Category: industrial real estate news san francisco (39)

Too Much? Too Fast? (Part II)
Investors Digging Deeper for Best Potential Returns CRE Investors Still See Plenty of Opportunities To Be Had if You Know Where and What To Look For

By: Mark Heschmeyer
Source: Costar
Date: April 1, 2015

While some commercial real estate investors are starting to voice concern over the impact of the glut of investment capital on prices and underwriting, for many others the question prompted by the flood of capital earmarked for CRE investment is what to do with it all.

As CoStar News reported in Part I of this two-part story last week, the grumblings mostly appear to be focused on escalating prices for large trophy assets in major coastal core markets and the multifamily markets where development activity has already heated up and is threatening to curtail pricing growth.

“Buyers are extremely aggressive in gateway and other primary markets, mainly in the multifamily, industrial and core-located office asset classes,” said Ryan Tobias, founding partner of Triad Real Estate Partners in Chicago. “It’s seemingly a seller’s market in those places and there’s almost certainly a bubble somewhere as the rent growth and associated pricing cannot continue forever.”

However, the aggressiveness and the easy availability of cheap money aren’t necessarily deal breakers, according to Tobias. Rather, he said the trend should cause investors to pay even closer attention to market fundamentals and understand conditions in each submarket down to the block.

For Part II of this story, we asked investors and brokers where they see the best returns available for the money. And while some are still concerned about putting more money into core markets and in certain multifamily markets, that doesn’t mean there aren’t good returns to be had in those products and places. Real wage growth is just starting to take hold and thus core office and multifamily product still have legs, many said.

Smart money seems to be moving to certain interior or secondary metropolitan areas, Tobias said, but not to every submarket within those areas.

Other factors also have to be weighed in the balance beyond location, said Don Guarino, vice president of valuation and research for Aegon USA Realty Advisors.

“Tenant retention, appropriate capital expenditures, proper leverage levels, technology upgrades and energy efficiencies will be largely responsible for outperformance in the coming years as cap rate compression nears the end of its course,” Guarino said.

In the quest for overlooked markets, investors can over extend, warns Guarino. Tertiary markets may be a “bridge too far” if there is not a well-founded exit strategy, no matter how good the tenant or value-add opportunities in a given market.

Benjamin B. Lacy, chairman of Lacy Ltd. in Washington, DC, agrees with the importance of maintaining investment discipline no matter the size or location of the market.

“I think there’s room to run in some overlooked secondary and tertiary markets. But you have to be very careful with your underwriting and due diligence and to make sure the market is liquid enough to project a realistic exit at the end of the holding period. I am getting strong pitches in Salt Lake City,” Lacy said.

Kevin McGowan, president of McGowan Corporate Real Estate Advisors in one of those tertiary markets (Allentown, PA), said plenty of opportunities still exist for disciplined investors. The key, he said is “to be flexible and really press their network for off-market deals. There is lots of lazy capital trying to chase down the heavily marketed product. (But) lots of really good corporate assets are out there if you are willing to dig.”

Brian Poitras, president, chief investment officer of Waldorf Capital Management, said his firm is pursuing a modified core strategy looking for overlooked opportunities in markets, such as where he is based in Boston.

“The asset class that I think presents the most opportunity righ now is well located Class B office space right around core markets, transit hubs and in growing urban infill locations,” Poitras said. “The demands of office users are changing. There will be many older, obsolete office buildings in great locations, but with poor lighting, poor air circulation, and inefficient floorplans. They could see a huge value boost through smart redevelopment.”

Link to article: Too Much Too Fast Part II

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

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

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

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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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.

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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.

3130 20th_for web1

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75 Industrial_Mod_forweb

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.

360 Bayshore_Aerial_For WEbjpg

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.

2170 Cesar Chavez_Web

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.

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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.

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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.”

2170 Cesar Chavez_Web

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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

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