Footwear mogul George Mersho is poised to buy a delinquent loan that will allow him to take control of a 284,750-square-foot office building in San Francisco for nearly $77 million.
The CEO of San Jose-based Shoe Palace is cutting a deal with Aareal Capital to buy the non-performing loan tied to the 23-story tower at 353 Sacramento Street, in the Financial District, the San Francisco Business Times reported, citing unidentified sources.
The lender seeks a price of $270 per square foot, or $76.9 million.
The building is owned by affiliates of Pacific Oak Capital Markets, based in Costa Mesa, and Migdal, an insurance company based in Israel.
An affiliate of KBC Realty Advisors, based in Seattle, bought the building in 2016 for nearly $170 million, or $595 per square foot. The next year, the firm sold a 45 percent stake to Migdal.
KBS then transferred management of the affiliate that owned the building to Pacific Oak, which spun out of KBS in 2019.
If Mersho buys the loan, he could move to take ownership of the building through foreclosure or a deed-in-lieu handoff from Pacific Oak and Migdal.
Aareal Capital, based in Germany, last spring put the $101.6 million loan backed by 353 Sacramento up for sale, according to the Business Times. Its remaining balance was $89.6 million, according to Newmark, which represents the lender in the pending deal.
Aareal, which has been trying to limit its exposure to non-performing office loans, was seeking $270 per square foot for the debt, an unidentified source told the Business Times this spring, putting the asking price at around $76.9 million.
In 2021, Aareal acquired the loan backed by the Downtown San Francisco tower from lender PCCP LLC, which had originated that debt for Pacific Oak and Migdal that year.
The Pacific Oak affiliate reported in an April regulatory filing that it believed the fair market value for the building at the end of last year was $98.8 million, or $347 per square foot.
If the deal goes through, Mersho could ultimately take control of the building for 22 percent less.
In 2020, Mersho and his three brothers sold their Morgan Hill-based Shoe Palace to British retailer JD Sports in a deal valued at $681 million. George Mersho also leads the Mersho family office, Bridge Group Investments.
It’s not clear whether Mersho was in talks to personally buy the building, or include Bridge Group.
Over the past year, Mersho’s Bridge Group and Los Angeles-based Steerpoint Capital acquired two office buildings in Downtown San Jose for a combined $58 million, paying $105 and $150 per square foot.
A year earlier, Steerpoint and Bridge snapped up at least four different retail properties across California, according to Steerpoint. Bridge Group Investments, founded in 2004, has invested more than $400 million into retail, industrial and multifamily properties.
— Dana Bartholomew
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