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Category: commercial real estate san francisco (65)

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

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

4,736+/- SF of Funky/Creative Commercial Office Space for Lease

Calco Commercial Real Estate, is pleased to present 385-A 8th Street, which will be available to lease March 1, 2015. The commercial office space includes 4,736+/- square feet of second floor funky/creative space, a full kitche, skylights, hardwood floors, rooftop deck and an open floor plan. Situated in the SOMA, this space would be great for a creative user. The space will lease for $2.50 psf. or $30.00 psf. annual.

If you have any questions about this office listing, our other available properties, or the San Francisco commercial real estate market, please call our office at 415.970.0000.

Jan

National Industrial Outlook – 2015

Source: Costar
By: Randyl Drummer
Date: 12.30.14

The U.S. industrial real estate market’s amazing run shows no signs of slowing as the new year approaches, posting an incredible 19th consecutive quarter of falling vacancy rates to reach its lowest national level in nearly 14 years, ending 2014 at 7.2%.

Given optimistic forecasts for domestic growth in 2015, analysts expect 2015 to be another strong year for industrial space demand. Consensus growth forecast of around 3.5% in gross domestic product (GDP) as more people find work and wages begin to rise, said Bob Bach, director of research for the Americas with Newmark Grubb Knight Frank.

“This is very good news for the industrial market,” Bach said. “Expect the fall in vacancy rates and rise in rents to continue, although the pace should begin to level out by the end of 2015 as construction catches up with demand.”

GDP is considered a primary driver of demand for industrial space because its components — online and brick-and-mortar consumer spending, business spending, homebuilding, exports and imports — all generate activity in the warehouse and logistics market.

Healthy tenant demand, combined with a limited amount of quality ready supply, is tugging down the nation’s vacancy rate, said Aaron Ahlburn, senior vice president and director of research for the industrial and retail property markets for JLL’s Americas region.

“Although new big box construction is escalating, it does not appear to be overpowering current tenant requirements,” said Ahlburn. “E-commerce continues to be the headline-grabbing market driver, especially as retailers continue to determine their omni-channel distribution and fulfillment space needs.”

Outdated distribution centers that don’t support an integrated, omni-channel retail strategy will require updating or face obsolesence, Ahlburn added.
The only unwelcome guest at the warehouse party over the next 12 months could be overbuilding, which developers tend to do in times of economic growth. Even today’s vast 1 million-square-foot-plus mega warehouses are comparatively fast and easy to build, said Andrew Berk, vice president in Avison Young’s Los Angeles office.

According to NGKF’s Bach, the amount of space under construction has been ramping up slowly for 19 of the past 20 quarters. At year-end 2014, 130.5 million square feet was under way — up from 100 million square feet at the beginning of the year, but still below the prior peak of 190.1 million square feet in third-quarter of 2007, during the development heydays of the prior cycle, Bach notes.

Deliveries surged in the fourth quarter to a total of 45.4 million square feet, a quarter of which was completed in Dallas-Fort Worth. Houston was a distant second with 3.4 million square feet coming out of the pipeline. For the full year, industrial deliveries totaled 133 million square feet.

For now, the consensus among most analysts is that supply remains in line with demand across much of the country, even in the high-growth Dallas market.

“To date, no space has broken ground in Fort Worth during this cycle, so we should see landlords enjoying increased rental rates in 2015,” said Transwestern Principal Jeff Givens, adding that the Fort Worth office alone recently completed eight sales transactions totaling 525,500 square feet. “User sales were robust and the leasing market was very active, which increased occupancy.”

There’s so much absorption and a historically low vacancy rate which has remained consistent for so many years that overbuilding does not seem to be a major concern in Class A or even B markets, Avison Young’s Berk added.

“Investors are favoring ‘Main & Main’ assets of almost any condition and size,” Berk said.

He noted, however, that further from the core geographic areas, investors are keen to make sure that the assets are located in good logistics markets with recent upside improvements.

“Development has been more controlled and disciplined this cycle, especially compared to past ‘boom’ cycles,” JLL’s Ahlburn said. “Although a handful of markets, including the Inland Empire, Dallas and Indianapolis, have flirted at times with overbuilding, the majority of U.S. markets are evenly-paced.”

