Blog | Calco Commercial, Inc.

Mar

National CRE News: Bank Lending Soared in 4th Quarter

Economic, Regulatory Headwinds May Slow Lending Pace in 2016

Source: CoStar
By: Mark Heschmeyer
Date Posted: March 2, 2016

The total amount of commercial real estate loans held by U.S. banks and savings and loans saw a noticeable jump in the fourth quarter of 2015 over the previous quarter. The total amount of CRE loans outstanding held by FDIC-insured institutions increased 3.1% to $1.85 trillion at year-end from three months earlier. That followed an increase of 2.7% from mid-year to third quarter, according to the FDIC.

The $1.85 trillion year-end 2015 total CRE loans outstanding compares to $1.63 trillion at the last peak of the CRE markets at the end of June 2007.

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Multifamily loans continued to increase at the fastest pace quarter to quarter, going up 4.6% to $15 billion from third quarter 2015 to the year-end total of $344 billion.

Non-residential commercial real estate lending totals jumped by $25 billion (3.6%) to $733 billion during the same timeframe.

Construction and development loan totals jumped by $8.88 billion (3.3%) to $275 billion.

The asset quality of CRE loans on bank books also continued to improve. Delinquent CRE loan balances declined for a 22nd consecutive quarter. At year-end, total delinquent CRE loans on the nation’s banks’ books equaled $19.8 billion, down 5.5% from the third quarter of 2015.

At the last peak of the CRE markets, delinquent CRE loans totaled $27.6 billion.

The total dollar volume of foreclosed upon CRE properties on banks’ books equaled $8.3 billion at year-end, down 12.2% from the previous quarter. However, in June 2007, the CRE foreclosed total stood at just $2.5 billion.

Banks appear to be benefitting from the strong market for real estate in selling any repossessed properties. For all of 2015, banks posted gains of $215.7 million on the sale of foreclosed properties. That came despite posting a loss on sales in the third quarter of 2015.

The nation’s largest CRE lender, Wells Fargo Bank, which holds about $134 billion in CRE loans, posted a gain of $245 million last year on the sale of foreclosed properties.

FDIC-insured institutions reported aggregate net income of $40.4 billion in the third quarter down from $43 billion in the second quarter of 2015.

Of the 6,270 insured institutions reporting third quarter financial results, more than half (58.9%) reported year-over-year growth in quarterly earnings. That also is down slightly from the previous quarter.

Is a Bank Lending Slowdown on the Horizon?

Total loans and leases at banks increased by $199 billion during the fourth quarter of 2015, approximately 2.3%. That is about double the pace of loan growth in the third quarter and the highest total increase in bank lending in eight years.

The brisk pace of bank lending may cool this year after bank regulators issued an announcement during the fourth quarter that they planned to pay close attention to real estate lending activity among banks.

The FDIC warned in late December directing banks and savings and loans to “reinforce prudent risk-management practices” for their commercial real estate lending.

The FDIC regulators added that they would be paying close attention to bank CRE lending practices in their 2016 bank reviews. The last time the FDIC sent such a memo regarding real estate lending was in 2005.

Asked in Federal Reserve Bank January 2016 survey about their lending practices, senior loan officers reported tightening standards for multifamily loans, a moderate number reported tightening standards for construction and land development loans (CLD loans), and a small number reported tightening standards for loans secured by nonfarm nonresidential properties.

“The operating environment for banks remains challenging. Interest rates have been exceptionally low for an extended period, and we are seeing signs of growing interest rate risk and credit risk,” said FDIC Chairman Martin J. Gruenberg. “Recently, domestic and international market developments have led to heightened concerns about the U.S. economic outlook and prospects for the banking industry. Thus far, the performance of banks has not been impacted materially. However, the full effect of lower energy and other commodity prices remains to be seen. Banks must remain vigilant as they manage interest rate risk, credit risk, and evolving market conditions. These challenges will continue to be a focus of ongoing supervisory attention,” Gruenberg said.

Link to Article: CRE Lending

Mar

SF Tech Real Estate News: 95,000 SF Leased at former Twitter HQ

Source: San Francisco Business Times
By: Roland Li
Date Posted: March 3, 2016

Quantcast, a website analytics company, has leased three floors totaling about 95,000 square feet at 795 Folsom St., the former Twitter Inc. headquarters in South of Market, said two sources familiar with the property.

