Developer David Choo Keeps A Piece of the TMG Transbay Action

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By Jon Peterson and Sharon Simonson

As part of a settlement reached in federal bankruptcy court, San Francisco real estate developer and investor David Choo will participate in profits from the ownership and development of a coveted city land site acquired by TMG Partners and Northwood Investors LLC in June.

[contextly_sidebar id=”6adef571c026611db4349a8a9ec183a1″]According to the terms of three agreements filed with the court, Choo negotiated to contribute $5 million of a $20 million cash settlement with TMG to gain a 15 percent membership interest in TMG FM LLC. The limited liability company was formed to manage, develop, operate and perform other tasks related to the site, which is across the street from the new Transbay Transit Center set to be complete in 2016.

San Francisco’s TMG Partners retains an 85 percent interest in TMG FM LLC, according to court records.

TMG and Northwood paid nearly $2,400 a land foot for the 1.17 acres on Mission Street across from San Francisco’s rising Transbay Transit Center.

The price is nearly $1,500 a foot less than Boston Properties paid to the Transbay Joint Powers Authority for 50,000 square feet of land where the building will actually connect to the one million square-foot transportation hub.

The Boston Properties’ $3,900 a-foot purchase of the Transbay Tower site was a record for San Francisco, according to the TJPA. The 60-story 1,070-foot, 1.4 million-square-foot tower is ultimately going to be the tallest office building on the West Coast.

TMG and Northwood expect to develop 2 million square feet of offices, shops and housing in an 850-foot commercial tower and a 605-foot residential tower on their property. A portion of the commercial square footage would be dedicated to a hotel, which would likely be developed by a third party.

The TMG-Northwood purchase follows complex negotiations and multiple agreements between Choo, TMG and San Francisco-based MS Mission Holdings LLC, an entity affiliated with Lincoln Property Co. MS Mission, the properties’ former titleholder, foreclosed and gained title to Choo’s seven parcels in January 2012 at auction with a credit bid of $41 million, according to court records.

To get the property, TMG and Northwood paid MS Mission $97 million and Choo and others $20 million in cash with another $5 million promised in deferred consideration, according to the judge’s order. The deferred payment is due upon one of two circumstances: a TMG and Northwood sale of any or all of the property to an unrelated third party, or a recapitalization or refinancing that disburses cash to TMG and Northwood in excess of their original equity contribution.

Entities controlled by Choo and his family members agreed in May 2006 to borrow $67.1 million from CapitalSource Finance LLC for construction and development of the property; the San Francisco land secured the debt.

The borrowers stopped paying interest on the loan in April 2008. The loan matured in May 2009, and in April 2011 CapitalSource assigned its interests to MS Mission, which has offices at 601 California St. in San Francisco and whose president is John Herr. Herr is also executive vice president of Lincoln Property Co.’s Northern California/Pacific Northwest Region. Morgan Stanley is a joint-venture partner of MS Mission.

Choo disputed the validity of the 2012 foreclosure sale but ultimately agreed to settle with MS Mission after receiving an adverse ruling from the bankruptcy court in late February. Choo said in May testimony to the bankruptcy court that the borrowers had already paid $1 million in legal fees and faced up to $1 million more to continue their claims.

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