Net absorption was solid at 42.1 million square feet for the quarter and 172.4 million square feet for the year. Atlanta led all markets for both periods, absorbing 3.8 million square feet in the fourth quarter and 8.8 million square feet in 2014. California’s Inland Empire took second place in both periods.

The average asking rental rate ended 2014 at $5.64 per square foot per year, triple net, up by just a penny from the third quarter. The yearly gain was more impressive -an increase of 3.8%. Of the 45 markets tracked in the survey, eight markets posted double-digit rent gains in 2014, led by Austin at 14%.

Other double-digit gaining markets included the Inland Empire, Indianapolis, San Antonio, Silicon Valley, Denver, Boston and Oakland-East Bay, according to NGKF and CoStar data.

Finally, risk mitigation in supply chains is another important factor in 2015, Ahlburn noted. Congestion at major West Coast seaports and the impending truck driver shortage has supply chain executives seeking alternative strategies.

“To avoid interruptions, they are moving discretionary shipments to East Coast ports,” he said.

Link to article: Industrial Outlook

Jan

Tech Users Race for More Space

Source: San Francisco Business Journal
Reporter: Cory Weinberg
Date: January 20, 2015

Social media companies Twitter and Pinterest and mobile payments startup Stripe are hunting for hundreds of thousands of feet of office space each, multiple real estate sources said.

Their eventual decisions have the potential to drive the leasing market this year and next. As it is, tech companies leased 91 percent of the 3.6 million square feet of office space taken in San Francisco last year, according to CBRE.

The companies could head to Oakland to anchor the refurbished 400,000-square-foot Sears Building when it opens by 2018, giving the East Bay city a techie jolt. More likely, they’ll have their eyes on spaces like Kilroy’s 1800 Owens St. (known as the Exchange on 16th) in Mission Bay, set to deliver 650,000 square feet next year, or 510 Townsend St.

If companies need hundreds of thousands of square feet, they could also look toward Transbay buildings such as the Salesforce Tower (opening in 2017), 181 Fremont (2016), 199 Fremont (2016) or 303 Second St. (2015).

“I don’t think you’ll see a large number of those kinds of users go to Oakland. Having said that, I do think there are some indications that (the Sears Building) could snatch some sort of user from San Francisco who decides that San Francisco doesn’t have enough space,” Mike Sample, a broker who specializes in tech companies for Newmark Cornish & Carey, said at a SPUR event last week.

Stripe, which has received $200 million of capital from the likes of Sequoia Capital, Peter Thiel, and Elon Musk, now leases about 27,000 square feet at 3180 18th St. in the Mission. It also scored a big coup by landing a spot as an Apple Pay partner earlier this year, fueling growth.
One source who spoke on the condition of anonymity said Stripe has looked at the 300,000 square feet available at the 500 block of Townsend Street, just west of the I-280 off-ramp near 6th Street.

Twitter has 760,000 square feet leased in Mid-Market. One broker who works with tech companies – and also declined to speak on the record – said Twitter is in the market for a few hundred thousand square feet and has its eye on Mission Bay now that Uber has decided to park its headquarters there.

“There’s a lot of energy going in that direction. I wouldn’t be surprised if they did something similar,” he said.

Pinterest has about 225,000 square feet across two buildings south of Market. One source said the company’s space need isn’t urgent because they just inked a new lease last fall. Pinterest, Stripe and Twitter did not return requests for comment.

Even if those companies don’t start expanding their offices this year or next, they’re increasingly thinking about future growth because of Prop. M. The city’s office space cap is likely to start squeezing the market later this year and possibly causing the current city average of $65 a square feet to increase at a faster rate.

“It seems like tenants are thinking five years out, especially the bigger ones who want to stay vested in San Francisco and think about how they will keep their headquarters in San Francisco,” Alexa Arena, vice president of Forest City’s San Francisco office, said at a Bisnow forum on Tuesday. “That’s clearly difficult for them because there’s not a lot of swaths of space where you have a single location to get the critical mass they need.”

