Shorenstein Adds Jewel to Crown : Top S.F. Landlord Caps Career With B of A Building
The word on the street was that San Francisco real-estate czar Walter H. Shorenstein was losing his clout.
Never mind that the 70-year-old checkbook Democrat controlled more than 25% of this city’s downtown office space and was estimated by Forbes magazine to be worth at least $300 million. Things just hadn’t been going Shorenstein’s way.
Last year, for example, Shorenstein was forced to scrap plans for a 14-story building at Pine and Kearny streets after voters here passed a “sunshine law” barring new structures that would cast shadows on city parks.
The whispers grew louder when his scheme to add a tower to the Russ building was nixed by city planners because it would have required the demolition of the landmark Mining Exchange Building.
Accompanying those setbacks was the invasion of the once-clubby San Francisco real-estate market by wealthy interlopers from New York, Texas, Canada, Asia and the Middle East. Insult was added to injury when David Rockefeller threw up a 45-story tower partially blocking the view from Shorenstein’s 29th-story office.
“The perception was that Walter’s grip was slipping,” one competing developer says.
Today, that perception is gone.
Earlier this month, Shorenstein reasserted his primacy in San Francisco by agreeing to buy Bank of America’s 52-story headquarters tower and an adjoining 16-story building for $660 million. While some believe the price tag was inflated by the bank’s agreement to pay a premium rent for the space it will keep, the deal ranks as one of the biggest in real-estate history.
The acquisition is a fitting cap to the career of a builder and investor who has done more to change San Francisco’s skyline than anyone else.
“Without question, it is the best-located, most prestigious office building in San Francisco,” says James R. Bronkema, president of Embarcadero Center Inc.
Shorenstein goes further. “It’s the premier building in the world,” he told the San Francisco Chronicle the day the deal was announced. “There is no comparison.”
Shorenstein declined to be interviewed for this article. But some long-time Shorenstein watchers say he may have been motivated by more than economics.
“Clearly, when guys get that rich, they’re after monuments more than money,” says one senior Bank of America official who helped negotiate the transaction.
Adds Calvin Welch, director of the Council of Community Housing Organizations: “Walter is showing folks who’s the boss in this town.”
Others say the shrewd entrepreneur was keenly aware that the Bank of America building, San Francisco’s largest, could never be duplicated at any price because of stringent new controls on downtown office construction.
“You can’t build buildings half that size anymore,” notes John Chamberlain, sales manager for Grubb & Ellis Co.’s commercial brokerage group. Under the city’s new Downtown Plan--a package of zoning and design controls intended to limit growth and promote a varied skyline--a building at that site could only be 300 feet tall, compared to Bank of America’s 778-foot height.
Moreover, the 16-year-old building sits at the epicenter of San Francisco’s financial district on the block bounded by California, Montgomery, Pine and Kearny streets, is fully occupied and will always command premium rents.
“As a real-estate investment, it is about as good as you can get,” Chamberlain adds.
The quest for recognition that is characterized by Shorenstein’s purchase of the Bank of America building also is evident in his fund-raising activities.
His office walls are lined with inscribed photographs and mementos from such prominent Democrats as former Presidents Lyndon Johnson and Jimmy Carter and former Vice President Walter Mondale. (Jimmy and Rosalyn Carter stayed overnight at his Seacliff mansion on their way to China last year.)
Basks in Tributes
The self-made son of a Long Island clothier, Shorenstein basks in such tributes as his recent designation as the California Democratic Party’s 1985 Man of the Year. The government of Israel is hosting a dinner on his 71st birthday next Feb. 23 to recognize his work selling Israel bonds.
Shorenstein himself personally donated $190,000 to help bring the Democratic National Convention here in 1984 and led efforts to raise another $1.8 million.
“When Walter Shorenstein asks for a contribution, people sit up and listen,” notes Thomas E. Horn, attorney for the host committee for the convention.
But associates say his first love is the rough-and-tumble world of commercial real estate.
Shorenstein got his start in the business when he was hired by broker Milton Meyer after being discharged by the Air Force here in 1946. His parents, thinking that dentistry was a Depression-proof profession, had sent him to the University of Pennsylvania’s School of Dentistry during the 1930s, but young Walter had other ideas.
Shorenstein was quickly named a partner and he took over Meyer’s firm when his mentor died in 1960. To this day, Shorenstein’s business is named Milton Meyer & Co. out of respect for the man who gave him his start.
Benefited From Inflation
He moved from broker to investor by buying a series of buildings with members of the Swig family, who own San Francisco’s Fairmont Hotel. Like many real estate investors, Shorenstein benefitted from the wild inflation of the 1970s, and used his profits to buy and develop more office buildings.
He has built and managed a string of joint-venture skyscrapers with such high-profile tenants as International Business Machines, Standard Oil Co. of Ohio, Bechtel, Metropolitan Life Insurance Co. and Mutual Benefit Life Insurance Co.
“Walter supplies the expertise, and his partners supply the cash,” one former associate says.
By signing such blue-chip tenants to long-term leases, he has avoided the high vacancy rates that have plagued developers of speculative office towers in San Francisco and other cities. Although the overall vacancy rate in San Francisco is 10% and rising, observers estimate that Shorenstein’s buildings in San Francisco are between 97% and 99% rented.
“He builds good, utilitarian buildings,” notes Embarcadero Center’s Bronkema. Most of his buildings lack ornamentation and such urban amenities as retail space. This no-frills approach and stringent cost controls allow him to shave rents and fill his buildings, which are concentrated in San Francisco but include properties in Houston, Kansas City and Los Angeles (Mutual Benefit Life Building at 5900 Wilshire Blvd.).
Spawned Backlash
But Shorenstein’s proclivity for “refrigerator-box” architecture has spawned a backlash in this design-conscious city and contributed to the recent adoption of the Downtown Plan by San Francisco’s Board of Supervisors and Mayor Dianne Feinstein. The plan has provoked Shorenstein’s ire.
“It places a lot of discretionary control in the hands of city bureaucrats and I’m not sure that is a good thing,” he said recently. Even before the plan was adopted, Shorenstein was forced to reduce the bulk of his Five Fremont Center to satisfy city planners.
Some say, however, that Shorenstein privately welcomes the growth limits in the Downtown Plan since they lock in his position as the biggest landlord.
Shorenstein is also critical of new city planning requirements that force office developers to help fund housing, mass transit and child care.
He filed suit to block a city transit levy of $5 per square foot of new construction, complaining that downtown developers “always seem to be the whipping boy” for city problems.
Critics, however, charge that the well-connected Shorenstein often manages to skillfully maneuver through loopholes in city regulations. He fulfilled the housing-funding requirement for Five Fremont Center very inexpensively by converting a building into a college dormitory, notes housing activist Welch.
Dismisses Complaints
And San Francisco planning director Dean Macris dismisses Shorenstein’s complaints. “The city can no longer assume total responsibility for providing the infrastructure for growth,” Macris says.
Shorenstein, who shrugs off such criticism, is grooming his 30-year-old son, Douglas, to take over his holdings. A daughter, Carole, runs three Shorenstein-owned theaters in San Francisco and is a producer who brings Broadway shows to San Francisco.
But though Douglas was named president of Milton Meyer last year, Shorenstein shows few signs of slowing down.
“I started out with $1,000 and used to think that if anyone could ever earn a million dollars, that’s all you could want,” Shorenstein said recently. “But it’s like peddling a bike. Once you get going, it’s hard to stop.”
