Per the Costar Group, Property Sellers are in the “best postition in 15 years” to acheiving desired asking prices. Demand for investment/income-prodcuing real estate is outpacing supply, which is contributing to the strong selling prices coupled with quick closes. Due to remote workers relocating to less expensive suburbs, secondary and tertiary markets are seeing record level price growth as well.
The onset of the coronavirus pandemic has damaged leasing activity across all major property types in Northern California’s Bay Area, with the population largely staying at home and job losses reaching unprecedented levels around the country, economic activity has come to a near standstill.
Office properties are largely empty, the current economic downturn has hit the retail sector particularly hard, and some apartment renters are struggling to make their payments. There is serious uncertainty facing the future progress of commercial businesses and the properties they occupy as the country faces continued economic uncertainty.
In addition, companies are reassessing future space needs and real estate expansion plans. Many firms are looking at vastly expanded work-from-home models. Tech companies like Google, Facebook, Amazon and Microsoft have announced plans to allow employees to work from home through much of 2020, and Twitter CEO Jack Dorsey announced that many of his employees will be able to work from home permanently. While it remains to be seen just how prevalent adoption of work-from-home models could become, the trend does present a serious headwind for office demand.
But the relative winner through the current pandemic could be industrial properties. Consumers have had to accelerate their adoption of online shopping, as all but essential retailers have been closed. And those most at risk from the virus, or fearful of potential consequences, have moved to online shopping and delivery services for essential household goods and groceries. The expansion of e-commerce necessitates both additional warehouse space for holding goods, as well as logistics and last-mile distribution facilities to get orders out to consumers in a timely fashion.
Source: CoStar
Date: 5.15.20
By: Marco Cuguia
In the seven weeks since California’s shelter in place order went into effect on March 17, the Bay Area has averaged over 200,000 square feet weekly in new industrial leases. The figures are inclusive of seven Bay Area metropolitan areas, including San Francisco, San Jose, East Bay, Vallejo-Fairfield, Napa, Santa Rosa and San Rafael.
To put the average 200,000 square feet of weekly leasing into a better context, since the beginning of 2006, weekly leasing activity has averaged 370,000 square feet. This implies that the pandemic has certainly had a significant effect of industrial leasing, with average leasing activity pulling back over 40%. But with retail leasing down 70%, and office leasing pulled back 75% over the past seven weeks, the industrial sector looks like a point of strength.
Some of the largest leases signed since the beginning of March were by Amazon, which leased 250,000 square feet at the Victory Station project in Sonoma that was completed in late-2018, as well as 380,000 square feet at the under-construction Bridge Point Silicon Valley project in Milpitas. Other significant deals over the past several weeks included SuperMicro leasing 245,000 square feet at 48350 Fremont Blvd. in Fremont and U-Haul leasing over 100,000 square feet at 2391-2399 W. Winton Ave. in Hayward.
Link to Article: https://product.costar.com/home/news/shared/1135371921?utm_source=newsletter&utm_medium=email&utm_campaign=personalized&utm_content=p5
Source: CoStar News
By: Mark Heschmeyer
The Treasury Department and IRS issued final regulations on the Trump administration’s opportunity zones program that expand options for real estate investors and clarify issues including the handling of multiple buildings as single property, when certain investments can be made, and the exclusion of gains for tax purposes.
The 544-page regulations provide additional guidance on issues raised by the commercial real estate industry after considering more than 300 formal comment letters and additional taxpayer feedback.
The opportunity zones program offers federal tax breaks to investors in areas deemed to be undercapitalized and serving low-income populations. But the program has been slow to roll out, with the Treasury Department not selecting census tracts for inclusion in the program until four months after it began. The final guidance released Thursday came two years after the program became law and just days before the Dec. 31 deadline for investors to be able to receive the maximum tax benefit under current regulations.
The lack of final clarity has been cited as one reason why capital raising for qualified opportunity funds has not rolled in as expected. Treasury Secretary Steven Mnuchin said in 2018 the Treasury anticipated $100 billion in private capital. Funds formed to invest in opportunity zones report having raised nearly $4.5 billion, according to a new report in the past week from Novogradac & Co., an accounting, valuation and consulting service firm.
