California Commercial Defaults Continue Apace

By George Avalos
Oakland Tribune
March 30, 2011

Britannia Business Center 3, a big office complex in Pleasanton, has been jolted by a mortgage default that totals $35 million, marking the second group of Hacienda Business Park buildings controlled by the same owner that have entered default.

During 2009, the nearby 276,000-square-foot Britannia Business Center 2 complex skidded into default on a $41 million mortgage. Eventually, the lender foreclosed on the office center. In late 2010, a realty investment firm bought those foreclosed buildings for $24 million.

Triple Net Properties, a realty investment unit of Grubb & Ellis, is the principal owner of Britannia 3. Triple Net also was the primary owner of Britannia 2 until the lender seized ownership of
that project through a foreclosure in 2010.

Daymark Realty Advisors, which is managing Britannia 3 and other projects that remain in the Triple Net portfolio, is determined to avoid the fate that befell the Britannia 2 complex.

“We are aggressively pursuing all possibilities to improve cash flow,” said Damon Elder, a spokesman for Santa Ana-based Daymark Realty. “That includes an intense leasing campaign.”

The 191,000-square-foot Britannia 3 complex, which consists of three buildings, went into default March 4, Alameda County property files show.

Daymark also is attempting to coax the lenders into a new financing arrangement on the $35 million mortgage.

“We are trying to negotiate a loan workout or restructuring,”
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Elder said.

The Britannia 3 buildings are owned by Triple Net through a collection of investment funds that are being managed by Daymark.

Both Britannia Business Center 3 and Britannia Business Center 2 were jolted by tenant defections. Britannia 2 was hit by the exit of Nellcor and Chrysler. Britannia 3 was battered by Robert Half International’s move to San Ramon.

“The vacancy in Britannia 3 is primarily due to Robert Half leaving one of the three buildings completely empty,” said Andrew Zink, a broker with Cornish & Carey Commercial, a realty firm.

Britannia 3 is roughly 45 percent empty, Zink estimated. The buildings are at 5870 Stoneridge Drive, 4511 Willow Road and 5785 W. Las Positas Blvd.

“It’s a terrible market,” Elder said. “There are a lot of challenges. That area has been particularly hard hit. Robert Half leaving was a huge blow.”

The Cornish & Carey agents, Zink and Marcy Place, who are attempting to attract tenants to the building, have been receiving interest from firms that might want to move there.

However, landing tenants won’t be the end of the challenges.

“Robert Half’s rents were at rates that were at the top of the market,” Elder said.

These days, rental rates are 30 to 40 percent below the levels of a few years ago.

“Even if they re-tenant the buildings, there will be a loss of rental income,” Elder said.

That’s why it may be necessary to work out a deal with the lender.

Several other prominent commercial real estate complexes have tumbled into default in a dreadful economy.

Three of the iconic Watergate office towers in Emeryville, a Concord high-rise and a five-building complex near Stoneridge mall, along with numerous hotels and several retail centers in the East Bay, have gone into default.

“Britannia 3 has struggled, but we are working night and day on this,” Elder said. “We want to get this asset back to a stable financial point.”

Read more at James West’s Midas Lett