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Category: commercial real estate news (106)

Apr

San Francisco Commercial Real Estate News: Expanding Manufacturing Space

How SFMade is expanding San Francisco’s manufacturing space
Source: San Francisco Business Times
Reporter: Annie Sciacca
Date Posted: April 21, 2015

It’s expensive to build office space in San Francisco, but it can be even more challenging to build industrial space, and make it pencil, according to SFMade executive director Kate Sofis.

That’s why SFMade,which works to expand manufacturing in San Francisco, launched a sister nonprofit, PlaceMade a nonprofit real estate development initiative akin to an affordable housing developer.

Similar to affordable manufacturing space developers in other cities, such as Greenpoint Manufacturing out of Brooklyn, PlaceMade is focused on partnering with the city and with private sector developers to create industrial space. It also provides consulting support to developers or architects who need input on how best to design an industrial product suited for manufacturing.

“In this city we haven’t focused on manufacturing in the past as much as other cities have,” Sofis said. While zoning is effective, and there isn’t a ton of encroachment on industrial space from other uses, the urgent need at the moment is simply for more space.

The demand for space has bakers and chocolatiers competing for space with businesses like repair shops, clothing makers and 3D printer manufacturers. Some are bootstrapping their money while others get investment, and the differences in products mean wildly different profit margins. That means bidding wars can knock out those with less cash flow.

“There is a shortage right now; rents are up 30 to 40 percent just in the past two years or so,” David Lai, a principal with Yosemite Investment LLC, told the Business Times in September. That South San Francisco-based company develops and runs industrial space.

The first project to come from PlaceMade is the 56,000-square-foot multi-tenant industrial building that could be the first new manufacturing building in decades. Approved in January, more details on the project are emerging.

SFMade’s “manufacturing foundry” is part of a three-building site at 100 Hooper St. in the Potrero Hill neighborhood. Currently a self-storage facility, SFMade’s building, which is at 150 Hooper, would provide space for food producers, clothing makers and other startup manufacturers in the city.

Designed by Pfau Long Architecture, the building is the first project to take advantage of legislation sponsored by Supervisor Malia Cohen and Mayor Ed Lee that offers developers increased office space in exchange for dedicating a large portion of their buildings to manufacturing space.

The other buildings at 100 Hooper will connect via skybridges, making it a “campus-style” project, said Daniel Murphy of Urban Green Devco, which is developing the site.

In addition to the SFMade building, 100 Hooper will have another 90,000 square-feet of industrial space on the ground floor of the other two buildings, and the remainder — about 290,000 square-feet — will go to offices.

SFMade will own the manufacturing building outright, and it is pouring $20 million into construction costs alone, Sofis said, adding that the number would be much higher if the organization was not partnering with a developer as it is.

Having its own manufacturing space will allow SFMade to further its effort to find space for startup manufacturers and pursue public subsidies, such as new market tax credit, that will allow it to ultimately lower the rent for the manufacturing spaces it rents out, Sofis said.

SFMade will rent out the spaces at a range of about $15 to $22 per square-foot — or less than $2 per month per square-foot. Other industrial spaces with the site’s proximity to downtown San Francisco are trending well above $24 — in some cases, $36 — per month, Sofis said.

The space will also provide around 200 manufacturing jobs, mostly for people in entry-level positions and from lower-income communities. And SFMade will have personnel in the building to provide consulting and resources for manufacturers.

There’s been a flight of light industrial users to other cities with lower costs, Murphy said.

“We haven’t had space to accommodate the growing industrial sector,” he said. “This is a response to those trends.”

While SFMade will continue to help its network of manufacturers find space, PlaceMade’s focus will be on creating permanently affordable industrial space.

Some areas of the city are more ripe for industrial development than others. Areas like the Dogpatch and the northeast portion of the Mission have vibrant manufacturing scene, including Rickshaw Bagworks, Heath Ceramics, and Timbuk2.

The lower Potrero area, where the Hooper buildings are, holds potential, too, Sofis said, as does the Bayview neighborhood. The key is adding density and building vertically on sites that make sense for manufacturing. The Bayview, for example, has spots that could be renovated for better uses or added to. There are a few self-storage facilities that could provide cross-subsidization needed for such projects, Sofis said. In other neighborhoods, office space makes more sense as a partner in developing this kind of space.

Construction on 100 Hooper will likely begin in the second half of this year, Murphy said, and will take about a year to build.

