Bank of America agreed Friday to sell its 52-story headquarters in the heart of San Francisco’s financial district to a San Francisco businessman for $660 million.
A senior bank official also disclosed that the bank and Atlantic Richfield want to sell the twin 52-story towers that they jointly own in downtown Los Angeles. The Arco Towers at 5th and Flower streets house Arco’s headquarters and the Southern California headquarters of the bank.
Bank of America said it expects to close the sale of its San Francisco building to Walter H. Shorenstein later this month. The bank said it believed that the sale price was the highest ever paid for an office building in this country.
The bank sold its 16-year-old headquarters complex to obtain badly needed cash. Bank of America reported a loss of $388 million in the second quarter of this year and is under pressure from federal bank regulators to improve its capital position. The bank said the pretax gain on the sale was $581 million.
In a statement, Bank of America President and Chief Executive Samuel H. Armacost said the “funds realized from the sale will increase our flexibility in an extremely competitive marketplace.”
Terms Not Disclosed
The exact terms of the sale weren’t disclosed, but Daniel Costello, executive vice president of the bank’s corporate real estate division, said it involved “a substantial cash down payment.” The remainder would be paid with interest over five years, he said.
The sale involved an agreement by Bank of America to lease 25% of the office space for 35 years. For the first three years, the bank will lease 60% of the complex, Costello said. After that, the percentage under lease by the bank will gradually decrease to 25% by 1995. Costello said most of the 3,500 headquarters employees would be transferred to a new office building under construction in Concord, an East Bay residential community.
The headquarters sale was controversial within the the company and triggered the March resignation of former director Claire Giannini Hoffman, daughter of the bank’s founder, A. P. Giannini. The headquarters plaza is named for him. Costello said the sale was emotional “but that’s not the way you run a business, on emotions.”
Wall Street analysts who follow B of A were uncertain how the sale would benefit the bank. “There’s a lot we don’t know--what the interest rate is on the mortgages, how much cash is involved. You can make the price whatever you want depending on the parameters,” said Mark Biderman, an analyst with Oppenheimer & Co. in New York.
Real estate executives familiar with the San Francisco market said the price was higher than expected but somewhat lower than what the bank has asked for. Andrew W. Edwards, vice president of Coldwell Banker Institutional Real Estate, said B of A had asked for $650 million cash for the headquarters building and an adjacent bank branch. The sale Friday includes an adjacent office building besides the headquarters and bank branch.
Pleased With Price
Costello said the bank was pleased with the price. He said real estate brokers had told the bank that the headquarters would fetch only $500 million. “We had a higher number in mind, and I think we got it,” he said.
Shorenstein was not available for comment Friday. He is the largest real estate investor in San Francisco and, through his company, Milton Meyer & Co., manages many of that city’s office buildings, including the Transamerica Pyramid.
Knowledgeable sources in San Francisco said Shorenstein may soon sell sell an interest in the B of A headquarters to Equitable Life Insurance. The sources said Equitable had signed a preliminary agreement. In New York, an Equitable spokesman said, “It is our policy not to discuss any transaction until its closed.”
Edwards of Coldwell Banker said the price paid for the headquarters was about $387 a square foot, more than the average $200 to $300 per square foot paid for prime office space in San Francisco. As a result, he said, Shorenstein may face the difficult task of raising rents in a fairly soft office market. The va cancy rate in downtown San Francisco was 11.8% in June “and higher now,” he said.
A real estate broker in Los Angeles said the Arco and B of A towers might command an even higher price than the San Francisco bank headquarters. Steve Steppe, an agent with Coldwell Banker, said the complex “could go in the $500 million to $800 million range.”
Costello said B of A decided to sell its tower after a review of its properties worldwide. The twin towers comprise the largest building in Los Angeles in terms of square feet. When built in 1972, the granite-sheathed towers were the tallest buildings in Los Angeles, but they have since been passed by newer buildings. The buildings stand on the site of the former Richfield Building, headquarters of Arco’s corporate predecessor.
Arco on Friday confirmed a desire to sell its headquarters and said a real estate consultant was expected to be named within a week. Arco and B of A together own 96% of the complex. The remaining 4% is owned by RCA, based in New York.
Arco said the company expects to receive an infusion of cash from a sale, which would also involved a lease-back arrangement. Arco occupies about 90% of its tower, but that will be reduced through previously announced layoffs and redeployment of personnel.