San Francisco-based Quantcast is replacing AT&T Inc. (NYSE: T), which vacated the space at the end of January, said a source. The swiftness of the deal is another sign that large chunks of office space are still being filled rapidly throughout the city, despite recent job cutbacks at prominent startups such as Zenefits and Surveymonkey. The asking rent in the building was in the mid-$70s, according to marketing materials.

Quantcast, founded in 2006, is also more established than many of the venture capital-fueled tech tenants that are growing rapidly. Quantcast was the 33rd-largest tech employer in the city with 385 employees as of January, up slightly from its 368 local employees in January 2015, according to Business Times research.

A Quantcast spokeswoman confirmed the lease and said the company will be relocating from its current headquarters about three blocks away at 201 Third St.

Steve Anderson and Bryan Ivie of JLL represented landlord ASB Real Estate Investments and asset manager Union Property Capital in the lease. JLL also represented the tenant. JLL declined to comment.

The six-story, 187,000-square-foot building at 795 Folsom St. is close to Yuerba Buena and Moscone Center. It was built in 1976 and renovated in 1999.

Twitter (NYSE: TWTR) moved into 795 Folsom St. in 2009, and then relocated to its current headquarters at 1355 Market St. in 2012. Current tenants at 795 Folsom St. include the real estate space provider Regus (LON: RGU) and gaming company Kabam Inc.

ASB bought 795 Folsom St. from Cornerstone Real Estate investors for $110 million in 2013.

Link to article: SF Tech Company Leases Three Floors at former Twitter HQ

Feb

Could Rail Yard Project in SOMA free up 25 acres for possible development?

Plan to Revap S.F. transit, remove stretch of I-280 debuts

Source: San Francisco Business Times
By: Riley McDermid
Date Posted: February 23, 2016

The first part of a study that looks at razing a 1.2-mile stretch of Interstate 280 in San Francisco in order to revamp infrastructure ahead of the city’s Transbay Transit Center and high-speed Caltrain arrivals will debut Tuesday.

It will be the first look the public will get at the “Rail Yard Alternatives and I-280 Boulevard Feasibility Study” (RAB), which will be unveiled tonight at the Potrero Hill Recreation Center. A multiagency effort, the plan hopes to modify the Fourth and King rail yard and weave SoMa into the Dogpatch, Mission Bay and Potrero Hill, while freeing up 25 acres for possible development.

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“The study will review construction methods and rail alignments, including the possibility of moving the Caltrain station at Fourth and Townsend streets to Third Street, between AT&T Park and the planned Warriors arena,” the San Francisco Chronicle reports.

“It will also look at the potential of creating a loop track at the Transbay Transit Center, rather than a stub, where trains have to end and exit on the same track. A loop track would increase the station’s overall capacity.”

But the plan already has some officials questioning parts of its reach, including how rail travel would be incorporated into the city.

The feasibility of creating a tunnel under 16th Street so that trains could travel on top of 16th Street and Mission Bay Drive is also worrisome to Gillian Gillett, director of transportation policy for the city, who told the paper it might make a dangerous zone for cyclists and pedestrians.

“Those two streets will be depressed at great expense, resulting in an urban form that is invasive and hostile,” Gillett said. “We don’t want our streets to get trenched. We did that to Cesar Chavez Street, and it doesn’t create a good environment.”

Even more worrisome? Where the funding would come from, given the increasing costs of the Transbay Transit Center itself, which has been mired in funding shortages and delays. The project has already has taken on a loan from Goldman Sachs that will cost taxpayers $37 million in charges and fees.

That amount is part of a $171 million “bridge” loan that Goldman Sachs (NYSE: GS) is lending the city so that it can continue building the project without a pause due to financial issues.
In December, the Chronicle reported that the price for the first phase of the Transbay Transit Center may jump another $244 million to almost $2.3 billion, and has now added another $4 billion for a related train track project that will run from the three-block building to Fourth and King streets.

Those sorts of operational challenges are why the city needs to get any overarching plan that includes removing a portion of I-280 right the first time, said officials.