Link to Article: SFMADE

Apr

Calco Commercial Real Estate: Top Leasing Firm in San Francisco

Calco Commercial Real Estate has been named a “Top Leasing Firm” by CoStar! Additionally, Scott Mason has also won a “Power Broker” Award as a top Industrial Broker in San Francisco for 2014. Click here for the full story:

Costar Power Broker Winners

Over the past year, Calco Commercial has completed over 55 industrial, flex and office lease and sale transactions totaling 340,000+/- square feet. Based on the number of successfully completed industrial real estate transactions, Calco Commercial is the number one industrial leasing/sales brokerage firm located in San Francisco. Calco Commercial Real Estate has completed more industrial real estate deals than any other firm in San Francisco over the last year, and continually out-performs the competition. Calco is an independently run and locally founded company specializing in Landlord and Tenant representation. If you have any commercial real estate requirements or simply have questions about the San Francisco or Peninsula real estate markets, call 415.970.0000.

Apr

San Francisco Commercial Real Estate News: Warehouses become highrises

Warehouses become highrises: Map of S.F.’s Central SoMa real estate boom
Source: San Francisco Business Times
Reporter: Cory Weinberg
Posted: April 6, 2015

When you look at the map of some of the most ambitious projects that developers are proposing in South of Market, they’re concentrated along the new Central Subway and near the current Caltrain station at 4th and Townsend Streets.

On Friday, the Business Times reported that a family trust called Solbrach Property Group filed plans to build a 350-foot residential highrise with 426 units at 4th and Brannan Streets. Around that block, huge office and residential projects by CIM Group and Tishman Speyer will transform the industrial area that is being rezoned.

The Board of Supervisors is expected to green light the rezoning by early next year. That will unlock huge value for landowners to build taller office or residential buildings, which would replace the existing — and less lucrative — production, distribution and repair buildings. That value has created pressure for the city to extract enough money from developers for affordable housing, which I detailed in a February cover story.

Even though the Solbrach residential development is in the very early stages, it could turn into a showdown over heights. The proposed tower will sit on a plot that’s only 16,000 square feet, so it’s not one of the largest in the neighborhood. The Planning Department only wants the building to be 250 feet high — at most — and neighborhood activist John Elberling echoes that sentiment.

“Jamming a luxury highrise into there really is too much. We want to focus development of that maximum scale — residential or commercial — on the large sites in SoMa that are at least one acre in size,” said Elberling, who runs the affordable housing advocacy group TODCO.

The Planning Department recently published guidelines for large development sites “that offer tremendous potential for transformative new development.” In its guidelines for how high developers can build, it reiterates that “the predominant character of SoMa as a mid-rise district should be retained,” instead of it becoming a slew of highrises.

Link to article: Warehouses become highrises

Mar

National Commercial Real Estate News: Too Much, Too Fast?

TOO MUCH, TOO FAST? Investment Markets Eyeing Free-Flowing Capital With Some Concern
Some Worry Rising Capital Flows into CRE Threatening To Overheat Some Markets
Source: CoStar
By Mark Heschmeyer
March 25, 2015

As the San Diego City Employees’ Retirement System’s (SDCERS) board this past month debated putting an additional $30 million into JP Morgan’s Strategic Property Fund, a 100% core fund in which it already had invested $60 million, it had a major concern.

JP Morgan’s Strategic Property Fund bought $3.45 billion in core properties last year and has a queue of investors lined up to pump in another $1.7 billion. Compared with its peers, the JPMorgan fund has been one of the most active in buying core commercial properties, and SDCERS officials raised concerns that the manager had “pushed out capital too quickly.”

In the end SDCERS approved the additional commitment, concluding that the fund had deployed its capital in a “prudent manner,” and with the understanding that its new commitment most likely would take four to five quarters to invest fully.

The sentiment in the SDCERS boardroom is shared among other major CRE investors who express increasing concern over the impact of the large amount of investment capital flowing into commercial real estate is having on prices and underwriting.

For now, the concerns appear to be limited to the market for large trophy assets in a handful of coastal core markets.

“There’s no doubt that capital flows into commercial real estate are rising and threaten to overheat some markets, but the real concerns are limited to relatively few trophy assets in select gateway markets,” said Andrew J. Nelson, chief economist | USA for Colliers International in San Francisco. “There is little evidence of excessive pricing on a broad scale.”

Nelson said there has been a lot of attention paid to a few transactions in which some foreign buyers have supposedly overpaid for trophy assets because they were purportedly more concerned with parking dollars in safe U.S. assets rather than achieving a market rate of return.

“Only time will tell whether these purchases ultimately earn a competitive return, but a review of the market data does not suggest that foreign buyers are driving prices to unsustainable levels,” Nelson said. “Rather, the high prices they pay on average reflects their preference for top markets and more expensive asset types.”

David Bahr, senior commercial appraiser with Standard Valuation Services in Mineola, New York, said that geopolitical instability has been a friend to U.S. sellers, particularly in the New York City area, where Russian, European and Chinese investors have been very active.