The new regulations include some notable rulings for the real estate industry.
The rules clarify that the 180-day investment period generally starts at the close of the shareholder’s tax year. This was an important clarification for real estate investment trust shareholders who typically receive quarterly dividends throughout the year but may not receive the designation that the dividend was a capital gain dividend until after the REIT’s taxable year has ended.
Another major clarification involved the sales of property by a “qualified opportunity zone business.” As previously written, an investor could only elect to exclude gains from the sale of a property sold by a “qualified opportunity fund” and not a business operating in an opportunity zone. The final regulations provide a qualified opportunity zone business held by such a qualified opportunity fund can exclude gains from the sale of a property if it was held for 10 years.
This is an important change for investment funds that intend to hold multiple properties, according to Craig Bernstein, principal of OPZ Bernstein, a Washington, D.C.-based qualified opportunity fund firm. If an investment group has a multi-asset fund, it now has a way to divest property one at a time.
OPZ Bernstein this month funded a $45 million ground-up mixed-use development in Charlottesville, Virginia, that’s expected to include 160 apartments, 20,000 square feet of preleased office space and 28 rental townhomes. The project is a joint venture with Christopher Cos., a Fairfax, Virginia- based developer.
Another major change Bernstein sees in the regulations is clarification on the aggregation of properties.
If an investor owns a site and it has two buildings, and one of them is an older building and the other a newer building, the investor does not have to double the basis of both buildings. All of the money can be invested in upgrades to the older building, Bernstein said.
Another example would be a site with multiple garden-style apartment buildings. If some of the properties have already been renovated, the owner would only have to upgrade the remainder.
Perhaps the biggest change for Bernstein is the reduction of an originally proposed five-year vacancy requirement. Previously, a property that had been vacant for five years was exempt from the requirement of doubling the value through new investment. A qualified fund could go in and lay down carpet, paint the walls and flip on the lights, and still qualify for capital gains tax incentives, Bernstein said.
That five-year period has now been reduced to three years or fewer years in some cases.
Other updates:
Provide a change to leasing provisions in the proposed regulations allowing state and local governments, as well as Indian tribal entities, to be exempt from the market-rate lease requirements.
Provide that both the land and structures in a so-called brownfield site redevelopment are considered to be original use property as long as investments are used to bring the site back to environmental standards. A brownfield site is a property previously used for industrial or commercial purposes with known or suspected pollution including soil contamination because of hazardous waste.
Link to article: Opportunity Zones
Source: CoStar
By: Jesse Gundersheim
While some investors are exploring secondary and even tertiary markets throughout the country in search for higher yields, coastal gateway cities continue to take home the lion’s share of capital investment.
As typical, New York outpaces all other U.S. markets by far. Next up is Boston, then Los Angeles, Washington D.C. and Seattle. And while San Francisco and San Jose in California rank sixth and seventh, respectively, and the state’s East Bay rounds out the nation’s top 15, if all the Bay Area markets were combined they would outpace all but New York.
It’s further evidence of enduring demand generated by buyers attracted to the Bay Area’s expanding tech industry, along with several owner-user acquisitions, which has maintained downward pressure on capitalization rates, or the expected rate of return on investment, at premium asset pricing.
Combined, the three major Bay Area markets have seen $12.5 billion of office assets sell over the past 12 months, behind only New York’s $19.6 billion.
Sales volume in San Francisco alone, at $5.2 billion year to date, has already eclipsed the previous two year’s annual totals.
Boston, Los Angeles and Washington, D.C., have each seen about $8 billion in office assets trade over the past year.
Source: CoStar / By: Molly Armbrister
Link to article: http://product.costar.com/home/news/shared/842689853
Google’s $1 billion acquisition of the Britannia Shoreline Technology Park in its hometown of Mountain View, California, gives the search engine giant the record for the two most expensive U.S. office deals this year, coming on the heels of its $2.4 billion purchase of the Chelsea Market retail and office building in New York.
