333 Market Street… Follow the Money, Part I

333 Market StreetThe Justice Department, the SEC, and the Labor Department have all opened investigations on Wells Fargo Bank. 

A privatized Board of Directors has taken control of the Wells Fargo Bank, located in San Francisco, CA.  Ignited by recent accusations of fraud and deceiving banking clients, the Federal agencies involved in this investigation are only now identifying the extent of fraudulent activity in the financial industry.  If the Feds dig deep enough, they should uncover illegal lending practices involving Wells Fargo’s relationship with the Principal Group of Companies, as described in the following posts.

333 Market Street in downtown San Francisco…

Prior to 2015, Mark Hanrahan, a managing director with Principal, was responsible for investing billions of 401(k) contribution dollars.  Hanrahan made commercial real estate deals with lenders and other commercial property investors, agreeing to real estate deals that will later cost investors billions of dollars.

In October, 2006, Hanrahan purchased on behalf of the 401(k) Principal U.S Property Separate Account, a 33 story office building in downtown San Francisco.  Known as 333 Market Street, the location was a “back office” location for Wells Fargo Bank, situated a short distance from the Wells Fargo Corporate Headquarters.  Wells Fargo, who had owned the property, convinced Hanrahan to purchase the building for $370 million, more than double the $150 million price-tag paid by Wells Fargo only a few months earlier.  Eastdil Secured, a subsidiary of Wells Fargo, arranged the private sale in October, 2006.  At that time, Hanrahan was quoted as saying:

“This is a strategically important investment for The Principal.  This is prime office space located next to one of the busiest commuter stations in San Francisco and offers great views of the San Francisco Bay. In addition, San Francisco’s office space market has recovered and we believe it will continue to grow, making this purchase an excellent long term hold for The Principal.”

The “long term hold” lasted less than 4 years, when in mid-2010, the Korean Federation of Community Credit Cooperatives became the next buyers of 333 Market St..  By then, the 333 Market Street, San Francisco, CAproperty had plummeted in value to $333 million, the alleged price paid by the Koreans.  Once again Eastdil Secured arranged the private acquisition. While selling prices are typically kept private, the price the Koreans paid for 333 Market Street was well published in front page headlines such as one published here in the World Property Journal in 2010….

Hana Asset management led the consortium of South Korean investors to purchase commercial properties stateside.  In fact, since 2010, they have led the purchase of multiple core office properties in a number of American cities.  One of their first efforts to acquire core office buildings included 333 Market Street.  The only problem is that they reportedly purchased the Market Street property for $516 million in (see this article), and not the $333 million reported by the buyer and seller.  Was this a typo?  Maybe, but if not, there is $183 million missing from the sale of the property to the South Koreans by Principal Real Estate Investors, sub-advisers for Principal Life Insurance Company for the Principal U.S. Property Separate Account.

Property Shark.com has reported the following sales information relating to deeds filed for 333 Market Street:333 Market Street

One interesting fact is that the same mailing address is reported for the Korean held private Llc (Hd333, llc) as is reported for the same property supposedly owned by the Principal U.S. Property Separate Account (333 Market St llc).  This is unusual, since typically properties owned by the PUSPSA has the same mailing address as Principal Life Insurance Company.

Principal did publish the purchase in their 2006 Annual Report, shown in this chart :

333 Market Street in San FranciscoBut the Gross Asset value wasn’t published until 2009, when the GAV had plummeted to $330.7 million:

The last entry, seen below, shows the property selling for $327.2 million, most likely sans brokerage fees:

333 Market StreetOk, if the $200 million is missing, how did Principal manage to hide the missing proceeds from the sale?  Principal has defrauded millions of retirement investors.  To accomplish this feat, they had to develop a system to mask the contributions to make them untraceable.  Principal will typically use a lending partner and a co-sponsor. If this did indeed happen in this case, Wells Fargo Bank would have floated a “loan” to the buyer for a portion of the purchase price, let’s say $200 million.  The buyer would become the “borrower.”  The loan guarantor would be the Principal U.S. Property Separate Account (PUSPSA), and a Loan purchase Agreement would be signed by Principal Life for the PUSPSA.