“All this (overseas) money only complements the institutional and high net worth private investors’ capital hitting the markets,” Bahr said. “Supply is great but demand is excessive.”

How Much Is Too Much?

The answer to the question of what constitutes too much money in the marketplace often depends on the role that person plays in the market. Real estate brokers and sellers generally believe the more money, the better. For lenders, a flood of capital can be a double-edged sword as more money means more competition to finance deals and the likelihood they have to adjust their underwriting criteria to compete. For large buyers, it drives up the price of core properties; and for smaller investors, it can create unrealistic price expectations from sellers.

“There is a ton of money out there chasing commercial real estate, but in my opinion, you can never have too much capital at least from a seller’s perspective,” said Paul Carr, senior managing director, spearheading the capital markets team at DTZ in Tampa. “Most buyers probably don’t enjoy having the additional competition, but we have seen what it is like to not have enough capital chasing deals, especially in challenging markets.”

Overaggressive investors are just creating more competition in the market place, which again, is not a bad thing if you are a seller, he added.

Mark Alexander product council chair for medical office properties for SVN in Chicago, also said the concept of ‘too much’ is relative to the times.

“I don’t think you can adequately measure ‘too much’ or ‘too little’ capital. The free market is always a pendulum swing, and now it is swinging towards growth,” Alexander said. “The extra capital out there is startling mostly because we are not used to it (after) coming off such a lousy downturn. It may be too much but it is unstoppable in the natural swing of the market. It makes life better for us brokers as more deals will get done.”

With so much capital in the marketplace competing for borrowers, loan underwriting guidelines are easing almost on a daily basis, allowing lenders to put out more and more dollars to prospective borrowers.

Christian J. Johannsen, senior executive managing director of NAI Miami, said he believes buyers are “over investing,” paying huge prices for assets that don’t necessarily warrant the prices.

“This is facilitated by the easily available and very cheap money that they have already raised, have commitments for, or can borrow,” said Johannsen.

Albert M. Lindeman and Jeff Albee, co-chairs of SVN’s national office product council, said they see a definite ‘use it or lose it’ mentality among investors in the market.

“Most private equity funds and syndicators will acquire rather than return their money to investors. This can have an overall negative impact to the market by overheating it,” said Lindeman and Albee.

Smaller Investors Feeling the Heat Most

Bradley Djukich, chief operating officer of Gotham Corporate Group in Los Angeles, which focuses on sub $20 million to $50 million property acquisitions, said the influx of foreign capital has led to hyperinflation of asking prices on many assets.

“In my niche, this has been development sites and hotel assets,” said Djukich. “How can a domestic buyer with fiduciary obligations to his capital investors compete with a Chinese syndicate looking to get money out of China and into the U.S., regardless of returns?”

Hillock Land Co. in Newport Beach, California, pursues infill-urban development projects. It too finds challenges posed by the current glut of money in the market backing new development as sellers re-evaluate the market potential for existing assets based on their development potential.

“High (price) expectations among sellers is present in all assets of all sizes,” said Danny Kradjian, managing partner of Hillock Land. “Often, these assets are not attractive to institutional players, as they do not have the densities or size required to allocate existing capital in a fund, or meet targeted returns in the future. Thus, these assets are normally pursued by small-scale operators.”

But the sellers don’t necessarily understand that distinction.

“With sellers placing a premium on their assets due to the overall level of activity in the market, local operators are being priced out,” Kradjian said.

As a result, Kradjian said he sees two typical outcomes. Sellers with high expectations hold on too long to their existing assets and eventually lose prospective buyers. Or, out-of-market buyers pay a premium for assets on which they are unlikely to achieve necessary return.

Perhaps Mark S. Davis, senior appraiser of Meridian Appraisal Group in Winter Springs, FL, summed up the concerns among investors when he said, “When investors have access to cheap credit money, they transition from investors to speculators. The incentive in the current economic environment is to borrow and spend, not to save and invest. What’s easy to see is that everybody around you is paddling like hell to catch this big wave of credit money that must go somewhere.”

Link to Article: Too Much Too Fast

Mar

San Francisco Commercial Real Estate News: Legal Challenges to Waterfront Ballot Measure

Source: San Francisco Business Times
Reporter: Jahna Berry
Date: March 26, 2015

A lawsuit challenging a popular San Francisco ballot measure that requires voters to OK height increases for waterfront projects may proceed, a judge ruled Wednesday.
Poll: Can the state sink S.F.’s waterfront law?

Proposition B, which was passed overwhelmingly, requires voter approval for any new building on Port of San Francisco property that exceeds existing height limits, which generally range from 40 feet to 84 feet. The land encompasses a 7 ½ mile stretch of waterfront that is some of the city’s most desirable and expensive real estate.