The company, part of Alphabet Inc., occupies about 92 percent of the Britannia Shoreline, a 795,000-square-foot, 11-building office campus at 2011-2091 Stierlin Court, a few blocks from Google’s headquarters known as the Googleplex. The campus, in the heart of Silicon Valley, is a past home to business networking website LinkedIn and currently houses offices of Alexza Pharmaceuticals.
Google purchased the property for about $1,275 a square foot from Irvine, California-based real estate investment trust HCP Inc., which expected to make a profit of $700 million upon closing, according to a filing with the Securities and Exchange Commission.
Google’s spending on just two deals this year of about $3.4 billion, which its search engine shows is roughly the gross domestic product of the East African nation of Burundi, reflects the dominance of technology companies in U.S. real estate over the past decade. The tech industry accounts for about one-fifth of all office leasing completed across the country this year, according to brokerage CBRE Group Inc.
HCP, which is focused more on life science and medical offices and less on tech and traditional offices, said it plans to use the proceeds to repay debt and fund acquisition and development activity.
“At the time that we purchased it, there were more life-science tenants within the campus,” HCP Chief Financial Officer Peter Scott told investors on a conference call last month. “Over time, Google has taken over more and more of the space.”
He added that “it became more of a non-core suburban office asset for us that was a great piece of real estate to own, but to get the pricing that we got and to be able to recycle that capital into more of the core markets that we’re in, made sense to us.”
The company acquired the property about 11 years ago as part of its $3 billion purchase of European property investor Slough Estates USA. Slough had purchased the Shoreline property for about $200 million in 2005 from Equity Office, according to news reports.
Google does not have plans to move any employees or redevelop the property, according to someone familiar with the property but unauthorized to speak publicly about it.
Chelsea Market Deal
The sale is the second-largest office deal in the country by dollar volume in 2018, behind Google’s purchase earlier this year of New York City’s Chelsea Market for $2.4 billion as it plots its expansion in that city.
Chelsea Market, a former Nabisco factory, is home to a food hall and retail center on the ground floor with offices above. The 1.2 million-square-foot property sits across the street from the company’s Manhattan beachhead at 111 Eighth Ave., a 2.9 million-square-foot office building that takes up a full city block.
Google has not revealed its plans for the property, which is occupied by companies including Major League Baseball, but the site is entitled for an additional 300,000 square feet, or about eight stories. The company reportedly has plans for a major expansion in New York City by adding about 12,000 workers for a total of roughly 20,000, according to news reports.
Google and other technology giants have been gobbling up real estate in their backyards in Silicon Valley and across the country. Google has made two major leasing moves in the past few months, signing a lease for 300,000 square feet in San Francisco’s Landmark at One Market building this month and moving into 319,000 square feet in a renovated historic airplane hangar once owned by Howard Hughes in Los Angeles in October.
Google has also been amassing properties in downtown San Jose, California, for the development of a massive mixed-use project near the city’s Diridon Station, a major transit hub.
Meanwhile, the world’s biggest online retailer, Amazon, recently completed its year-long search for a major real estate expansion with plans to open major office hubs in the Queens borough of New York and in Arlington, Virginia.
Social media website provider Facebook has been busy expanding its headquarters in Menlo Park, California, which will total 1.4 million square feet upon the completion of the project’s third phase, and cloud-based software maker Salesforce recently said it has signed a lease for the entire office portion of a proposed tower at 542 Howard St. in downtown San Francisco.
Streaming entertainment service Netflix has expanded by more than 700,000 square feet in Los Angeles in the past few months. And Apple is on the hunt for another major campus somewhere in the country.
“With unemployment at 4 percent or lower in each of these markets, tech companies of all sizes are in a war for talent and must do their utmost to hold on to and recruit employees — and that means the best salaries, the best incentives, the best space and the best location,” said Robert Sammons, senior director of Northern California research for brokerage Cushman & Wakefield, in a statement. “That last point has generally meant an urban or even suburban location that is mixed-use, walkable, bikeable and near mass transit.”
