Blackstone Backs Equity Office Chief’s New Venture
Submitted June 27, 2010, 9:35 PM
Christopher Peatross, president and chief executive for Equity Office Properties, is leaving his post to start his own venture with backing from private equity behemoth The Blackstone Group. Blackstone also owns Equity Office.
EOP is among the largest office property owners in the country with 55 million square feet. It is also a dominant Bay Area landlord.
Peatross’ new operating company, Swift Realty Partners, will have its digs in San Francisco’s famed Ferry Building, which is owned by EOP. The new venture, which is starting from scratch, will pursue West Coast opportunistic and value-add acquisitions, primarily in the Northern California office sector.
According to a marketplace source with direct knowledge, Equity is consolidating its headquarters in Chicago in anticipation of a public offering or a private sale. Initially, the plan had been to move the headquarters to the Bay Area, but the mood shifted earlier this year. Peatross, who arrived in Northern California as a Stanford University undergraduate more than two decades ago, declined to move to the Midwest. He is 44 years old.
Peatross will remain on the Equity Office board of directors. Tom August, the chairman of the board, is moving from Dallas to Chicago to become the company’s president. John Moe, EOP’s managing director in Northern California and a long-time Peatross associate, will remain at EOP.
“I think this is a great opportunity for Christopher and a great opportunity for Blackstone. Christopher is one of those creative guys who can find opportunities where a lot of people don’t even look,” said Dave R. Sandlin, a senior vice president for brokerage Colliers International who has worked with Peatross for more than a decade. “His track record is fantastic.”
Equity Office’s most recent Silicon Valley acquisition was in January. EOP paid $30.4 million, or $156 a square foot, to buy a 193,977 square foot-office building in the San Jose airport market from Brocade Communications Inc. Brocade has leased the building for two years at a monthly rent of $1.35 a square foot with annual rent increases of 3 percent.
The move helped EOP land a quality tenant and a solid Class A office property in a marketplace starving for both. At the same time, the purchase protected the company’s flank. EOP owns about 2.5 million square feet of offices in the airport market and dominates rents in the region. Had the property sold to a rival, EOP risked being undercut by a competitor supported by a lower investment basis. Sandlin described EOP’s purchase price for the property as “pennies on the dollar.”
Equity is almost certainly the largest office landlord in the Bay Area with 18.5 million square feet. Nationwide, the company has other large office concentrations in Boston and Southern California.
EOP’s Bay Area holdings include millions of square feet on San Jose’s famed North First Street corridor. That is where Cisco Systems Inc. is headquartered as is the new headquarters for Brocade. Dozens of other tech companies, including EBay Inc. and Sony Corp. of America, are also in the area.
EOP’s North San Jose portfolio of about 10 million square feet is largely a product of Peatross’ work, first as a market managing director for former real estate investment trust CarrAmerica Realty Corp. beginning in May 2002, then for Blackstone after one of its affiliates merged with Carr in July 2006.
Peatross became chief executive of Carr after the 2006 merger. Blackstone ultimately dropped the Carr name. Blackstone also bought Chicago-based REIT Trizec Properties Inc. later in 2006 and then Equity Office in February 2007. Carr, Trizec and Equity Office were subsumed into a single operating entity and Peatross made its leader.
Joe Moriarty, a senior vice president in San Jose for brokerage CB Richard Ellis who has worked with Peatross for more than a decade, said Peatross’ timing is good. “Coming out of a down market, there will be opportunities for assets that need a new capital structure or positioning,” he said. “If you are going to do that, you have to do it before the market comes. If you wait, you miss it.” Few commercial properties are trading now, he said, but most folks expect that to change.
Moriarty also noted Peatross’ penchant for finding value where others missed it, saying that even within the inherently conservative institutional setting at Carr and Equity Office, Peatross has been able to execute higher-risk investments. “He bought some assets in the Stanford Research Park outside of their normal framework at Carr. At the time, people thought it wasn’t a good buy, and it was a great buy,” Moriarty said.
Peatross declined comment for this story. However, in speaking for a June 15 event on the re-setting of commercial property values, he said EOP’s twin missions over the next two years are managing the maturity of debt now financed through the commercial mortgage-backed securities market while realizing full value from its best-in-class portfolio by taking advantage of rising rents and rising values. He noted that EOP was holding firm on rents for some of its best space.
At the same time, he said that while many investors are “really bullish on core real estate,” he favored value-add product. “I think there is better pricing in the empty stuff today,” he said.