In a lawsuit filed last July, the California State Lands Commission, which regulates much of the state’s waterfront land, argued that San Francisco voters shouldn’t get a say in development on port property, like Pier 70 or the Giants’ Mission Rock project. The commission said that the port is actually under the state’s control. Also, the port needs developers to build on its properties to close a $1.6 billion budget shortfall, the state argued, and Prop. B could halt that development.
City Attorney Dennis Herrera asked Superior Court Judge Suzanne Bolanos to throw out the state’s lawsuit. He has argued that Prop. B doesn’t hurt development. Developer Forest City has already successfully won voter approval for a waterfront project at Pier 70, he argued.

On Wednesday, Judge Bolanos denied some of the state’s motions, but ruled it could present evidence of the law’s economic impact. The litigants could start arguing that part of the case in May.

Herrara lauded Bolanos’ ruling, which he said underscores that the city’s law doesn’t conflict with the Burton Act. The state has argued the 1969 act gives it controls of the port land.

Link to Article: SF Waterfrong

Mar

National Commercial Real Estate News: Suburban Office Attracting Investor Interest

Source: CoStar
Author: Randyl Drummer
Date: March 18, 2015

LONG OVERLOOKED, SUBURBAN OFFICE ATTRACTING INCREASED INVESTOR INTEREST
Buyers Swooping in to Pick Off Both Well-Leased and Increasingly Vacancy-Challenged Office Properties Outside CBDs

After taking its lumps well into the ongoing office market recovery, suburban office property is finally garnering increased investor interest. As recently as January 2013, after rounds of corporate downsizing during and after the recession sent suburban office vacancy rates as high as 50% in some markets, analysts were writing the latest obituary of suburban office parks, shopping centers and other far-flung properties as places where no one among the coming wave of millennials would want to work, shop or live.

But now, suburban office is where the action is, thanks to yield-starved real estate investors priced out of expensive CBD assets and continued job growth, especially for office-using industries.

In recent quarters, investors have responded to a spate of opportunistic and value-add plays, many involving vacancy risk that often goes hand in hand with suburban office investments. Buyers have been lured by the wide pricing spreads between well-leased properties north of 90% occupancy and challenged buildings between 50% and 75% occupancy, according to CoStar Portfolio Strategy. While that spread has compressed from 144% in 2011 to 97% in 2014, it is still double the 2006 level of 48%.

“By leasing up a property, investors can still achieve value-add, boosted returns. The icing on the cake for value-add investors is that 75% of metros will likely achieve occupancy gains over the next three years, which makes it easier to lease up vacant space,” said CoStar real estate economist Sam Tenenbaumin in a recent client note.

Increasingly overseas investors, usually focused on the safest core properties, are bidding on suburban office properties, according to Mary Sullivan Kelly, senior vice president and chief research officer for Colliers International.

“With the infusion of foreign capital seeking predominantly trophy CBD assets, other institutional equity will be forced to look towards B product and other value-add plays, driving up pricing in that sector,” Kelly said.

What has many investors swinging for the suburban ooffice fences is the recent homerun pulled off by Rubenstein Partners and Grubb Properties. In what The Wall Street Journal called “a casebook study of how to make money on suburban office property,” the pair of investors paid $26 million for an excess 67-acre office park in North Carolina’s Research Triangle Park from telecom company Ericsson. The Rubenstein-Grubb venture planned to upgrade the pair of vacant office buildings totaling 467,000 square feet and put the sapce up for lease, hoping to emulate the success they had in repositioning a former GlaxoSmithKline property nearby.

As it turns out, computer-maker Lenovo Group Ltd. was looking for a home in the Research Triangle area for the server business it had purchased from IBM and decided to lease the entire project from Rubenstein-Grubb in March 2014. With the Lenovo lease in hand, the investors hired Cushman & Wakfield to shop the property to prospective buyers. In February 2015, a joint venture between UK-based 90 North Real Estate Partners and Dubai-based Arzan Wealth bought the suburban campus for $127 million, just 15 months after Rubenstein and Grubb’s acquisition of the then-vacant property, and less than a year after Lenovo signed a long-term lease for the entire campus.

That kind of success attracts a lot of interest and many property owners who managed to hold onto their suburban office assets through the recession are eager to test the market. Case in point is New York City fund DRA Advisors and its partner Brandywine Realty of Radnor, PA. According to industry newsletter Real Estate Alert, the pair have put a 1.6 million-square-foot portfolio of 29 suburban office properties in Pennsylvania back on the market seeking a reported $200 million, or $125 per square foot. Market observers are eager to see if the timing proves better this time after pulling the portfolio off the market after it was first offered last summer.

Meanwhile other investors are moving in to take advantage of the improving prospects for suburban office market, attracted by declining vacancy rates amid stepped up leasing volume and historically low levels of new construction.