“One of the reasons we are in the soup we are in is that development and transportation improvements have not been happening at the same time,” Gillett told the paper. “If you are going to invest in this big seismic shift from diesel to electric, which we have got to do, you also have to look at all the stations. Are the tracks in the right place? Are the stations in the right place so that we can create real connections to other systems?”

link to article: Transit Revamp

Feb

Biotech Real Estate News: Cove at Oyster Point developers bowl-over employees with amenities

Bowling for biotech-or how real estate is changing to meet tight space, labor markets

Source: San Francisco Business Times:
By: Ron Leuty
Date Posted: February 4, 2016

Biotech real estate developers are rolling with the times, designing space for young, cash-flush companies desperate to hold on to talented employees who want more than a bench and a place to hang their lab coats.

Take HCP Inc., which is breaking ground on the second phase of its massive Cove at Oyster Point development in the sterile-and-scrubbed heart of the life sciences industry in South San Francisco. Along with two lab and office structures totaling 230,000 square feet, HCP’s next stage of the potential 884,000-square-foot project includes 20,000 square feet of retail, attempting to fill a desperate need among the thousands of biotech workers.

TheCove

The first two-building phase, which will open in the third quarter, includes a marketplace-like food area on the ground floor as well as pool tables, table tennis and a two-lane bowling alley.

Yes, a bowling alley.

“It’s really taking an urban-type downtown environment and bringing it to a suburban market,” said HCP Executive Vice President Jon Bergschneider. “It’s large space for people to break out and team build.”

In the tech industry, such “amenity space” is commonplace in the tug-of-war to keep and attract fresh, young talent. Yet despite occasional events at individual companies — South San Francisco-based biotech granddaddy Genentech Inc. is well known for its bi-monthly “Ho-Hos” get-togethers — biotech has mostly maintained a buttoned-down focus on its benches and beakers.

Yet biotech executives and the developers who build space for their companies say that is changing. Employees can be in their labs at any time of the day or night, and the east side of Highway 101 in South San Francisco is largely a food and entertainment desert, so they often jump in their cars at break time. But the growing millennial workforce is different, they say, wanting services within walking distance.

BioMed Realty Trust, recently bought by Blackstone Group LP (NYSE: BX), is building out amenity space at a potential 595,000-square-foot campus in Foster City for Illumina Inc. (NASDAQ: ILMN). Across Oyster Point Boulevard from The Cove, BioMed has drawn up plans for similar amenities space at its Gateway of Pacific towers, which is entitled for 1 million square feet.

Companies are paying up for the space, too, in a tight real estate market. The first two tenants in the 250,000-square-foot first phase of The Cove — newly public cancer drug developer CytomX Therapeutics Inc. (NASDAQ: CTMX) and Denali Therapeutics Inc., which scored the largest startup round of venture capital for its focus on neurodegenerative diseases — will pay in the mid- to upper-$50 range after they move in the third quarter.

And for the next couple of years, The Cove and Phase 3 Real Estate Partners Inc., which last year bought the Centennial Towers project on the west side of Highway 101 and rebranded it Genesis-South San Francisco, are the main new, multiple-tenant life sciences spaces on the market.

As a result, said Rick Friday, a senior vice president at real estate brokerage CBRE Inc., the biotech real estate market remains tight. The brokerage is tracking about 1.6 million square feet of demand along the Peninsula, said Chris Jacobs, executive vice president of life sciences at CBRE.

“Ten years ago, a lot of companies could think two, three years in advance,” Friday said. “Now when companies decide they need space, they need it in 12 months or less.”

One of the first two buildings in The Cove remains unleased; the two-building second phase includes retail and a four-story parking garage — another sign of the times as developments have become denser with less surface parking.

Instead of parking, when the entire project is built out, The Cove will include a 5.5-acre open area with bocce ball, basketball and volleyball courts and a picnic area, said Scott Bohn, an HCP vice president.

The demand for The Cove’s first phase gave HCP confidence to start the second stage on time. What’s more, it helped them shape the footplates of the second phase, making them slightly smaller and more flexible for a wider variety of potential tenants, Jacobs said.

“The amenities center has really resonated as well,” Jacobs said. “Everybody we sit and talk to says, ‘It’s about time.'”

