Massachusetts Life affiliate pays top price for Valley office building.

The just-closed $38 million sale of Encino's First Financial Plaza is not only the biggest office building trade we've seen along the south-central San Fernando Valley's "Ventura Boulevard corridor" for several years. It's also one of the few commercial property sales in Southern California that escapes the "distressed" stigma.

And, much to the brokerage community's dismay, it's one of the few major real estate sales negotiated "principal to principal," i.e. sans brokers.

The buyer of the 216,000-square-foot, late-vintage complex, at the high-exposure corner of Ventura and Balboa boulevards in Encino, is an affiliate of giant Massachusetts Mutual Life Insurance Co.

Opportunistic investors - many backed by Wall Street-managed institutional investment funds - have been pouring capital into well-located local office properties lately. And much of that activity has been in the financially distressed sector, with the real estate typically selling for substantially less than the mortgages that had been placed on the properties during the high-flying 1980s.

But that's not the case here. First Financial Plaza is a high-quality, strategically located building that's nearly full of tenants - and apparently sold for substantially more than the balance of its late-1980s mortgage.

The sellers included the Jack Shine family, which developed the tiered six-story complex in 1986, and affiliates of Chicago's big JMB Realty Corp. investment/management group.

No sale price was disclosed, but title records indicate that Mass Mutual paid around $38 million for the property, including assumption of the balance still outstanding on the $30 million mortgage the former owners had taken out with Prudential Insurance Co. of America back in 1987.

Local property professionals agreed that $38 million, or about $175 per square foot, is a pretty aggressive bid, reflecting the Ventura Boulevard Corridor market's slow-but-steady recovery, as well as the property's quality and impressive tenant roster.

To provide some recent context, the 175,000-square-foot, 1980s-vintage tower at 16000 Ventura in Encino sold about 18 months ago for something just short of $20 million - or roughly $114 per square foot. It had been valued at more than $33 million - about $190 per foot - back in the early 1980s.

And earlier this year, a 1980s-vintage, 202,000-square-foot office Valley office building - the former Glendale Federal Bank headquarters in "hot" downtown Glendale - sold for around $30 million, or just under $150 per square foot.

But Mass Mutual won't technically remain First Financial Plaza's sole owner for long, nor will the Pru mortgage likely remain in place.

The acquisition represents the first local property that Mass Mutual real estate investment affiliate Cornerstone Real Estate Advisers Inc. has bought in connection with its new nationwide institutional investment fund. Including First Financial Plaza, Cornerstone - utilizing Mass Mutual general account funds - has now amassed the bulk of the suburban office property portfolio targeted for a big "commingled" fund known as Cornerstone Suburban Office L.P.

The plan is to buy about $300 million worth of real estate and then have a handful of institutional co-investors collectively invest around $150 million - matching Mass Mutual's eventual net cash commitment.

Cornerstone will manage the "100 percent equity" fund, so the properties eventually will carry no mortgage debt. Jim Gallagher, who heads Cornerstone's regional office in Century City together with fellow L.A. veteran Fred Reed, explained that the Pru mortgage on the Encino building carries prepayment penalties and will be paid off when the penalty period ends.

The fund's strategy, essentially, is to buy in recovering markets and return net cash flow to the investors in the short run as the properties appreciate in value, Gallagher explained. When values have risen to appropriate levels, the fund takes its profits from the sales proceeds - without any outstanding mortgage debt to pay off.

And First Financial Plaza is just the kind of investment the Cornerstone-managed fund is targeting, Gallagher continued. It's 92 percent leased to a stellar tenant roster including First Financial Group Inc., Pepperdine University, Dean Witter Reynolds Inc., Fred Sands Realtors, The Seeley Co., Imperial Thrift & Loan Association and Coast Federal Bank.

Tishman teams with Imperial Bank

Some well-known local commercial real estate professionals and a major local bank have teamed up to finance and purchase a specific category of income properties around the U.S. - with the European investment market as the ultimate target buyers.

Westwood-based Tishman International Cos. - headed by L.A. veterans Perry Herst and Alan Levy - has teamed up with an affiliate of Inglewood's Imperial Bank on a new "pre-buy" investment program, primarily targeting to-be-built "net-leased, single-tenant" properties nationwide.

The new Tishman Imperial Investors LLC venture aims to provide equity capital for developers planning freestanding retail buildings, corporate headquarters, warehouse/distribution centers and even power retail centers to be leased by national retailers.

In many cases, Levy and Herst noted, the venture ultimately expects to sell some of the developments to European investors at higher prices then they'd fetch domestically - due to favorable tax treaties and great demand for quality product.

Tishman International purchased some $100 million worth of similar properties during 1994 and 1995, and hopes to finance another $150 million worth of developments and investments in partnership with Imperial Bank by the end of 1997.