SAN FRANCISCO-The California State Automobile Association, aka AAA of Northern California, is just about finished relocating its 1,000-person headquarters to a new office building in the Contra Costa Centre Transit Village in Walnut Creek. The six-story, 250,000-square-foot structure was built to suit the company by Equity Office and its local development partner, Harvest Properties, for approximately $125 million or $500 per square foot. CSAA’s long-term lease deal for the LEED Gold-designed building includes a fixed-price purchase option that it is expected to exercise.

Back in San Francisco, the relocation opens up its 600,000-square-foot former headquarters complex in the Civic Center area anchored by a tall, skinny, 370,000-square-foot building at 100 Van Ness. Built in the mid-1970s and located one block from City Hall, the 28-story office tower boasts views of all four bridges from the upper floors and represents the only high-rise, multitenant office property in the submarket. The former CSAA headquartes complex also includes three class B office properties, two connected seven-story buildings and one eight-story building at 150 Van Ness and 150 Hayes that were built in the 1950s, and parking for 212 vehicles.

CSAA inked the build-to-suit deal for its new headquarters in mid-2007 and immediately put its Civic Center complex on the market. At the time, it was planning for the sale price to cover the cost of its new digs. Local industry sources estimated the value at between $100 million and $140 million.

Several months later, in January 2008, CSAA sold the complex for $120 million to a joint venture led by the Patson Group and including Vornado Realty Trust and, through Buchanan Street Partners, the California Public Employees’ Retirement System. The acquisition agreement included CSAA leasing back the entire highrise through May 2010, which gives the new ownership several more months to ink a deal before its carry cost increases.

“G&E is marketing all the buildings for lease but we’re also looking at other uses for the smaller buildings,” Patson Group founder and partner David Harrison tells GlobeSt.com, not yet ready to go into detail about possible uses. “There are a number of different possibilities.”

At the time of the acquisition, Buchanan Street said it put up nearly $50 million of equity for the acquisition and that the joint venture was planning to reposition the properties through “enhancements to the common areas and lobbies, asbestos abatement and seismic renovations.” Harrison tells GlobeSt.com that given the current market–and the fact that the buildings are fine without the upgrades–the improvements have been put on the back burner.

“When we bought the buildings the market was different and we were planning to spend a lot of money and make them really, really good and collect higher rents but the market is different now” he says. “The focus of the capital investment was to be on the older buildings but in today’s market you’re not going to get a return for spending a lot of money.”

The leasing assignment is in the hands of Grubb & Ellis. The leasing team includes EVP Dan Cressman, SVPs John Jensen and Martin Church. There is no asking lease rate associated with the online listings for the buildings but generally speaking Jensen tells GlobeSt.com that the lease rates will range from the $20s to $30s per square foot depending on (as is typical) the size and credit-worthiness of the tenant, the length of the commitment, the location within the building and the amount of tenant improvements requested.

The current average full-service asking rates in the Van Ness/Civic Center submarket for class A and B product are $29.27 and $25.00 per square foot per year, respectively, according to a third quarter report from Cornish & Carey Commercial/Oncor International. The class A average rate is a 21% decline from the same year-earlier period.

“For the majority of landlords, there is difficulty in obtaining capital for tenant improvements and transaction costs,” states the C&C report, commenting on the overall San Francisco office market. “Liquidity and work-outs with existing lenders remains of key focus. Tenant improvement packages (which once were easily $40-$50/sf) are now declining to $20 to $35/sf. In exchange the Landlords are reducing their asking rents to entice commitments. Class A rates have slip below $35.00 per square foot at the end of the third quarter and will continue to trend lower, approaching pricing levels not seen since 2005.”

Vacancy data appears to bode well for leasing up 100 Van Ness. Looking just at the 2.1 million square feet of class A space in the Van Ness/Civic Center submarket, the overall vacancy rate is 3.7%. While the availability rate is much higher at 21.3%, much of the spread can be accounted for with 100 Van Ness, which holds more than 17% of the class A space in the submarket. In addition, class A space in the submarket experienced positive net absorption during the quarter, albeit nominal.

The floors in 100 Van Ness have open floor plans with a few private offices and conference rooms. Harrison says that while there is money for tenant improvements for the right tenant, “we’re expecting to meet the market, which is mostly as-is deals. The nice thing about the complex is the buildings were very well maintained by the CSAA; they were an owner-user and they treated it that way. We’re seeing a lot of activity.”