Link to article: Cove-Amenity Space

Jan

National CRE News: 2015 Was A Very Good Year

Source: CoStar
By: Randyl Drummer
Date Posted: January 28, 2016

For almost everyone involved in commercial real estate, 2015 was a very good year. The impressive recovery in commercial property values is apparent in the year-end release of the CoStar Commercial Repeat-Sale Indices (CCRSI), which delineate the broad price gains across property types and regions amidst record investment transaction volume in 2015.

Both the value-weighted and the equal-weighted segments of CCRSI’s U.S. Composite Index, which constitute the two broadest measures of aggregate commercial property pricing, continued to gain ground in December, the fourth quarter and for the year. Demand for core property assets was especially strong, with the value-weighted index rising 12.6% during 2015 to an all-time high of 19.1% above its pre-recession peak.

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December transaction activity remained true to its seasonal pattern observed over the last several years, spiking in the final month of the year as investors raced to close transactions prior to year-end. The December composite pair volume of nearly $18 billion was the highest monthly total on record, helping lift total 2015 volume to $128.3 billion, a 26.2% increase from the previous peak reached in 2014.

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While pricing in core U.S. markets set records in 2015, investors moving out on the risk spectrum in search of higher yields resulted in equally strong sales activity in non-core markets and property types, as reflected in the equal-weighted U.S. Composite index. Heavily influenced by lower-value properties typical of those in secondary and tertiary markets, the equal-weighted U.S. Composite Index rose 12.6% in 2015 and is now within 3.4% of its previous high water mark.

The investment-grade segment of the CCRSI equal-weighted index, capturing the performance of high-quality properties, moved to within 1% of its prior peak, while the general commercial index of smaller, lesser-quality assets remains 4.6% off its previous high water mark, according to CCRSI.

Quarterly indices for all six major property types, including the land and hospitality properties, posted double-digit gains in 2015, as did each of the four U.S. regional indices, marking the second straight year in which all the indices increased at a rate of 10% or above.

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The Northeast Multifamily Index was the best-performing regional property segment of 2015, rising 15.4% to end the year 44% above its 2007 high. The West Multifamily and West Office Indices also posted exceptionally strong growth of 14.8% and 13.9%, respectively, nudging the overall West Regional Index to within 1% of its pre-recession peak. The South and Midwest indices advanced by 12% and 10%, respectively, though both remained 10% or more below their prior high levels.

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The latest quarterly data further confirmed the steady pricing gains across all six property types. The CCRSI Prime Markets Indices increased more rapidly than the broader property-type indices in 2015, suggesting that core markets remained attractive even though investors showed an increased tolerance for risk in second- and third-tier markets as market fundamentals continue to improve.

By far, the U.S. Multifamily Index showed the strongest annual rate of increase, and it remains the only U.S. property index to have surpassed its pre-recession peak, ending the year 18.8% above its 2007 high.

In particular, the Prime Multifamily Metros Index, which passed its previous peak back in June 2013, skyrocketed in 2015 to 41.4% above 2007 levels. Multifamily fundamentals remained healthy in 2015 despite unprecedented levels of new construction, with continued price appreciation even as nationwide vacancy rates held below 4% in the fourth quarter of 2015.

Link to article: CRE Soars in 2015

Full Composite Price Indices Report for CRE: January 2016 CCRSI Release

Jan

San Francisco Tech News: Yelp HQ building possible sale for $1000 a foot

Source: San Francisco Business Times
By: Riley McDermid
Date Posted: January 27, 2016

Landmark tech HQ building could fetch as much as $1,000 a foot in sale

The San Francisco landmark PacBell building could fetch as much as $1,000 square feet when it is sold, reports The Registry, a record price that points to how high office rents currently are – and the value they are bringing to commercial real estate sales.

At 286,092 square feet of office space and 9,000 square feet of retail, that could add up to $295 million for the building located at 140 Montgomery, which currently boasts tenants such as Yelp and Lumosity.

140 Montgomery

The Registry’s report posits those high rents that could drive up the sale price of the building, which Wilson Meany and Stockbridge Capital Group bought from AT&T in 2007.

“One of the reasons for the high sales price is the current condition of the rents in the property. The office building has rents that are closer to current market rents than any other office asset in the city at this time,” The Registry reports. “Should 140 New Montgomery achieve the $1,000 per square foot sale price, it would place the asset very close to replacement cost, which some sources in San Francisco have pegged to be close to $1,000 per square foot.”

