We formed a partnership to acquire a 240,000 sf building leased to Fireman’s Fund for $46,000,000. Post-closing, our partnership negotiated a build-to-suit lease for a three-building 704,678 sf campus office development, including a renovation of the existing building, plus the construction of two new office buildings.
At the time of acquisition, Fireman’s Fund had less than four years remaining on its single tenant lease. Prior to the purchase transaction, Fireman’s Fund was unwilling to commit to extending the lease in any way. This scared away other potential buyers.
Our due diligence gave us the insight to move forward with what otherwise seemed like a risky proposition. We found that Fireman’s Fund owned two adjacent unimproved sites, and at one time was planning on developing a full office campus. And that Fireman’s Fund had leases totaling ~500,000 sf in nearby Sausalito and San Rafael that were co-terminus with the subject building’s lease expiration.
We concluded that there was a high likelihood that Fireman’s Fund would enter into negotiations with us post-closing to develop an office campus. And due to their large volume of co-terminus leases, Fireman’s Fund would be compelled to make an early lease extension decision. This added advance notice gave us comfort that a downside scenario would avoid any extended revenue “down-time.”
Fortunately, we were able to negotiate a “win-win” transaction. Fireman’s Fund was able to consolidate operations into a world-class campus environment without causing employee disruption, and we were able to add two new build-to-suit offices to our initial building purchase.
This strategic, data-centric approach to real estate led us to assess the risks beyond “base analytics,” and to uniquely identify an exciting opportunity. Coupled with a sensitivity during lease negotiation/documentation to deliver a “bond quality” lease, we were able to create an extraordinary long-term asset.
Our partnership owned and managed the completed project for 12 years, and sold the buildings in 2005 for $273,000,000, or $387/sf.