Foodie frenzy helps push up San Francisco industrial values
Source: J.K. Dineen, San Francisco Business Times: Foodie Frenzy
The gentrification of San Francisco’s few remaining industrial areas is creating a windfall for owners of industrial flex business parks.
Last week Zurich Alternative Asset Management announced it had spent $25 million, about $180 a square foot, for the Potrero Business Center, a three-building, 135,000-square-foot complex. The seller was Morrison Street Capital LLC.
The property is on Cesar Chavez Street between Interstate 280 and Highway 101, adjacent to Mission Bay and in close proximity to the 22nd Street Caltrain station. Situated on 4.57 acres, the property is 94 percent leased to a wide spectrum of tenants.
“San Francisco represents one of the highest barriers-to-entry markets in the country, with industrial and flex space being particularly scarce,” said Steven Golubchik of Holliday Fenoglio Fowler, L.P., who represented the seller with John Simerlein.
While San Francisco’s industrial base has been slowly eroding for decades, the strong uptick in local food industry — everything from producers of boutique goods like coffee and chocolates to corporate caterers — is creating a strong demand for industrial space.
“They live in San Francisco and they want to be able to say they are a San Francisco entity,” said Golubchik. “The challenge is you can’t find food grade space in the city. Every space is 100 percent leased. When you have food-grade space the sky is the limit on rents.”
Groups bidding on the Potrero Business Center ranged from core funds to REITs to groups of high net worth individuals. Tenants in the complex include Graybar, Cupertino Electric, and group that supplies baked goods to companies like Twitter.
In addition, a family investment group incorporated as Mama Hermana LLC bought 2200 Jerrold Ave. for $19 million, or $193 a square foot. There aren’t enough industrial properties for sale in San Francisco to have meaningful comps, but the price is high compared to industrial property in general in the Bay Area. For example, A.G. Ferrari paid $104 a square foot for an industrial building in Alameda in November.
“As tech and other higher and better use conversions within SoMa push out the service oriented businesses… the 2200 Jerrold Ave. complex has always been a natural relocation opportunity based on its high ceilings, large loading doors and private on-site parking,” said Scott Mason of Calco Commercial Inc., who brokered the transaction.
The 100 percent leased property is a 98,000-square-foot, 25-unit industrial complex, which Mason says is rare in a marketplace dominated primarily by 5,000 to 10,000 square foot individually owned buildings.