The most noteworthy being Duke Realty Corp.’s deal to sell a major portion of its suburban U.S. office portfolio for $1.12 billion to a joint venture of Starwood Capital Group, Vanderbilt Partners and Trinity Capital Advisors. The deal involves 62 office buildings with 6.9 million square feet of combined space and 57 acres of undeveloped land and includes all of Duke’s wholly owned suburban office properties in Nashville, Raleigh, South Florida and St. Louis.

Just this week, a partnership of New York-based Angelo, Gordon & Co. and Atlantic Realty Cos. acquired four suburban office buildings totaling 499,696 square feet in Reston, VA for approximately $82 million. The portfolio, located near the Dulles Access Road and the new Silver Line Metro station, is only half-leased, which investors increasingly view as hlf-full rather than half-empty.

Chicago: Ground Zero for Suburban Office

There may be no better place to gauge the current condition of the U.S. suburban office market than communities on the outskirts of Chicago such as Libertyville or Hoffman Estates, once the home of such corporate mainstays as Sears Holdings Corp., Motorola and AT&T.

After Motorola Mobility was purchased by Google in 2012 and resold to Lenovo last year, the company relocated 3,000 employees from its Libertyville, IL office campus between 2012 and 2014, leaving an empty shell at the 84-acre property built in 1994 that’s typical of the heyday of 1970s through ’90s era suburban corporate office properties.

Philadelphia-based Binswanger marketed the property, one of the largest suburban office campuses in the Chicago market, starting in January 2013. The Motorola listing in the Lake County office submarket — which suffered from a vacancy rate of more than 30% at mid-year 2014, highest among all suburban Chicago submarkets — lingered on the market for 18 months, similar to the vacancy drag at numerous office parks across the country from Northern New Jersey to the outer suburban rings of Los Angeles, Orange County and San Diego in Southern California.

Last year, Rockville, MD-based BECO Management Inc. scooped up the five-building, 1.1 million-square-foot former Motorola Mobility campus for $9.5 million, a mere $8.50 per square foot. BECO has embarked on a major renovation and the property will be ready for occupancy later this year.

More recently, a partnership of Itasca, IL-based Hamilton Partners and Accesso Partners jointly acquired The Esplanade at Locust Point, consisting of four Class A office and R&D buildings totaling 1.05 million square feet in Downers Grove within Chicago’s East-West corridor submarket. The buildings are 89% occupied, with tenants including Coca Cola Co., Prudential Insurance, Hewlett-Packard, Caterpillar Logistics, Siemens, American General Life, General Services Administration and Hillshire Brands/Tyson Foods.

“I can say with great confidence that this is the premier portfolio of suburban office buildings in the entire Chicago marketplace,” states Ariel Bentata, managing director investments and co-founder of Hallandale Beach, FL-based Accesso Partners.

Investors hope the risks pay-off as the increased transaction velocity is still a work in progress. Despite the strong finish, the huge corporate departures earlier in the year left the overall suburban Chicago vacancy rate at 21.1%, a bit higher than the 21% posted at year-end 2013.

Article Link: Suburban Office

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Mar

Commercial Real Estate News: Central SOMA’s Coming Boom

Source: San Francisco Business Times:
Reporter: Cory Weinberg
Posted: February 27, 2015
Link to Article: Central SOMA’s Coming Boom

John Elberling has been in the middle of preservation and development fights South of Market for more than 40 years. Now he’s thrown his considerable influence behind the Central SoMa rezoning process — an effort to transform 250 acres of remaining industrial heartland into San Francisco’s next development frontier. It’s seen as an area where billion-dollar technology companies, affordable housing and warehouses can work and live together.

“We can’t take the neighborhood back,” said Elberling, head of the nonprofit housing group Tenants and Owners Development Corp. “We have to create the next one.”

What form that creation could take will be clearer – and probably more contentious – by later this year, when the Central SoMa rezoning process started in 2011 should be mostly complete. With San Francisco squeezed tight, Central SoMa will be designated as one of the only places left to build new, tall office buildings.

Some of the country’s most deep-pocketed real estate investors aren’t waiting for the plan to be completed. Developers such as Tishman Speyer, Boston Properties, Kilroy Realty Corp., SKS Investments and the CIM Group have already locked up sites that together would hold millions of square feet of new office space in anticipation.

If Central SoMa rezoning represents a huge opportunity for developers, it’s also one for the city. Officials, and activists like Elberling, want to leverage the impending development bonanza to confront the affordability crisis, tying development to thousands of units of affordable housing and preserving some of the neighborhood’s industrial heritage.