The “borrower” would later default the loan, forcing the 401(k) retirement account to purchase the loan, including any accrued interest and other charges.  The original proceeds were never intended to apply towards the purchase of the commercial building, but instead would directly go into Principal’s general account.  The PUSPSA would eventually pay off the loan, and the co-sponsor is paid a bribe to cooperate.  The money can’t be traced to Principal since they are not a party to the loan transaction.  The loan funds simply disappear!

So, how does this scenario relate to the purchase of 333 Market Street?  This news article made the following statement:  “To swing the deal, Wells Fargo Bank, also based in San Francisco, gave the South Koreans a $200 million loan at an interest rate of 4.5 percent.”  All the Feds have to do is to find the documents for the $200 million dollar loan.  If a Loan Purchase Agreement is attached to the loan naming the PUSPSA as the loan purchaser, we have Exhibit 1.  If the South Koreans defaulted the loan, we have Exhibit 2.  By now, the South Koreans may admit to the bribe to avoid prosecution, and we now have Exhibit 3.

The Hana Asset management article mentions that …”With $3.3 billion of assets under management, it was Korea’s first asset management company to specialize in real estate investments, including direct investments in domestic and offshore real estate, real estate securities and asset-backed securities.”  With that large of an asset base, I hardly think the South Korean’s would have to borrow $200 million to “swing the deal” at 333 Market Street.

Finally, when the property was later sold by the South Koreans, they published the sale on their website, incrrectly stating that they had sold the property to “a U.S. lease company Wealth Lease.” on December 13, 2012.  They may have meant the occupants located at  818 W 7th St, Ste # 410, in Los Angeles, California.  I don’t know.  But in fact the property was sold in 2012 to Wells REIT  in Atlanta, Georgia.  For the third time, Eastdil Secured, a subsidiary of Wells Fargo, brokered the private sale.


Hanrahan, previous managing director of acquisitions and dispositions for Principal Real Estate Investors, offered the following background in a recent Bio…

“After graduation, Mr. Hanrahan joined Principal Real Estate Investors (PREI) in Des Moines, Iowa, and served the firm in a number of positions over the next 24 years. As the company’s financial analyst, he designed and implemented a new database to enhance the reporting process. In 1997, he earned his MBA with honors from Drake University and subsequently obtained a promotion to managing director of acquisitions and dispositions. Among his achievements at PREI, Mr. Hanrahan successfully negotiated and oversaw joint venture partnerships and facilitated over $10 billion in multifamily, office, retail, and industrial transactions…..”

In 2006, Wells Fargo Bank sold  their Corporate Home Office building located at 333 Market Street, San Francisco, California, for $370 million, an attractive profit of $220 million… after paying approximately $150 million a few months earlier.  Mark Hanrahan seals the deal for the Principal U. S. Property Separate Account…. …

333 Market Street
Mark Hanrahan, former Principal Director

In 2010, 333 Market Street is sold for $333 million to a consortium of South Korean Investors.  Mark Hanrahan seals the deal for the Principal U. S. Property Separate Account, and a $37 million loss…

In 2012, those same South Korean investors purchase the former Bechtel Office building in Houston, Texas.  This time, Mark Hanrahan seals the deal, representing the South Koreans….

In 2013, Principal Real estate Investors represent the South Koreans as U.S. Asset manager, purchasing Washington Harbour, a mixed-use property in Washington, D.C.  Hanrahan likely sealed the deal on this as well…

In 2015, the Iowa based Des Moines Register reported that a Principal Director was arrested on kidnapping charges for reportedly throwing another person in the back of his car at gunpoint because he was looking for cocaine or crack cocaine.  Iowa District Judge Jeffrey Farrell delivered a deferred judgment sentence, two years of probation on both counts and a $1,375 civil penalty. the Principal Director was also issued a two-year no-contact order against the victim.

 

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Author: Dennis Myhre

Mr. Myhre can be contacted at..... dmyhre@fiduciaryfactor.com