“Yelp had signed an eight-year lease in 2011 to occupy nine floors in the building with an annual rental rate that began at $54 a square foot and is planned to increase to $66.41 a foot by the eighth year,” The Registry reports.

“The landlord granted an initial $5.8 million, or $60 a foot, tenant-improvement allowance, according to records filed by Yelp with the U.S. Securities and Exchange Commission. Lumosity signed a lease in 2013 to occupy 36,000 square feet, or three floors, in the building.”

Eastdil Secured, the listing agent for the property, didn’t return a request for comment from the Business Times. Wilson Meany confirmed to The Registry that the building is up for sale.

Link to Business Times Article: Tech HQ Could Fetch $1000 a foot in sale

Link to The Registry Report: 140 Montgomery

Jan

San Francisco CRE News: SF Tops Country in Strongest Office Market

Source: Bisnow
By: Allison Nagel
Dated Posted: January 26, 2016

For the first time in history, San Francisco’s office rents have blown past Manhattan, recognizing the city and the Bay Area’s shift toward becoming the nation’s power center as more major companies establish a presence in the area. We chatted with Colliers regional executive managing director Alan Collenette about the brokerage’s new report.

Calling it San Francisco’s “Glittering Age,” Alan says the shift west with the growth of the tech industry marks an era, not a short-lived boom.

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San Francisco is the nation’s healthiest office market, Alan says. He argues the world has shifted to a knowledge-based economy that thrives on innovation, and San Francisco is its epicenter as the home to major tech firms, such as Apple, Google, Facebook, Pinterest, Twitter and more, according to the report released by Colliers.

While there has been a lot of consternation about world events and economic woes, Alan tells us the worry may be blown out of proportion. On China in particular, he says exports only account for 13% of the US economy (and China makes up less than 8% of that, or just 1% of our overall economy). China is still growing strongly (more than twice the rate of US growth) with currency that hasn’t been devalued nearly as much as the currencies of other major US trading partners, he tells us. So China may import fewer products and services from the US, but will have a relatively limited direct hit on our near-term economic growth.

In addition, Alan tells us the US added an average of almost 300,000 jobs a month in Q4 and the yield curve (that harbinger of recessions) is still upward sloping (the spread between 10-year and two-year bonds is above its long-term average). Both are signs of a strong economy.

The brokerage firm’s year-end office market research study found:

-Office rents higher in San Francisco ($72.26/SF) than Manhattan ($71.26/SF);
-Vacancies of 7.2% in San Francisco vs. 9.6% in Manhattan;
-Annualized rents are up 11.8% in San Francisco;
-Sublease space at 0.7% of San Francisco’s 90M SF office market (compared with a high of 5.1% after the dot-com bust of 2002 and 1.6% during the recession in 2009);
-Absorption rates totaled nearly 180k SF in Q4 (total absorption for the year was 1,569,532 SF);
-Nearly 6.3M SF leased in San Francisco in 2015;
-36 office sales transactions totaling $3.7B closed during the year (compared with 50 sales for $5B in 2014, but still above the historical averages of $2B to $3B);
-Class-A prices rose to $675/SF, compared with $615 a year ago; and Class-B prices rose to $573/SF from $508 a year ago.

The report notes San Francisco’s 7.2% vacancy rate for Q4 included four office properties that are pre-leased but not occupied (the study only counts occupied buildings): 350 Mission St, 222 Second St, 333 Brannan St and 345 Brannan St. Those buildings are expected to be occupied in the first half of this year, dropping the vacancy back to 7% or lower.

Such growth, a strong economy, high leasing rates, pre-leasing and a robust pipeline of projects under construction mean that 2016 will remain strong for office development, the study notes. Overall, there is nearly 5M SF total under construction with 36% of it pre-leased, Alan says.

Read more at: SF Office Rents Top Manhattan

Jan

San Francisco Year-End 2015 Industrial Real Estate Summary

Source: CoStar Year-End 2015 Industrial Report

The San Francisco Industrial market ended the fourth quarter 2015 with a vacancy rate of 3.2%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 383,017 square feet in the fourth quarter. Vacant sublease space decreased in the quarter, end- ing the quarter at 245,799 square feet. Rental rates ended the fourth quarter at $18.60, an increase over the previous quarter. There was 408,797 square feet still under construction at the end of the quarter.