In November, the Planning Department announced that it wants Central SoMa developers to provide or pay for a much higher proportion of affordable housing units – 33 percent – than they would have to in other parts of the city. The department may also require developers to set aside space for nonprofits and production, distribution and repair (PDR) businesses that once ruled the area.

In all, the city stands to gain about $600 million from the new development in Central SoMa, according to a 2013 Planning Department draft plan.
The big dollars mean big stakes. This process has also rewritten the script for development battles in San Francisco, which typically pit developers with aggressive plans against resistant neighborhood activists, with city planners trying to chart a course between them. Not this time.
“For the first time in my experience as a planner, there are members of the community pushing for more development,” said Planning Department veteran Steve Wertheim, who is steering the Central SoMa plan. “We would make a big mistake if we didn’t use this economic engine for civic benefits. …The profit is there to be made, and I’m trying to turn that into public value.”

How much the city and neighbors can demand before developers balk remains to be seen. Developers think the city is already asking for too much, which will backfire when an inevitable economic downswing hits.

“There are lot of problems when you say you want to have everything,” said Amy Neches, a partner at TMG Partners, which is proposing a 200,000-square-foot office building at 5th and Brannan streets. “There really is a limit. You need a plan to not only work when (the economy) is perfect.”

In demand: Why so many developers want a piece

Affordable housing advocates — and potentially the city — are asking so much of developers because of how hot the area will soon become. The zoning changes won’t drastically change the skyline because the potential 400-foot height limit means buildings will be significantly shorter than their peers in the Financial District or Transbay redevelopment district. Instead, the large parcels are prime targets for developers to build the kinds of buildings that tech companies want: ones with large floor plates, tall windows, open-office layouts and a grittier feel.
“The most exciting thing about Central SoMa is it is finally a large area where the city is looking to entitle offices that actually meet the needs of tenants. It’s not a bunch of skinny highrises,” said Mike Sanford, Kilroy Realty’s executive vice president for Northern California. “The modern workers want bigger floor plates, more creative space. It’s not just about view space.”

Kilroy has already had to try to navigate plenty of hurdles to provide that space. There’s a ballot threat looming to block the tech towers that Kilroy wants to build on top of the historic Flower Mart site.

The area is already a magnet for tech companies. Twitter’s first major office presence was on Folsom Street before it moved most operations to Mid-Market. LinkedIn will park its San Francisco hub at 222 Second St. next year.

Once the rezoning is done – adding the potential for 50,000 new jobs and 9 million square feet of new office space over the next few decades — one of the city’s new tech centers will sit on the corner of Brannan and 5th streets. That’s where four major development sites each span more than an acre.

“That will become a very desirable address,” Sanford said.

Jobs matter too: Why the city’s priority is office space, not housing

The Central SoMa rezoning area includes wildly different environments. The commercial district next to Market Street’s Powell BART station is directly north of it. The zoning area spans south nearly to AT&T Park on the waterfront, stopping at Townsend Street on top of the Caltrain station. To the east, luxury condo towers have sprouted on Rincon Hill. On the area’s western border on 6th Street, some of the city’s poorest residents crowd into residential hotels.

The northern part of Central SoMa is mostly built out. What will change dramatically is the southern portion, where several large development sites that are zoned for light industrial uses will get new zoning for offices and some housing. The area’s development will get a boost from the $1.59 billion subway line now under construction that will run 1.7 miles from SoMa to Chinatown. The new transit line was part of the impetus for the Planning Department to push for a rezoning that would prioritize office space over housing.

That priority may seem surprising at a time where everyone from neighborhood activists to the mayor’s office have committed to addressing the housing crisis, but Planning Director John Rahaim points to the numbers.

If housing fills out over over the next few decades in areas like recently rezoned eastern neighborhoods, Mission Bay, Hunters Point Shipyard and Parkmerced, the city will have enough housing to accommodate residents, according to Association of Bay Area Government projections. The same isn’t true for jobs, where the city would fall well short of meeting expectations even after incentivizing new skyscrapers like the Salesforce Tower.
Rahaim gestured to a map in his Mission Street office, pointing out that office zoning is restricted mostly to the Financial District and Mission Bay. “We’re going to have an issue on the job side if we don’t do something to grow the capacity,” Rahaim said.
Of course, the city still faces an office space cap because of the 1986 ballot measure Prop. M. None of the sites acquired in Central SoMa have a Prop. M allocation, so developers may have to wait a while to build projects even after the rezoning.

How to save SoMa’s soul

Affordable housing advocates are concerned about different numbers. For one, there’s the fact that median earners could afford only about a quarter of recently available rental units in the city of San Francisco in 2013 – the second-lowest rate in the country after New York – according to a study this month by the New York University Furman Center for Real Estate & Urban Policy.