Calco Commercial alone has leased and sold 334,290+/- square feet of industrial, flex, office and land in Q3 2018 comprising 19 transactions. Following are the notable Q3 2018 transactions: 155 De Haro Street, San Francisco (24,480 +/- sf – industrial/flex lease), 2150 Geneva Avenue, Daly City (162,000+/- sf – paved lot/lease), 800 Airport Boulevard, Burlingame (42,839+/- sf commercial building/sale), and 800 Cesar Chavez, San Francisco (54,027+/- sf commercial building/sale). Calco Commercial is a leading industrial & commercial real estate firm with decades of experience in Landlord /Owner representation, and repositioning assets into net leased properties with in-place income streams. Let us help make the most of your real estate properties and investments.
Click here for the full Q2 2018 Report: Mid-Year Market Report 2018
Source: CoStar
By: Jacquelyn Ryan
Link: Oyster Point Tech
Los Angeles’ Kilroy Realty Corp. has closed on its $308 million acquisition of San Francisco’s life science development site Oyster Point from a development group led by China’s Greenland USA, the company announced today.
The 40-acre industrial site, entitled for 2.5 million square feet of development, spans the waterfront in South San Francisco.
The sales price provides an 80 percent return for Greenland’s group, which has done some demolition work since buying it fully entitled for $171 million two years ago from Shorenstein Properties and SKS Partners.
In recent years, the South San Francisco region’s commercial biotech market has expanded to more than 12 million square feet of office and laboratory space across more than 500 acres, accommodating a range of entrepreneurial start-ups and established companies such as Amgen and Genentech.
The area’s popularity with the life science community is so strong that the market’s Class A office and lab space has a vacancy below 3 percent, according to Kilroy.
Kilroy plans to build 11 buildings that will include a laboratory and more office space in phases across the newly-acquired property.
The site adjoins the real estate investment trust’s three-building Oyster Point Tech Center, a 146,000-squre-foot project that is home to DNA testing company 23andMe Inc. The firm acquired the site earlier this year for about $111 million, according to CoStar data.
On a combined basis, the overall project will give Kilroy a significant footprint in South San Francisco’s large and rapidly-growing life science community, home to more than 200 biotech companies.
“Kilroy Oyster Point is a significant opportunity to expand our West Coast life science platform in a prudent and disciplined manner,” said John Kilroy, the REIT’s chairman and chief executive, in a statement. “It offers all the advantages we look for in new development – a strong location in a world-class market serving a dynamic industry with all the services and amenities required to attract today’s young, urban innovative workforce.”
The property adds to the company’s 13.9 million-square-foot portfolio in Los Angeles, Orange County, San Diego, the San Francisco Bay Area and greater Seattle.
San Francisco CRE News:
Prop W to Raise Transfer Tax on Real Estate Sales
This November, in addition to the affordable housing measure (Prop U), San Francisco voters will also have Prop W on their ballots–otherwise known as the “Real Estate Transfer Tax on Properties Over $5 Million.” Authored by Supervisor Kim, the measure proposes increasing the rate of transfer tax on sales from a current rate of 2% to 2.25% on properties valued at $5-$10 Million; from 2.5% to 2.75% on properties valued at $10+ Million; and, from 2.5% to 3% on properties with a value in excess of $25 Million.
According to the Examiner, the transfer tax will not change on properties valued under $5 Million, which are currently taxed on a progressive tax schedule, with the lowest tax rate of “.68 percent for sales that are more than $250K and less than $1 Million.”
The majority of the Board of Supervisors support the Measure, but Prop W has its opponents as well, namely the San Francisco Apartment Association who fears the tax will have a negative impact on renters–in a city that already has some of the highest rents in the nation.
Related Article: San Francisco Business Times – Prop W
420 Taylor Street Sells for $45 Million
According to BISNOW, the 78,000+/- square foot office building located at 420 Taylor Street in Union Square has sold for $45 Million, or $576 a square foot.
420 Taylor Street Lobby
420 Taylor “previously was the headquarters for NBC radio affiliate KNBR … and was the first air-conditioned building in the city. It had a secret entrance from the Clift hotel so the celebrities could sneak into the studio undetected. The secret entrance still exists, but is no being used,” the article reports.
