Wednesday, March 23, 2011

Is the Commons at Mount Burdell on the rocks?

The North Bay Business Journal recently published an outlook for the Marin office market, in which it was noted that the Fireman's Fund HQ in Novato was on the market. If you recall, this is the site of Marin's largest development project - the Commons at Mount Burdell, which is the proposed redevelopment and expansion of the site as a mixed-use community.

The project was announced in 2008 by San Diego based American Assets, who shelled-out $312 million to acquire the 65-acre site in 2007 in a joint venture (JV) with the GE Pension Trust. According to the proponents:
The completed project would be named the Commons at Mount Burdell and would upgrade the 710,000 square feet of existing facilities adding nearly 800,000 square feet of uses including residential, a first-class hotel, retail, health club, daycare, restaurant, meeting venues and a variety of other community amenities. In addition to implementing Platinum LEED standards, the projects' water, waste and energy systems are being designed to achieve 100% carbon neutrality; one of the first such efforts for a mixed-use commercial project in the United States  
Utilizing the latest approach to master plan development, The Commons at Mount Burdell would actually expand the current amount of open and green space on site by nearly 15% through the removal of nearly 15 acres of surface asphalt parking and the construction of parking structures. 
Given the economic problems of the last few years, it is not surprising that this project has not yet moved forward, but I assumed it had just been placed on the back burner for a while.

However, looking through some SEC filings, it appears that events have conspired to make the future of the project more uncertain. American Assets Inc. decided in 2010 to become a publicly listed real estate investment trust (REIT). In short, this involved an IPO and the transfer of their properties into a new entity - American Assets Trust.  However, the terms of the lease allow Fireman's Fund the first right of purchase on any transfer or sale of the property. In anticipation of the REIT formation, the property was offered to Fireman's Fund in 2010. The offer was not accepted, but Fireman's Fund also didn't waive their right of first offer on any future transfer. In addition, GE Pension Fund, which is the majority (75%) shareholder in the JV, did not consent to allow its interest to be included in the REIT formation. These problems meant that American Assets could not transfer the property into the REIT, and it also caused them to recognize a $38.5 million impairment on the property's value in 2010.

So it looks like the original entity - American Assets Inc. - remains as the owner of the 25% interest in the JV, and will continue to manage the property. But given the owners' new focus on the REIT, it seems reasonable to assume that they would look to offload the site at the earliest opportunity.

It will be interesting to see whether Fireman's Fund decide to take the opportunity to purchase their corporate HQ, and if not, whether a new owner can be found who will continue to pursue the Commons development as proposed, or is it on the rocks? One complicating factor is the uncertainty over the Novato North SMART transit station, which would serve the site, but which was identified recently as one of the potential stations to be cut, as part of SMART's budget shortfall.

*Update: The NBBJ has copied also picked up the story.

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