80%. Tenants include Smith Barney, First Security Loan, Countrywide Financial, Keller Williams and Citigroup.

In addition, Patolia says the Seagate-JPMorgan JV has inherited from Sterling American talks with a tenant in need of as much as 500,000 sf in the area, which could allow the new owners to quickly capitalize on the excess developable land that was included in their acquisition.

“The tenant has very strong interest,” he says. “While nothing is guaranteed, it’s a strong possibility.”

Patolia says the site has at least three distinct development parcels, with a portion of the largest parcel currently used for surface parking. “If they build structured parking, they would be able to add office buildings,” he says.

During Sterling’s ownership, the Marin County market has strengthened considerably. “It was a good acquisition for us,” Patolia says. “We took on risk in a softer market and now the new owner is taking the risk to sign up other tenants and earn the benefit of a strengthening market. I think the new owner will do quite well as well.”

Seagate’s director of acquisitions Trent Isgrig tells the plan is to add two structured parking garages and three office buildings. The first building is set to get under way in the first quarter of next year, with or without a signed tenant.

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