$285M Deal Recapitalizes 1M-SF US Bancorp Tower

PORTLAND, OR-US Bancorp Tower, the largest office property in Downtown Portland, has been recapitalized in a deal that values the 1.09-million-sf asset at approximately $285 million, industry sources familiar with the transaction tell GlobeSt.com. LaSalle Income & Growth Fund V, a $728-million (equity) fund of LaSalle Investment Management acquired most but not the entire 95% stake held by an institutional client of JP Morgan Asset Management. Unico Properties LLC, the Seattle-based building owner and manager that dropped its stake in the asset to 5% from 25% when US Bancorp Tower was recapitalized in 2006, has raised its stake back up to 15% in this latest transaction and will continue to be the fee manager of the building.

US Bancorp Tower includes the nameplate 750,000-sf, 43-story high-rise and the adjoining 260,000-sf low-rise office and retail center. The Energy Star property is 96% leased and on track to gain certification early next year from the US Green Building Council. The anchor tenant is Minneapolis-based US Bancorp, which leases 473,000 sf. The lease runs through 2015; about 70,000 sf of the bank’s leasehold is subleased to third parties.

Unico acquired the building from US Bancorp in 2000 in a 50-50 partnership with Chase, which subsequently became JP Morgan Chase. The asset was valued at about $172 million for that transaction. In the third quarter of 2004, Palo Alto, CA-based Broadreach Capital bought out JP Morgan Chase and also acquired half of Unico’s interest in a deal that valued the asset at about $185 million. In the third quarter of 2006, JP Morgan Asset Management bought out Broadreach and all but 5% of Unico’s stake in a deal that valued the building at about $280 million.

A source close to Broadreach told GlobeSt.com that it decided to sell the asset in 2006 because it was able to meet its five-year return expectations in just two years. A source close to the 2008 recap tells GlobeSt.com that with the 2008 value being only nominally greater than the 2006 value, it is unlikely JP Morgan met its return goals early, but added that JP Morgan did enjoy positive cash flow during its ownership.

That having been said, the source goes on to say “one would suspect there are factors at play that have nothing to do with the asset that would have them selling a property like this at this particular time; the momentum for this type of product happened one or two years ago and with today’s economic issues now is definitely not the top of the market for this type of asset.” An executive with JP Morgan Asset Management was not immediately available Monday afternoon for comment.

Eastdil Secured had the disposition assignment for JP Morgan. Eastdil in turn hired Joe Vaughan of Pacific Real Estate Partners as the local expertise partner in the transaction. PREP also has the ongoing leasing assignment for the building. Vaughan declined to confirm or comment on the specifics of the deal but did say LaSalle and Unico are well positioned for the future.

Two years ago, there was little activity immediately surrounding the building. Now, there is a new hotel project and other building renovations under way that, along with the extension of light rail to the property, are setting the stage for the area’s renaissance. In addition, Vaughan says Unico is in the process of obtaining LEED-Existing Building certification from the US Green Building Council. That designation would make only one of only two such buildings in the market, allowing it to be marketed as the value alternative to new construction that is being LEED certified.

“High-end view space at US Bancorp Tower is currently being marketed at $29.50- to $31.50 per sf per year, fully serviced, while new product requires rents in the $35 per sf range in order to pencil out,” he says. “If I am in the shoes of the buyer, do I like my chances of being able to lease up [mid-level] view space at a price point 10- to 20% below new construction; the answer is yes.”

That mid-level space is some of what may come available if US Bancorp opts not to renew its 50% leasehold in the building. Local experts tell GlobeSt.com that a lack of certainty regarding the bank’s future in the building is what kept the building from being valued 10- to 20% higher.

Unico’s Brian Pearce, the building’s general manager, declined to confirm or comment on the sale price but did confirm that Unico increased its stake in the asset, saying he likes how its future is shaping up. “When you looked south from the building before, all you saw was empty buildings and nothing,” he says. “Now you have a hotel, light rail and other improvements coming, in-place rents have grown and NOI is significantly better.”