COMMERCIAL REAL ESTATE: Equity Office buys $32 million Sausalito complex
Purchase extends portfolio into active south Marin County

BY JEFF QUACKENBUSH
STAFF REPORTER

SAUSALITO – With the acquisition of a 115,266-square-foot class A office complex in Marin's southernmost city, Chicago-based Equity Office Properties Trust now has offerings in nearly every city along HIGHWAY 101 from the Golden Gate Bridge to Santa Rosa.

It's the first North Bay purchase Equity Office has made since its July deal with Petaluma's Basin Street Properties for 1.34 million square feet of class A office space from Novato to Santa Rosa. The last leg of that $270.4 million acquisition – the second phase of Fountaingrove Executive Center in Santa Rosa – is set to close this quarter.

Equity Office's North Bay portfolio now totals 2.1 million square feet, including 38 percent of the class A office space in Marin County, according to Mark Geisreiter, vice president for the San Francisco region.

The nation's largest office property owner purchased One and Three Harbor Drive in Sausalito on Jan. 19 for $32.5 million, or $282 a square foot, according to Sondra Courey, vice president of investments.

The seller was a partnership led by building developers Richard Moran, Robert and Christa Wells, and Ronald Mullin, according to Marin County Recorder's Office documents. They declined to comment on the sale when contacted via their Sausalito property management office last week.

The sellers built One and Three Harbor in 1982, around the time design software developer Autodesk was rapidly growing from its Sausalito roots. Before expanding to San Rafael where it is today, Autodesk occupied all the building and overflowed into surrounding properties.

Equity Office acquired the Harbor Drive property to complement its southern Marin properties, according to Ms. Courey.

The expansion of Haggin Marketing from 10,000 square feet in Three Harbor Drive to 20,000 square feet in Shoreline Office Center in Mill Valley and movement of tenants among its other southern Marin properties helped convince Equity Office more than a year ago when it was closing escrow on Shoreline to start scouting the Sausalito market.

'A very strategic buy'

Equity Office hopes the purchase will further build a critical mass of properties that allow tenants to expand within the portfolio.

That strategy, plus the long-term growth record and barriers to development in the North Bay, also fueled the Basin Street portfolio buy last year.

"We've made a big investment and commitment to the North Bay, and we're looking to expand our presence," said Mr. Geisreiter, vice president for the San Francisco region. "It's a very strategic buy for us."

Though the deal was off-market, there was buzz in the real estate community of a bidding war between Equity Office and several other hand-picked contenders, including Hines, which purchased San Rafael Corporate Center and Marin Technology Center last year. Equity Office declined to comment.

Orion reports falling vacancy

Southern Marin is a key indicator of future business growth along the HIGHWAY 101 corridor in the North Bay, and leasing activity in recent quarters point to decreasing vacancies and increasing rents, according to Bill McCubbin, president and CEO of commercial real estate brokerage Orion Partners.

The firm estimates class A vacancy in southern Marin was 9 percent at year-end and the submarket had the most absorption of space for its size of any in the North Bay. Rents reached $3 a square foot per month in southern Marin after slumping after 2001, and some properties are signing leases at $4.

"We're seeing a trend we've seen before," Mr. McCubbin said, noting it spreads northward through Sonoma County.

One and Three Harbor, in particular, has been enjoying a relative flurry of 35,000 square foot of leases last year, according to Matt Storms, whose team at commercial real estate brokerage Keegan & Coppin has been marketing the property. Equity Office has taken over leasing.

"None were under-market leases and most were to good-credit tenants," Mr. Storms said. "It's a reflection of the improved business environment."

The building was 65 percent occupied in early January and was 76 percent occupied as of last week.

For more information, call Equity Office at 415-369-2500 or visit www.equityoffice.com.