Office complexes under construction or renovation south of San Francisco in Daly City and San Mateo will also hope to attract tech tenants this year. (It should be said that Reddit’s CEO was ousted over his proposed move to Daly City.) About 70,000 square feet at the Ferry Building in San Francisco will also likely fetch top dollar later this year.

Article Link: Tech Giants Race for More Space

Jan

San Francisco’s Vacancy Decreases to 3.9%

The San Francisco Industrial market ended the fourth quarter 2014 with a vacancy rate of 3.9%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 278,485 square feet in the fourth quarter. Vacant sublease space decreased in the quarter, end- ing the quarter at 285,144 square feet. Rental rates ended the fourth quarter at $15.94, an increase over the previous quarter. There was 108,080 square feet still under construction at the end of the quarter.

ABSORPTION
Net absorption for the overall San Francisco Industrial market was positive 278,485 square feet in the fourth quarter2014. That compares to negative (98,393) square feet in the third quarter 2014, positive 979,226 square feet in the second quarter 2014, and positive 106,799 square feet in the first quarter 2014.

Tenants moving out of large blocks of space in 2014 include: FedEx moving out of (60,100) square feet at 200 Littlefield Ave, Vitasoy moving out of (52,500) square feet at 584 Eccles Ave, and KaloBios Pharmaceuticals moving out of(49,351) square feet at 260 E Grand Ave.

The Flex building market recorded net absorption of positive 131,243 square feet in the fourth quarter 2014, compared to positive 38,309 square feet in the third quarter 2014, positive 299,408 in the second quarter 2014, and negative (33,399) in the first quarter 2014.

The Warehouse building market recorded net absorption of positive 147,242 square feet in the fourth quarter 2014 com- pared to negative (136,702) square feet in the third quarter 2014, positive 679,818 in the second quarter 2014, and positive 140,198 in the first quarter 2014.

VACANCY
The Industrial vacancy rate in the San Francisco market area decreased to 3.9% at the end of the fourth quarter 2014. The vacancy rate was 4.2% at the end of the third quarter 2014, 4.1% at the end of the second quarter 2014, and 5.7% at the end of the first quarter 2014.

Flex projects reported a vacancy rate of 5.3% at the end of the fourth quarter 2014, 5.8% at the end of the third quarter 2014, 6.0% at the end of the second quarter 2014, and 9.3% at the end of the first quarter 2014.

Warehouse projects reported a vacancy rate of 3.4% at the end of the fourth quarter 2014, 3.7% at the end of third quarter 2014, 3.5% at the end of the second quarter 2014, and 4.5% at the end of the first quarter 2014.

RENTAL RATES
The average quoted asking rental rate for available Industrial space was $15.94 per square foot per year at the end of the fourth quarter 2014 in the San Francisco market area. This represented a 4.4% increase in quoted rental rates from the end of the third quarter 2014, when rents were reported at $15.27 per square foot.

The average quoted rate within the Flex sector was $25.58 per square foot at the end of the fourth quarter 2014, while Warehouse rates stood at $12.05. At the end of the third quarter 2014, Flex rates were $24.68 per square foot, and Warehouse rates were $11.65.

DELIVERIES AND CONSTRUCTION
During the fourth quarter 2014, no new space was completed in the San Francisco market area. This compares to 0 buildings completed in the previous three quarters. There were 108,080 square feet of Industrial space under construction at the end of the fourth quarter 2014. The largest projects underway at the end of fourth quarter 2014 were 901 Rankin St, an 82,480-square-foot building with 100% of its space pre-leased by Goodeggs and Mollie Stone’s Markets, and 1 Kelly Ct, a 25,600-square-foot facility that CS Bio Company, Inc. expanded.

INVENTORY
Total Industrial inventory in the San Francisco market area amounted to 94,659,417 square feet in 4,843 buildings as of the end of the fourth quarter 2014. The Flex sector consisted of 23,849,302 square feet in 789 projects. The Warehouse sector consisted of 70,810,115 square feet in 4,054 buildings. Within the Industrial market there were 511 owner-occupied buildings accounting for 12,380,944 square feet of Industrial space.

