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Blackstone acquiring 100% interest in local assets

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SL Green Realty Corp. has agreed to sell its remaining interest in a Southern California office portfolio -- including eight properties in San Diego -- to a Blackstone Group entity for $100 million.

The buyer of the remaining 43.7 percent interest in the portfolio is an affiliate of joint venture partner Blackstone Real Estate Partners VII, which now will take full ownership.

The local properties include eight in San Diego County. Three buildings are in Sorrento Valley: the 15,926-square-foot R&D building at 10220, the 64,117-square-foot office building at 10240 and the 37,063-square-foot building at 10260 Sorrento Valley Road.

Other local properties include the 38,060-square-foot office building at 5120 Shoreham Place in Governor Park and a pair of 56,220-square-foot buildings in Carmel Valley at 11975 El Camino Real and 11995 El Camino Real.

The other two are the a 48,055-square-foot building at 115 W. Bernardo Court in Rancho Bernardo, and the 59,681-square-foot building at 12396 World Trade Drive in Carmel Mountain Ranch.

All told, the portfolio consists of 28 properties totaling 3.7 million square feet in various submarkets including Los Angeles, Orange County and San Diego.

The properties that were originally part of a 31-property, 4.5 million-square-foot collection known as the Cabi Portfolio that SL Green acquired through foreclosure.

Cabi was a Mexican-based real estate firm that had acquired the assets from Arden Realty for $1.51 billion in 2007. Cabi, which used 11 different lenders, took out a $1.35 billion loan, defaulted on a $105 million payment and was forced to hand over the assets in a foreclosure action by the end of 2008.

SL Green’s (NYSE: SLG) servicing arm advised on the foreclosure and the restructuring of the approximately $750 million of in-place financing. Concurrent with the restructuring, SL Green recapitalized the portfolio, forming a new partnership with Blackstone (NYSE: BX).

Subsequently, SL Green acquired the other two minority partners’ interests and sold three properties for a total of $223 million.

In addition, a successful capital improvement and lease-up program was mounted by Blackstone affiliate Equity Office Properties, the company founded by Chicago billionaire Sam Zell. Equity Office continues to manage the properties.

“The transaction announced today is the successful culmination of a three-year process. We felt that the Southern California office market was on the upswing, so we made a strategic decision to take over the portfolio, restructure the capital stack and bring in an equity partner," David Schonbraun, SL Green’s co-chief investment officer said in a statement.

"Our market judgment proved correct, and in combination with the outstanding job Equity Office did in managing and leasing the properties, significant value was created in the portfolio," Schonbraun said. "While Blackstone stands to enjoy additional success with the portfolio, we are now ready to exit this non-core investment at a significant gain and intend to redeploy the proceeds back into New York City assets.”

As of last Dec. 31, SL Green, which is now focusing most of its interests on the East Coast, owned interests in 92 buildings constituting some 27.8 million square feet in Manhattan alone.

The Blackstone Group is not only significantly larger; it has been a much bigger player in San Diego County commercial real estate.

In February 2011, Blackstone agreed to rescue the Hotel del Coronado from a more than $600 million loan default by agreeing to recapitalize the fabled 700-room hotel in exchange for a majority stake in the property.

Blackstone also agreed to buy SeaWorld San Diego among the other InBev theme parks in Florida and Texas for $2.7 billion in 2009.

The New York equity firm had also acquired the Westin Emerald Plaza Hotel before selling it in a $495 million portfolio sale to DiamondRock Hospitality (NYSE: DRH) in 2012.

It briefly owned the 800,000-square-foot Plaza at La Jolla Village before selling the asset to The Irvine Co. early in the last decade.

-- Bloomberg contributed to this report.

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