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Panoramic Sells Off 7 Apartment Buildings

By Richard Brenneman
Friday April 06, 2007

Patrick Kennedy and David Teece—Berkeley’s biggest private landlords—are selling their seven signature apartment buildings to a Chicago-based corporation. 

“We hadn’t heard that,” said Calvin Fong, aide to Mayor Tom Bates, when a reporter told him of the sale Wednesday night. “The mayor will be delighted. Imagine the transfer tax! There go our city budget problems for the year!” 

“Wow,” said Dona Spring, the city councilmember whose district includes most of the affected buildings. “This is big news for Berkeley. The question is whether it’s good news or bad news.” 

“We knew (the buildings) were in play,” said city Planning Manager Mark Rhoades. “There have been people in the office for the last couple of months doing due diligence, but we hadn’t heard there was a sale and we  

didn’t know who the buyer was.”  

The buyer is Equity Residen-tial, a corporation that bills itself as the nation’s largest publicly traded owner of apartment buildings. 

According to the firm’s annual report filed with the Security and Exchange Commission on Feb. 28, the Chicago-based company owned 617 properties with a total of 165,716 units in 25 states and the District of Columbia as of Dec. 31.  

Prior to the Panoramic sale, Equity owned 100 properties in California, totaling 26,241 apartments. 

Diana Norbury, who will be managing the seven properties for Equity Residential, confirmed that the deal has been signed, with the final legal transfer expected to occur within two weeks. 

Included in the sale are buildings totaling 368 units, most rented to UC Berkeley students. They are: 

• The Gaia Building (2001), 2117 Allston Way, with 91 apartments, a ground-floor space that has sometimes been used as a theater, and Anna’s Jazz Island cafe. 

• The Fine Arts Building (2004), 2110 Haste St. at Shattuck Avenue, with 100 units and still vacant ground-floor commercial space. 

• The Bachenheimer Building (2004), 2119 University Ave., with 44 units and ground-floor commercial space. 

• The Berkeleyan Apartments (1998), 1910 Oxford St., with 56 units and commercial space. 

• Acton Courtyard (2003), 1370 University Ave., 71 units and ground-floor commercial space. 

• The Touriel Building (2004), 2004 University Ave., 35 units and ground-floor commercial space. 

• ARTech Building (2002), with 21 units and a small commercial space on the ground floor. 

While sale documents won’t be filed with the Alameda County Recorder’s office until the official closing, new limited partnerships were filed with the California Secretary of State on Feb. 28 that include the names of each of the buildings preceded by the initial EQR and listing as the entity’s address Two North Riverside Plaza in Chicago—Equity’s national headquarters.  

Kennedy retains his interest in the old Act I and Act II theater building on Center Street, which he plans to develop into a restaurant with offices above, and Norbury said she believes he intends to continue his involvement in development projects in the city. 

Hiring, lawsuits 

Norbury and a member of her staff were interviewed at a job fair they were holding in the seventh floor commons room of the crown jewel of the properties, the Gaia Building at 2114 Allston Way. 

“We gave offers to all the people who are currently working with Panoramic,” she said, “but we don’t know who’s staying.” 

Until the closing the properties are still technically owned by Panoramic Interests. Another Kennedy company manages the properties, and it is these employees Equity has offered to hire. 

In addition to the current complement of staff and a new assistant property manager, Norbury said Equity will also be hiring three maintenance workers, instead of contracting for the work as had been the practice during Kennedy’s ownership. 

Another one or two office workers may be hired, along with seasonal help, Norbury said. 

A native of Atlanta, Ga., Norbury comes to Berkeley from her most recent job with Equity in Palo Alto. She has also worked for the firm on assignments in Atlanta and Orlando, Fla. 

“I hope they will be a lot better for the tenants,” said Spring, who has been a frequent Kennedy critic. “There are several lawsuits pending.” 

One, by Gaia tenant Anna de Leon, owners of Anna’s Jazz Island, followed a long series of disputes among de Leon and Kennedy and the owners of Glass Onion Catering, which has controlled the remainder of the ground floor and mezzanine commercial space. 

Her suit targets the city and alleges that city officials failed to properly enforce conditions on the use of the lower two floors, which were supposed to have been dedicated to cultural uses, entitling the builders to add two more floors of apartments in compensation under the city’s cultural density bonus—a provision which city Planning and Development Director Dan Marks said Wednesday will not be included in the new downtown plan now being developed. 

Norbury said the firm was aware of the litigation. 

Other litigation stemmed from construction flaws that twice forced the owners to strip and replace most of the stucco encasing the building after water leaks intruded into apartments and spread mold within the walls. 

According to documentation filed with the suits, replacement costs exceeded the original price of the building. 

Following the second stripping, the building was resurfaced and coated with a synthetic waterproofing. The lawsuit was filed against the contractor, Kimes Morris, which inspired other litigation against subcontractors. 


Money matters 

The sale likely means a huge windfall for Kennedy and his principal partner, UC Berkeley Professor of Economics David Teece, a New Zealand native who has made millions from LECG, a consulting firm he built up, and from a business that sells rugby clothing in his homeland and Australia. One of his homes is a costly house in the Berkeley hills above the Claremont Hotel. 

Teece also serves as director of the Institute of Management, Innovation and Organization at the university’s Haas School of Business. 

All seven buildings in the sale were financed with bonds—largely tax exempt—authorized by the Association of Bay Area Governments, ABAG. 

Over the five years between 1998 and 2003, ABAG’s Finance Authority for Non-Profit Corporations agreed to underwrite $72,130,000 in mostly tax-exempt bonds for the Kennedy/Teece projects: 

• $6,000,000 on April 1, 1998, for The Berkeleyan. A loan agreement shows that Teece lent Kennedy $50,000 to initiate the project two years earlier. 

• $4 million on May 18, 1999, to fund the ARTech building. The corporate address for the limited liability corporation established to own the building was listed as the same Emeryville address that houses several Teece corporations. 

• $15,365,000 on July 25, 2000, for the Gaia building. Recorded documents list Kennedy, Teece and Reid Martin—former owner of the site—as principals. 

• $10,445,000 on April 4, 2002, for the Acton Courtyard Apartments. 

• $8,290,000 on May 1, 2003, to refinance The Berkeleyan, retiring the original issue of five years earlier. 

• $18,000,000 on Dec. 12, 2003, to fund the Fine Arts Building. 

• $6,210,000 on Dec. 12, 2003, to fund the Touriel Building. 

• $9,820,000 on Dec. 12, 2003, to fund the Bachenheimer Building. 

“We are aware that some of the Panoramic properites are for sale, but we are not aware of any changes in ownership status or in the status of ABAG funding,” said Leah Zippert, a communications officer for ABAG. 

After a few more calls, Zippert called back to report that “if the ownership changes, nothing has to happen to the bonds, nor do we expect anything to happen to them.” 

A new owner would be able to assume the bonds and the repayment obligations without affecting their status, presenting no obstruction to the sale.  

Kennedy, Teece and Marty McKenna, Equity Residential’s Chicago-based corporate spokesperson, did not return calls by deadline..