SALES ACTIVITY
Tallying industrial building sales of 15,000 square feet or larger, San Francisco industrial sales figures fell during the third quarter 2014 in terms of dollar volume compared to the second quarter of 2014. In the third quarter, nine industrial transactions closed with a total volume of $83,684,000. The nine buildings totaled 377,408 square feet and the average price per square foot equated to $221.73 per square foot. That compares to 20 trans- actions totaling $109,016,000 in the second quarter. The total square footage was 558,793 for an average price per square foot of $195.09.

Total year-to-date industrial building sales activity in 2014 is up compared to the previous year. In the first nine months of 2014, the market saw 36 industrial sales transactions with a total volume of $346,298,100. The price per square foot has averaged $215.98 this year. In the first nine months of 2013, the market posted 19 transactions with a total volume of $107,082,100. The price per square foot averaged $166.89.

Cap rates have been higher in 2014, averaging 6.70%, compared to the first nine months of last year when they averaged 6.10%.

Source: CoStar Year End 2014 Industrial Report

Jan

2015 Forecast: SF Office Spillover

Source: San Francisco Business Journal
Reporter: Cory Weinberg
Date: January 2, 2015

If the much-hyped San Francisco spillover of office tenants is ever going to happen, this will be the year. The city’s squeeze could start to take a noticeable toll in 2015, and other cities will be waiting with giant nets to scoop up big-name companies.

Until now, the tenant trickle to the East Bay and San Mateo County has been mostly talk. Companies recruiting young workers have flocked to San Francisco and seem to think the high cost of renting offices is worth the trouble.

Two converging forces may turn the hype into reality. First, San Francisco officials expect the city this year to hit the new office space cap imposed by the 1986 law under Proposition M.

About 4 million square feet of large office projects will be up for approval this year, enough to tip over the annual limit and constrain what gets approved. That doesn’t mean that office users will see much of an effect this year, but it is a restriction on new space nonetheless that may eventually send office rents much, much higher.

Meanwhile, Oakland, Daly City, San Mateo and San Ramon all have openings in large, attractive buildings near transit.
Oakland’s Sears building should land a tech tenant in the first half of 2015.

“San Francisco tech job growth has been seven times greater than in Silicon Valley. When you see the stats, it’s stunning,” said CBRE broker Bill Cumbelich, who is leasing the Sears building.

Bay Meadows in San Mateo also has its first office building under construction, while Bishop Ranch in San Ramon has 1 million square feet up for grabs. Daly City’s DC Station has space available, too. Still, cities in northern San Mateo County and the Tri-Valley haven’t been gotten down to single-digit vacancy rates.

“The market is getting very tight for large blocks of space and almost all of it is a result of local expansion, not San Francisco spillover,” said Bill Nork of Newmark Cornish & Carey. “Everyone was hoping, but it didn’t happen.”
Wait ’till this year?

5 key events from 2014

Salesforce dominates: Salesforce was ready to drive into Mission Bay office space when it hit the brakes. Instead, S.F.’s largest tech tenant made two huge office plays. First, it took 714,000 square feet in a Transbay tower. Later, it paid $640 million for the 50 Fremont tower.

Mission Bay’s tech future: There are about 300 acres in the Mission Bay neighborhood, and 30 of them could change the place’s whole dynamic. Uber announced it will build its headquarters there, while Kilroy Realty Corp. sketched plans for a new tech haven and the Golden State Warriors plotted office buildings next to its new arena. The turn toward tech offices could alter the identity of Mission Bay as a research hub.

Big plays for tech on the Peninsula and in East Bay: Four major office developments outside of San Francisco opened up over 2 million square feet of space geared toward tech tenants: the Sears building in Oakland, Bay Meadows in San Mateo, Bishop Ranch in San Ramon and DC Station in Daly City.

Rent gets too high for nonprofits: Increasing office rents, gentrifying neighborhoods and cheaper space in Oakland has created an exodus across the Bay for nonprofits. According to a city report, half of the city’s nonprofits left between 2011 and 2013 as rents have doubled to more than $50 a square foot in the last few years.

