City and county leaders are struggling to recoup nearly $1 million resulting from the sale of the massive Pacific Shores Center in a scenario that’s become more common as commercial real-estate deals grow increasingly complex.
The sale of the 10-tower Pacific Shores Center to Starwood Capital Group Global last spring was heralded as one of the biggest Silicon Valley deals in years. The new owners, operating as Pacific Shores Investors LLC, continue to maintain they do not owe $968,000 in taxes typically paid when property changes hands, said Theresa Rabe, who is the deputy assessor, county clerk and recorder for San Mateo County.
If San Mateo County and Redwood City can recoup that money — or if a judge orders the new owners to pay — the decision could set a precedent for future commercial-property transactions, Rabe said. If the firm doesn’t pay, the county recorder can refuse to update the deed, County Counsel Miruni Soosaipillai said.
“[Pacific Shores Investors LLC] doesn’t think it constitutes realty sold,” in part because the legal name stayed the same, Soosaipillai said. In addition, there is little legal precedent for fights over transfer taxes because the dollar amounts are usually small.
However, San Francisco found itself in similar straits earlier this year after Equity Office Properties Trust sold several buildings to Blackstone in February for a sum approaching $39 billion. Blackstone paid San Francisco $17.8 million in transfer taxes in April and another $11 million in June, and officials are expecting a fight.
“Their initial position was that they didn’t owe it, because they believed the merger was not something that required the tax to be paid,” said Julie Van Nostern, chief tax counsel for the San Francisco City Attorney’s Office. “They have made a claim for a refund — I fully anticipate they will continue their argument.”
For now, San Mateo County lawyers are still exchanging correspondence with Pacific Shores’ legal counsel, hoping to reach consensus. Rabe said she couldn’t comment on whether the fight might end up in court. If the money comes through, half would go to San Mateo County and the other half would go to Redwood City — welcome revenue in both municipalities.
“It’s a significant amount of money. If you assume $100,000 would pay for one employee, you could get [more] employees devoted to any particular need,” Supervisor Jerry Hill said. “It could pay for a couple of firefighters, or it could provide a tremendous amount of health care to the indigent.”