Slated Potrero Hill Development would transform industrial warehouse property into dorms for Students of CCA
Socketsite has reported that the corner of Arkansas & 17th Streets in San Francisco’s Potrero Hill neighborhood is planned for a full transformation from a single-story industrial building to a “building (that would) rise up to 48-feet in height” with ground floor retail, bike storage, and a multi-purpose room for students.
75 Arkansas Street
As industrial spaces continues to disappear in San Francisco as zoning designations change along with redevelopment projects, warehouse and production facilities may become even higher in demand–and/or manufacturers make be forced east and south seeking industrial product.
San Francisco Office Leasing Plummets in Q3
Roland Li of The San Francisco Business Times has reported that office leasing activity in San Francisco has fallen to “the lowest third-quarter activity since 2001.”
While this dramatic decrease may signal a major real estate cool down on the horizon, some industry experts believe the drop in activity is due to the “overheated” market in the past few years. Amber Schiada, director of Northern California research at JLL, is quoted as stating that she “expects rents to stay flat for the next year, but no major downturn (and that) people shouldn’t worry,” the article reported.
Because office rents have soared over the past consecutive 12 quarters, driven by start-up and tech giants leasing mammoth sized spaces, many other smaller office tenants have been driven from the city. Leveling rents brought upon by the slowdown in office leasing activity could “bring some relief for Tenants”, suggests Li.
Deutsche AM Acquires 35 Property Portfolio
Randyl Drummer of CoStar has reported that Deutsche AM has acquired 3.3 million square feet of industrial properties spanning from San Francisco to Chicago:
Deutsche Asset Management has purchased a 19-property industrial portfolio from International Airport Centers (IAC), with properties totaling 3.3 million square feet in seven U.S distribution markets.
The portfolio consisting of 35 buildings in the Los Angeles, San Francisco, Seattle, Dallas, Chicago, Portland and San Diego markets. The portfolio is 99% leased to 76 tenants, with an average tenant size of about 40,000 square feet.
Deutsche AM’s real estate investment business acquired the portfolio on behalf of an institutional investor through direct negotiations with Perlmutter Investment Co., the seller’s investment advisor. Deutsche did not disclose the sale price or other terms of the sale which closed Sept. 22.
“The portfolio’s geographic diversity across large distribution hubs and stable tenant base makes it an attractive investment,” said Todd Henderson, head of alternatives – real estate, Americas.
Deutsche Asset Management’s real estate investment business, part of the bank’s alternatives platform, had $53.6 billion in assets under management as of June 30.
Frankfort, Germany based Deutsche Bank AG, under pressure to shore up its weak capital position, has been advised by some analysts to sell the lucrative asset management business, which is said to be worth up to $9 billion.
San Francisco Commercial Real Estate News:
Investors continue to pay record-setting prices to acquire San Francisco commercial buildings. The San Francisco Business Times reported earlier this week that One Front Street has sold for $521 million, equating to $800 per square foot.
Meanwhile, according to The Registry, 55 Hawthorne is slated to hit the San Francisco commercial market. The 143,000+/- square foot building is expected to earn $120-$125 million.
And in industrial news, the San Francisco investing continues–The Potrero Power Plant site is reportedly under contract between Associate Capital & NRG Engery. The San Francisco Business Times has reported that Associate Capital sees the industrial, but waterfront, property as “an unprecedented opportunity for infill development.”
San Francisco Tech CRE News:
As the Mission Bay Area continues to attract new tenants, start-ups and tech elites like UBER, a pillar in the tech world is also considering new digs south of the Bay Bridge: ADOBE. According to the San Francisco Business Times, Adobe Systems is eyeing 200,000+/- square feet in the 100 Hooper development–although no paper has been inked to date.
National CRE News:
And across the Atlantic, an investment fund has been created to target US multifamily properties. CoStar News has reported that Hansalnvest, based in Germany, has created a $500 million fund to invest in US Apartments. On the East Coast, Acadia Realty (based in New York) has created a $520 million fund targeting value-add retail investments, while San Francisco based Farallon Capital Management has raised $400 million to invest in commercial properties across the nation.