As such, TODCO and Elberling are proposing that four large sites on Fifth and Brannan Streets be zoned as special-use districts that would put tech offices side-by-side with affordable housing buildings, student housing, public open space and PDR space.”The number one civic priority is affordable housing in City Hall and everywhere. It’s not that new space for tech offices isn’t a priority, but it’s not number one,” Elberling said.
Here’s what the city has to do to get new 2,400 housing units in the area, with 35 percent as affordable, according to TODCO’s plan: Push up inclusionary housing requirements to 20 percent and 33 percent for on-site and off-site, respectively; build hundreds of affordable housing units on public sites in the area; and get four majors office developers to set aside land for affordable housing. “TODCO is planning a June 2016 ballot initiative that will add to the final Central SOMA rezoning whatever it takes to achieve this,” according to the plan.

The Planning Department would be wary that the affordable housing goals in Central SoMa are too ambitious. If it asks for too much, and it won’t get the office development the city needs and that companies are pining for. Fees that the city demands aren’t metered to respond to economic nosedives and upswings.

Wertheim, the Central SoMa chief planner, sees a way to make it all work, although he admits the three-decades-long plan will have low periods where it doesn’t seem to click. “We’re in the honeymoon period right now,” he said.

He said the plan area could make use of an infrastructure finance district that would allow it to keep property tax increments in Central SoMa for public improvements and affordable housing. It could also try to channel the office buildings’ jobs-housing linkage fee to neighborhood projects instead of sending it to the city’s general fund.

Feb

Calco Commercial Real Estate: Recent Lease Transactions

Calco Commercial Real Estate has recently leased the following warehouses and offices in the San Francisco marketplace:

540 Barnveld Avenue. This clearspan warehouse space has one (1) drive-in loading door and is 3,950+/- square feet of commercial space and is part of the Valhalla Real Estate Industrial Complex in San Francisco.

455 Barneveld. This 5,830+/- square foot clear span warehouse includes one (1) drive-in loading door and is located within the Valhalla Real Estate Industrial Complex in San Francisco.

3130 20th Street #175. This 3,326+/- square foot Central Mission creative space included private and open areas, ground floor location and on-site parking availability.

75 Industrial. This 22,000+/- square foot clearspan warehouse includes a real yard, two (2) drive-in loading doors, and a high identity corner location in the Bayshore Area of San Francisco.

360 Bayshore Boulevard. This 5,720+/- square foot clearspan warehouse includes one (1) large roll-up door, a small office and a central Bayshore Corridor location. Zoned PDR-1G with the Bayshore Home Improvement Designation, 360 Bayshore Boulevard also allows for retail uses.

2170 Cesar Chavez. This 12,500+/- square foot clearspan warehouse includes four (4) docks, one (1) drive-in loading door, a small office and a large exterior loading and parking area.

If you have any questions about our available properties, or the San Francisco or Peninsula commercial real estate markets, call our office at 415.970.0000.

Feb

Commercial Real Estate News: $177MM Development Coming to South San Francisco

HCP to Start $177 MM Spec Development in South San Francisco
Reporter: Jon Peterson
Posted on February 10, 2015 by publisher6
Link to Article: SSF Development

Irvine-based HCP has broken ground on a new life science spec development in South San Francisco, The Cove at Oster Point. The first phase of his project involves the construction of 253,000 square feet and the entire development totals 884,000 square feet. The company is planning to spend up to $177 million according to this morning’s conference call.

“We feel that starting the Cove at this time will optimally meet the demand in the market. This is reflected in that the direct vacancy for life science properties in South San Francisco is [below] one percent,” says Jon Bergschneider, executive vice president for HCP Life Science Estates.

The company believes that the type of product that it will be creating will be new for the marketplace. “Our amenity center will be a feature that is not seen in any life science project,” said Bergschneider. The amenity center will be located on the first floor of the project. It will include a fitness center, recreation and meeting space, which is typically not found in life science real estate operations.

The first phase of the development broke ground last week. It will consist of two buildings totaling 253,000 square feet. The plan is to have these buildings completed by the third quarter of next year. The other phases of the project will be started based on the leasing success of the first phase.

The leasing efforts on the development will be led by CBRE through its life sciences group. This will include Chris Jacobs, an executive vice president, and Rick Friday, a senior vice president. They both work for the company out of its office in Foster City.

The life science market in South San Francisco has very strong market characteristics. “Strong life science market demand has resulted in a vacancy rate below 1 percent in South San Francisco. This inventory crisis has fueled raising lease rates. Over the last year, lease rates have increased approximately 30 percent from $2.85 to $3.70 NNN per square feet per month. Given the strong market fundamentals, we anticipate lease rates to push past $4 NNN per square foot per month in the near future,” says Jacobs.

