Interwest Capital Corp., a privately held San Diego-based commercial real estate acquisition firm, specializes in purchasing real estate assets from which most traditional investors shy away: hotels in disrepair, requiring significant capital improvements, property loans that cannot be repaid, vacant office buildings in need of repositioning, and the like.
Last week, Interwest obtained the deed for the Galleria Park Hotel in San Francisco, which it purchased out of bankruptcy in January from the San Francisco-based Kimpton Hotel & Restaurant Group, LLC. According to Interwest’s president, Karl Coleman, this is one of the firm’s most complicated and interesting transactions to date.
The firm has been operating for only about 18 months and has already acquired roughly $100 million in assets, ranging from loans , performing and nonperforming , to straight property acquisitions. According to Coleman, the plan is for Interwest to acquire $100 million in the next 12 months. Interwest typically targets assets ranging from $15 million to $50 million.
Across the country, commercial real estate markets are becoming prime targets for acquirers seeking “distressed assets” , a trend that Interwest is perfectly positioned to capitalize on.
Coleman said it’s because the industry is in an interesting part of the real estate cycle. The securitized debt market for commercial real estate has existed for only about 10 years. Since commercial loans have normally been written with 10-year terms, Coleman said the market for acquiring such loans is heating up.
“A lot of debt is starting to roll right now out of securitization,” he said. “And there is a general sense that there might be some refinance risk with the amount of properties that need to refinance in a rising interest rate environment.”
Coleman, a one-time vice president of San Diego-based First Commercial Corp., and his partner, Alex Roudi, who came to Interwest from San Diego-based Coverall North America, an office cleaning company that he founded, generated the idea for Interwest about two years ago. Since its inception in late 2003, the Interwest team has grown to include a half-dozen analysts, according to Coleman.
Interwest’s newest project involves the purchase of a $13 million nonperforming loan (at a discount), which is secured by a 177-room boutique hotel , the Galleria Park at 191 Sutter St. in San Francisco’s Financial District. Kimpton Hotel & Restaurant Group, which owned the historic hotel since 1986, had not paid the loan in more than a year when it matured in 2003 and was unable to refinance the loan.
The acquisition of the note marked Interwest’s first hotel acquisition, according to Coleman. It is also notable because it is a true distressed turnaround play: “the kind of opportunity we look for with a good asset in a good location, just in need of new capital and new management,” said Coleman.
He said the Galleria Park, built in 1910, is also a property of note because “it’s a great building, with great bones to it; it just needs a little help.”
“But we see the opportunity to restore it to its full potential,” Coleman added.
The Galleria Park was considered distressed because, according to Coleman, it was 10 years overdue for a major renovation and was severely impacted in 2001 by the bursting of the dot-com and telecom bubbles in San Francisco.
Coleman said Interwest expects to hold the asset for about three years, until it is fully stabilized, in line with the firm’s overall strategy of holding an asset for two to four years. In the meantime, major renovations are scheduled to begin this winter, with completion expected in March.
Besides the hotel acquisition, Coleman said Interwest is looking at opportunities in Phoenix, including office buildings with high vacancy rates and residential land development opportunities.
Last year, Interwest purchased a 6-acre parcel in the Scripps Ranch/Poway area of San Diego, where it is now planning to build a 120,000-square-foot speculative office building.
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Multimillion-Dollar Plans: Chicago-based Equity Office Properties Trust, the nation’s largest publicly held office building owner and manager, unveiled plans for the $36 million Bridge Pointe Corporate Centre III development in the Golden Triangle area of San Diego. The development of the 150,000-square-foot office project represents the first speculative office building erected in San Diego since 2002 in the University Towne Center sub-market.
Equity Office is the largest landlord in the sub-market, and this project will increase its ownership to 2.6 million square feet there.
The first two phases of the Bridge Pointe Corporate Centre were completed in 1998 and 2000, respectively. When the final phase is complete, Bridge Pointe will be a nine-building campus totaling 591,000 square feet of office space.
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Waterfront Park Coming: The San Diego City Council authorized selling up to $16 million in bonds for the 46-acre waterfront park at the former Naval Training Center at Corky McMillin Cos.’ Liberty Station in Point Loma. The bond issue passed on an 8-1 vote recently and will allow construction to begin in August on the first 18 acres of the park, to be located along a boat channel.
When complete, it will be the largest waterfront park in San Diego since Mission Beach Park opened in the early 1980s.
In its approval of a fast-track development schedule for the park, the City Council also voted to amend McMillin’s park agreement and have the park built in two phases in three years, rather than three phases in six years, as was originally agreed upon.
The City Council’s action allows for the private sale of Community Facilities District bonds that will be paid off by property owners at Liberty Station to finance Phase I of the park project.
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StepStone’s Stowe Opens: San Diego-based StepStone Real Estate Services announced the opening of its newest managed property, Stowe Plaza at 14057 and 14077 Stowe Drive in Poway. The 12,000-square-foot, mixed-use complex will include dining and services tenants such as Victor’s Greek Caf & #233;, Carl’s Jr., Caf & #233; 10.21 Bistro and the Cleaners Club.
Send residential and commercial real estate news to Heather Bergman via e-mail at hbergman@sdbj.com or via fax at (858) 571-3628. Call her at (858) 277-6359, Ext. 3114.