Absorption

Net absorption for the overall San Francisco Industrial market was positive 383,017 square feet in the fourth quarter 2015. That compares to negative (537,118) square feet in the third quarter 2015, positive 51,907 square feet in the second quarter 2015, and negative (8,761) square feet in the first quarter 2015.

The Flex building market recorded net absorption of positive 124,445 square feet in the fourth quarter 2015, compared to positive 526 square feet in the third quarter 2015, positive 165,145 in the second quarter 2015, and positive 5,888 in the first quarter 2015.

The Warehouse building market recorded net absorption of positive 258,572 square feet in the fourth quarter 2015 com- pared to negative (537,644) square feet in the third quarter 2015, negative (113,238) in the second quarter 2015, and negative (14,649) in the first quarter 2015.

Vacancy

The Industrial vacancy rate in the San Francisco market area decreased to 3.2% at the end of the fourth quarter 2015. The vacancy rate was 3.6% at the end of the third quarter 2015, 3.3% at the end of the second quarter 2015, and 3.8% at the end of the first quarter 2015.

Flex projects reported a vacancy rate of 3.4% at the end of the fourth quarter 2015, 4.0% at the end of the third quarter 2015, 4.2% at the end of the second quarter 2015, and 5.4% at the end of the first quarter 2015.

Warehouse projects reported a vacancy rate of 3.1% at the end of the fourth quarter 2015, 3.5% at the end of third quarter 2015, 3.0% at the end of the second quarter 2015, and 3.3% at the end of the first quarter 2015.

Sublease Vacancy

The amount of vacant sublease space in the San Francisco market decreased to 245,799 square feet by the end of the fourth quarter 2015, from 337,620 square feet at the end of the third quarter 2015. There was 339,249 square feet vacant at the end of the second quarter 2015 and 333,754 square feet at the end of the first quarter 2015.

San Francisco’s Flex projects reported vacant sublease space of 54,864 square feet at the end of fourth quarter 2015, down from the 159,121 square feet reported at the end of the third quarter 2015. There were 164,850 square feet of sublease space vacant at the end of the second quarter 2015, and 186,108 square feet at the end of the first quarter 2015.

Warehouse projects reported increased vacant sublease space from the third quarter 2015 to the fourth quarter 2015. Sublease vacancy went from 178,499 square feet to 190,935 square feet during that time. There was 174,399 square feet at the end of the second quarter 2015, and 147,646 square feet at the end of the first quarter 2015.

Rental Rates

The average quoted asking rental rate for available Industrial space was $18.60 per square foot per year at the end of the fourth quarter 2015 in the San Francisco market area. This represented a 4.4% increase in quoted rental rates from the end of the third quarter 2015, when rents were reported at $17.82 per square foot.

The average quoted rate within the Flex sector was $30.14 per square foot at the end of the fourth quarter 2015, while Warehouse rates stood at $14.19. At the end of the third quarter 2015, Flex rates were $28.44 per square foot, and Warehouse rates were $13.71.

Deliveries and Construction

During the fourth quarter 2015, no new space was completed in the San Francisco market area. This compares to 0 buildings in the previous two quarters, and 118,080 square feet in three buildings completed in the first quarter 2015.

There were 408,797 square feet of Industrial space under construction at the end of the fourth quarter 2015. Some of the notable 2015 deliveries include: 901 Rankin St, an 82,480-square-foot facility that delivered in first quarter 2015 and is now 100% occupied, and 1 Kelly Ct, a 25,600- square-foot building that delivered in first quarter 2015 and is now 100% occupied.

The largest projects underway at the end of fourth quarter 2015 were The Cove Building 3, a 153,047-square-foot building with 50% of its space pre-leased, and The Cove Building 4, a 140,053-square-foot facility that is 0% pre-leased.

Sales Activity

Tallying industrial building sales of 15,000 square feet or larger, San Francisco industrial sales figures fell during the third quarter 2015 in terms of dollar volume compared to the second quarter of 2015.