He anticipates a mixture of tenants being interested in The Cove project. “We expect the project to attract local tenants from 30,000 square feet, as well as larger campus users,” said Jacobs.

HCP has owned The Cove site since 2011. This is when the company paid $65 million to acquire the 20 acres for the development. The project is projected to be a pre-certified LEED silver project. Some of its other features are a 5.5-acre outdoor green space and retail and hotel entitlements.

HCP is a real estate investment trust that focuses on the healthcare industry. It’s a major player in the San Francisco Bay Area, where it owns 4.8 million square feet of life science space in the region. This includes 2.8 million square feet within South San Francisco.

Feb

Commercial Real Estate News: Warehouse Owners Enjoy Accelerating Rents

With Little Available Modern Space, Investors Scrambling for Bulk Warehouses in Second-Tier Markets, Ramping Up New Development

Source: CoStar
Reporter: Randyl Drummer
Date: February 5, 2015
Article Link: Warehouse Owners

Package shipper UPS isn’t the only one who loves logistics.

Property owners and investors are singing the praises of the unattractive but highly functional and in-demand property type after another quarter of strong rent growth and increasing demand for modern, bulk warehouse space in key distribution markets.

So much so in fact, that investor demand for warehouse and logistics properties is limited only by the current shortage of modern new buildings available to buy, according to CoStar analysts presenting their findings at the Fourth Quarter Industrial Real Estate Review and Outlook last week.

With rental rates on the rise, especially for new, high quality logistics space, “You can build and lease a building potentially for the next 10 years with a good credit tenant,” said Rene Circ, director of research, industrial for CoStar Portfolio Strategy. “This is as good a time in industrial real estate as you could possibly imagine, and we are seeing that in terms of questions from our clients and people wanting to get into the market.”

Co-presenter and senior real estate economist Shaw Lupton also noted that, despite the dearth of property available in the market, sales of institutional grade properties have never been stronger in terms of sales volume and square footage traded.

Capitalization rates are at a record low of below 6% for institutional properties, with reports of much lower cap rates for sales of big box warehouse leased to triple-net credit tenants in the best markets, Lupton said.

“It’s a great time to own industrial real estate, and it’s increasingly competitive to get into it,” Lupton said. Investment sales were up a solid 8% in the industrial sector in 2014 to $60 billion.

Despite the robust investor interest, industrial property sales still lagged multifamily, office and retail property sales, largely because there simply wasn’t enough buildings available to buy. Construction on new bulk warehouse space is ramping up, but it has yet to catch up with investor demand for the new modern facilities favored in tenants for their increasingly sophisticated and high-tech logistics supply chains.

CoStar analyzed the inventory of newer logistics buildings five years old or less compared with all existing logistics buildings and found that both the supply of newer buildings and the ratio of sales has dwindled significantly since 2002, when 32% of all trades were of buildings less than five years old. Today, the number is closer to 10%.

“New supply will be needed to raise the overall level of transaction value,” Circ said. “You can make the argument that lack of new construction is holding back sales by as much as 10 percentage points. Building (prices) are being bid up because there are just not enough sellers.”

While industrial real estate rarely outperforms other more glamorous property sectors, rents for industrial space, led by demand for newer, high-functioning properties, grew an average 4.5% for all industrial properties in 2014 over the previous year. That rate of increase outstripped the healthy 3.7% rental rate increase logged by the office market, 3.2% in the apartment sector, and the 3% rent growth in retail real estate.

The amount of available space on the market is tightening. The 8.7% vacancy rate for logistics space in the fourth quarter compares with a reading of 9.9% at the height of the last real estate cycle in 2007. Absorption totaled 167 million square feet in 2014, slightly lighter than the year before only because of the lack of usable vacant space, Lupton said.

“There just isn’t enough space out there to allow for [larger] numbers,” he said. “We’re not lagging much below the absorption peak, but to get beyond that, we absolutely need more new construction.”

While logistics construction was up 14% in 2014 to 136 million square feet, it’s still about 44 million square feet below the early 2000s peak of 180 million square feet.

While the recovery in rents and property values for high quality logistics space is nearly complete, Circ and Lupton noted that the light industrial property segment is still in the early expansion phase, with very little new construction, which is expected to change over the next few quarters.

“There’s still a lot of runway for growth in light industrial,” Circ said, adding that the improvement in this sector of the industrial real estate market is a very promising sign for the recovery of numerous local markets.

“These are not the big multinational companies, the Amazons, these are local businesses. We’re seeing the light industrial segment doing really well, which gives me a lot of comfort in the strength of local economies,” Circ said.

“When you see these local manufacturing and housing-oriented businesses taking space and making lease commitments, it means they have a lot more visibility into their business growing again, and that supports the guts of the local economy.”