A prominent office complex in Pleasant Hill has stumbled into a mortgage default, but the current owners say they think they can rescue the Hookston Square property from a foreclosure.
Hookston Square is in default on a $30.5 million mortgage issued to a partnership group controlled by Griffin Capital, an El Segundo-based realty investment firm, according to Contra Costa County property records. The lender has brought on board a special servicer firm that is working with Griffin Capital as Griffin attempts to stabilize the property.
"We're not walking away from Hookston by any stretch of the imagination," said Julie Treinen, director of asset management with Griffin Capital. "The servicer has been very patient, and it's been a good experience so far."
Archon Financial, the lender, filed the default Feb. 3, county records show.
If Griffin can get the property back in the pink of health, that would be a welcome counterpoint to the dreary trend of office defaults in the East Bay.
"We're hoping to be here for the long run," Treinen said.
Several landmark properties in the East Bay and other parts of the Bay Area have been jolted by a mortgage default, then later seized in a foreclosure by the lender.
Among the notable office foreclosures:
"Hookston Square can get turned round," said Drew Malm, a vice president with Colliers International, a commercial realty firm. "Griffin Capital has done a number of deals over there. That's one of the nicest properties over in that market."
The big problem with the Hookston complex is that it's in an office market that's been battered by a loss of tenants that evaporated when the housing sector melted down.
"Housing, construction, residential lending, title companies, financial services firms and banks all cut back operations," said Larry Easterly, a senior vice president with commercial real estate firm Grubb & Ellis. "A lot of companies went out of business."
The 200,000-square-foot complex, which consists of two buildings, along with gardens and a fountain area, is about 85 percent occupied, Treinen estimated.
"We bought the property in 2006, and then we ran into a buzz saw," she said. "The rent levels are well below what they were when we bought Hookston."
Griffin Capital was not alone. Numerous realty investors bought buildings at the height of the market in 2005, 2006, or 2007, only to find that the recession erased companies and tenants.
"Everyone assumed that vacancy rates would stay at 5 percent and that lease rates would increase 5 percent a year," Malm said.
The rash of business failures and rising vacancies undermined office rental rates in the East Bay. When cash flow dried up for buildings whose values had plummeted, mortgage defaults soon surfaced.
"We just got caught in this crazy little whirlpool," Treinen said.
Now, the Hookston developers are sensing that office rents have begun to steady. More tenants have begun to scout for office space.
"There is a general sense that we have reached the bottom and that a market recovery is coming," Treinen said.
Griffin also is talking to investors that might want to buy a stake the two office buildings and pump cash into Hookston.
"We love this property, and the tenants love this property," Treinen said. "Our plan is to find a way to make this work."
Contact George Avalos at 925-977-8477.