In the third quarter, seven industrial transactions closed with a total volume of $51,564,100. The seven buildings totaled 289,631 square feet and the average price per square foot equated to $178.03 per square foot. That compares to 11 transactions totaling $88,245,000 in the second quarter. The total square footage was 423,420 for an average price per square foot of $208.41.

Total year-to-date industrial building sales activity in 2015 is down compared to the previous year. In the first nine months of 2015, the market saw 35 industrial sales transactions with a total volume of $320,599,100. The price per square foot has averaged $202.49 this year. In the first nine months of 2014, the market posted 40 transactions with a total volume of $365,813,100. The price per square foot averaged $214.70.

Cap rates have been lower in 2015, averaging 4.34%, compared to the first nine months of last year when they averaged 6.46%.

Link to full report: Q4 Costar

Jan

San Francisco CRE News: City Proposal Would Double Affordable Housing Requirements

Source: San Francisco Business Times
By: Roland Li
Date Posted: January 12, 2016

Supervisor Jane Kim will introduce a charter amendment today to more than double San Francisco’s affordable housing requirements for market-rate projects to 25 percent.

The change would require voter approval in the June election. The city currently requires market-rate projects to provide 12 percent of their units below market rate. Alternatively, developers can now build 20 percent of their units off site or pay a fee equal to 20 percent of the value of the units. Kim’s proposal also increases the off-site units and the fee to 33 percent each. The charter amendment would also allow the Board of Supervisors to make additional changes to the inclusionary housing policy without going back to voters by removing the existing policy from the charter.

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The proposal is likely to spark a fight. Market-rate developers have argued in the past that increasing affordable housing requirements may result in less — not more — affordable housing since the costs could make some housing projects financially infeasible.

Urban think tank SPUR characterized Kim’s new proposal as “undoing the grand bargain” that established the Affordable Housing Trust Fund in 2012. Following the loss of state redevelopment funds for affordable housing, voters approved using general fund revenue to support affordable housing. In addition, the city lowered the affordable housing requirements to 12 percent for market-rate projects. Gabriel Metcalf, president of urban think tank SPUR, is critical of proposing new requirements without doing a study.

“It’s not a good idea to make up an inclusionary requirement out of thin air,” said Metcalf. “We have no way to judge what the right level would be right now. We should do an objective study to set the levels, not have one side re-set them to its liking whenever the political winds are blowing in its favor. Say what you will about the 2012 measure, but it had the involvement and concurrence of lots of different sides in the housing debate.”

Kim’s legislation broadly aligns with Mayor Ed Lee’s call to increase the affordable housing requirements, but he hasn’t proposed a specific requirement and had sought to work with developers to find a consensus.

But Kim called for immediate action. “With the ridiculously high cost of living in the Bay Area, our middle class residents are also vulnerable to losing their homes due to skyrocketing rents they can’t afford or by being pushed out of rent controlled buildings by the landlord. And most of them won’t be able to afford another place in the City,” Kim said in a statement. “This is an urgent step we can and should take now.”

Newly elected Supervisor Aaron Peskin is co-sponsoring the legislation and cites the 40 percent affordable housing numbers at Forest City’s 5M project and the San Francisco Giants’ Mission Rock as precedents for higher affordability requirements. “With Supervisor Kim’s recent successes negotiating unparalleled affordability requirements at Mission Rock and 5M, we know the market can bear it – and so do our constituents looking for relief,” said Peskin in statement.

However, those two projects aren’t indicative that the broader market can bear a higher affordable housing requirements, according to developers. 5M has 825,600 square feet of office space planned and Mission Rock has 1.3 million square feet of office space, which gives them additional revenue sources. The massive size of each project, with 5M’s 688 residential units and Mission Rock’s 1,500 residential units, also give them big enough scale to fund 40 percent affordable housing requirements. A small multifamily project would not necessarily be able to bear the cost of a quarter of its units, developers said, particularly if land prices didn’t fall in response to new requirements.

High affordability also hasn’t swayed opposition to 5M. Three neighborhood groups are now suing to block the project after it received city approval, alleging that the environmental impact study didn’t adequately measure the effects of the project.

Kim’s measure calls for new market-rate projects to provide 15 percent of units below-market-rate housing for renters making up to 55 percent of the area median income, or $39,250 for a single resident under the 2015 fiscal year definition. Rents would be no more than $981.25, or 30 percent, for such income levels. An additional 10 percent of units would be for those making 100 percent of the area median income, or $71,350 for a single resident, which would have rents up to $1,783.75 per month.