Redwood City’s emergence: The southern Peninsula city’s office market has the second-lowest vacancy and the second-highest rents in San Mateo County thanks in part to big plays by Google and Box this year. First, Box locked up 334,000 square feet at Crossing/900. Then, Google inked 934,000 square feet at Pacific Shores. Developers have since flooded the city with new proposals to build offices.

Link to article:
SF Office Spillover

Dec

Lenders Ease Tight Underwriting Standards for Commercial Real Estate Loans

It may be easier for Ben Bernanke to get a loan to buy an apartment building than to refinance his home mortgage.

While addressing a conference of the National Investment Center for Seniors Housing and Care in Chicago this fall, the former chairman of the Federal Reserve mentioned that he and his wife had recently been turned down by their lender after seeking to refinance their mortgage.

“The housing area is one area where regulation has not yet got it right,” Bernanke said. “I think the tightness of mortgage credit, lending is still probably excessive.”

Meanwhile, it certainly appears that commercial lenders have gotten it right, judging by the flood of capital available for commercial real estate borrowers.

However, after commercial real estate underwriting standards eased for the third consecutive year in a row according to the Office of the Comptroller of the Currency’s 20th Annual Survey of Credit Underwriting, some are beginning to sound a note of caution that perhaps lending standards are becoming too accommodating.

Surveyed banks noted that they have continued to ease underwriting standards and take on increased levels of credit risk in response to abundant liquidity for commercial property and competitive pressures in the current low interest-rate environment. Large banks, as a group, reported the highest share of eased underwriting standards among those surveyed.

Ratings agencies are particularly sensitive over underwriting standards after taking heat from Congress and investors for failing to adequately account for risks and when rating securities backed by residential and commercial mortgages before the recession.

Slippage in underwriting standards should remain a key credit concern for investors, particularly in certain segments such as construction where lending conditions have been relatively frothy, Standard and Poor’s said in its 2015 banking outlook issued this week.

“In some loan classes (e.g., construction and development loans), ultra-low net charge-offs are prompting a rebound in construction lending among some banks. We remain cautious that some U.S. banks with below-average exposure to this category may be easing credit standards somewhat and pricing loans more aggressively to generate growth, which could eventually lead to deceleration in asset quality,” S&P analysts noted in their report. “While we do not expect widespread degradation in U.S. banks’ asset quality in 2015, we do expect a gradual build-up of provisions for the banking industry as reserve levels bottom out and loan growth increases more consistently.”

In the recent OCC survey, one-third of bank respondents reported an easing in commercial construction lending. This is the highest level of responses in this category this century. Only 2% reported tightening standards for commercial construction loans, the lowest level this century.

In addition to acknowledging the relaxed credit standards, bank respondents also noted that the level of credit risk in their construction loan portfolios has increased, excluding residential development. Twenty-one percent reported that credit risk has increased somewhat – more than double the number of respondents who indicated this trend last year. In addition, 44% expected this risk to rise next year.

When it came to CRE lending for residential construction including multifamily, 13% of bank respondents noted that credit standards had eased. This is the first time in six years that any bank has noted that trend.

Thirteen percent of bankers also noted that this has raised the credit risk somewhat for their residential construction loan portfolios – none did last year. In addition, 25% expected this risk to rise next year.

Thirty-seven percent of banks said underwriting standards had eased in their other commercial real estate loan portfolios – up from 24% in 2013. Just 4% said underwriting had tightened. That is the lowest level this century and compares to the 76% who said they tightened standards during the Great Recession years.

Twenty-seven percent of bankers this year said the easing has raised the credit risk in their other commercial real estate loan portfolios. And 44% expected that risk to increase next year.

Jennifer Kelly, senior deputy comptroller for bank supervision policy and chief national bank examiner, sounded a reassuring note in the OCC survey: “As banks continue to reach for volume and yield to improve margins and compete for limited loan demand, [OCC] supervisors will focus on banks’ efforts to maintain prudent underwriting standards, monitor portfolio credit risk, and reduce exceptions to policy,” she said.

Source: CoStar
Reporter: Mark Heschmeyer
Date: December 17, 2014

Link to Article: CRE Loans