For-sale projects would have higher affordability thresholds, with 15 percent of units reserved to those making 80 percent of the area median income, and 10 percent reserved for those making 120 percent of the middle income.

Funding for affordable housing in the Bay Area has decreased due to the state’s 2012 elimination of Redevelopment Agencies and falling federal support. That lack of funding, in addition to an increase in housing demand and spiking prices, has pushed cities around the Bay Area to seek more concessions from market-rate developers. Oakland, San Jose, Berkeley and Emeryville have all moved to implement new fees or increase existing ones to fund affordable housing.

If the fee level is too low, as Supervisor Kim is arguing, the city is not maximizing its funding for affordable housing. But if fees are too high, there’s risk that market-rate development could slow and overall affordability could decrease as demand rises faster than supply, said Metcalf.

Supporters of the ballot measure include the nonprofit Tenants and Owners Development Corp., a prominent South of Market nonprofit, and the Council of Community Housing Organizations, which represents affordable housing developers and tenant advocates. They argue that the current requirement of 12 percent is outdated and that the city’s surge in market-rate construction can support more affordable housing.

“This is how public policy works. It changes and evolves to the circumstances of the time. The circumstances are totally different than 2011,” said Peter Cohen, co-director of CCHO.
Requiring 10 percent of units for residents making around 100 percent of the area median income would also provide much-needed supply for those who struggle to pay market-rate but make too much to qualify for most below-market-rate units, said Cohen. Kim’s proposal “ensures that market-rate projects will continue to provide a portion for middle-class households,” he said.

Link to article: SF to Double Affordable Housing Requirements?

Jan

Tech CRE News: Airbnb in Talks to Lease Former Dolby Office in SOMA

Source: San Francisco Business Times
By: Roland Li
Date Posted: January 14, 2016

Back in October, the audio giant Dolby Laboratories Inc. completed its move to 1275 Market St., heralding another tech arrival in San Francisco’s changing Mid-Market neighborhood.

With the relocation, Dolby (NYSE:DLB) vacated a 150,000-square-foot office at 999 Brannan St. in South of Market, and the building is close to being filled again. Airbnb Inc. is in talks to lease at least 100,000 square feet at 999 Brannan St., said three sources familiar with the property.

The pending deal is another affirmation that even as companies put up large blocks of sublease space on the market, suggesting a slowdown, other growing businesses are quickly snapping them up. Strong market activity, particularly from tech companies, has propelled San Francisco to become the most expensive office market in the country.

999 Brannan St. appears to be a natural expansion for Airbnb. The property is about a block from Airbnb’s current headquarters at 888 Brannan St., separated by Highway 80. The four-story property has a glass facade that wraps around its curving triangular structure, along with rooftop parking and a penthouse conference room, designed by Leddy Maytum Stacy Architects. The asking rent in the building wasn’t clear, but South of Market’s average office rent has surpassed $70 per square foot.

999Brannan

Dolby bought 999 Brannan St. from Shako Real Estate Management Inc. for $18.2 million in 1998, according to property records, but with renovations and a new tenant, the building would be worth exponentially more.,p>
Airbnb’s current location at 888 Brannan St. is evidence of the sharp jump in building values in the area. Last year, pension fund TIAA-CREF bought 888 Brannan St for $312 million from Beacon Capital Partners, a 69 percent profit on the $185 million that Beacon paid for the building in 2014. Airbnb leases 225,000 square feet, or more than half of the 400,000-square-foot building.

Airbnb, valued at $25.5 billion in its latest fundraising round in November, is the world’s third-most valuable private startup on paper, behind Uber Technologies Inc. and China’s Xiaomi Inc. The short-term rentals company also lobbied aggressively and spent $8.5 million to defeat Prop. F, a San Francisco ballot measure that would have added restrictions to its business. The company had around 500 San Francisco employees last year, according to Business Times research.

Jack Jackson of Tailwind Commercial, the leasing broker for 999 Brannan St., didn’t respond to requests for comment. A spokesman for Airbnb declined to comment.

Link to article: Airbnb Eyes Former Dolby Space

Calco Commercial, Inc.

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