Category: industrial real estate news san francisco (39)

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

With demand for office space in San Francisco at its highest level in 15 years, anxious developers are waiting for the city to determine how it will approve projects under Proposition M’s construction constraints.

The San Francisco Planning Commission most likely won’t implement a selection process until midway through 2015 at the earliest, but in mid-November an industry discussion panel provided an update on the city’s Prop. M policy formation and state of the office market.
The event was closed to the media, but presentations and attendees indicate that city planners continue to debate whether to institute a “competitive pool” policy, in which a group of projects compete for approval, or to continue evaluations on a project-by-project basis.

“What you can gather is that there are a lot of options about how to do this right now—there are procedural questions, substantive questions about criteria and questions about implementation,” said David Blackwell, who moderated the panel and leads the land use practice group for the Allen Matkins law firm in San Francisco. “There are a lot of variables that haven’t crystallized yet.”

Approved in 1986, Prop. M caps the amount of large new office projects at 875,000 square feet annually. Unused allocations are rolled forward, and the current cap is at a little more than 3 million square feet. But about 3.2 million square feet in applications are pending, and nearly 8 million square feet are in the pre-application process, according to a presentation that John Rahaim, the planning director for San Francisco, gave at the event. That amounts to a pipeline deficit of about 8 million square feet.

Meanwhile, office rents have skyrocketed amid a demand for space that parallels the height of the dot-com boom in 2000, a trend that shows no signs of slowing down absent an economic downturn.

Average asking rents since 2010 have doubled to $61.69 per square foot, while the average vacancy rate has dropped 150 basis points to 6.7 percent over the last year, according to a presentation made at the event by Phil Tippett, an executive vice president of CBRE in San Francisco. Users have absorbed 4.3 million square feet in the last three years, and tenants looking for an aggregate of about 6 million square feet are in the market.

History suggests that the planning commission will institute a competitive pool. The commission used the process the last time developers butted against Prop. M in 2000 and 2001 and then reverted to the project-by-project review during years of lower demand.

But the commission still must decide what criteria to use in such a process. In 2000 and 2001, for example, competitive pool principles focused on public views, shadows, housing displacement and a handful of other elements. By comparison, in the late 1980s, broader standards concentrated on design, location and consistency with the city’s general plan.

A planning department staff memo in September suggested that a competitive pool for this round of development include criteria such as green building design, proximity to transit and the impact on production, distribution and repair space.

According to Rahaim’s presentation, if the commission decides to implement a competitive pool process, it also needs to determine how to score or weigh different elements, when to officially begin the competition, how long review periods should be, and whether to approve proposed projects that are ready to move forward before launching the policy.

Overall, office supply constraints have put existing landlords in enviable positions. During their most recent earnings calls, executives with large publicly traded office real estate investment trusts discussed Prop. M amid concerns that the current level of demand is unsustainable.

Officials with Boston Properties, Inc., for example, suggested that their 61-story Salesforce Tower in the South of Market neighborhood, which is expected to be completed in 2017, is further along than most projects and that the views from the top 30 floors generally available for lease provided a competitive advantage. (The firm is asking for more than $95 per square foot, according to CBRE.)

Additionally, Hudson Pacific Properties Inc. earlier this year finished leasing up the 1 million-square-foot 1455 Market St., a property it repositioned to appeal to technology tenants after buying it from Bank of America in 2010.

“From our standpoint [Prop. M] is a non-existent issue because we don’t have ground-up development—everything we have and everything we’ve looked at is on a renovation basis,” Hudson Pacific CEO Victor Coleman told analysts in response to a question about Prop. M’s influence. “If you’re a landlord in San Francisco and you like your portfolio, I don’t think it hurts you.”

Source: The Registry
Reporter: Jose Gose
Date: December 16, 2014

Article Link: PROP M

Two transit-oriented development projects proposed for the area surrounding Millbrae’s BART station would bring new retail, housing and office space to the Peninsula city.

San Jose-based Republic Urban Properties LLC is planning an approximately $200 million mixed-use development that would replace surface parking on the east side of the BART station.

Gateway at Millbrae Station, which would sit on about nine acres of BART-owned land, is expected to include 150,000 square feet of office space, up to 45,000 square feet of retail space and as many as 350 market-rate apartments along with a 110-room extended-stay hotel, likely under a Hilton or Marriott flag, said Michael R. Van Every, president and CEO of Republic Urban. The company is working with BART on a replacement parking strategy based on a transit study that is under way.

“We want to make it a destination for BART riders, for residents, for employees and then, of course, for the greater surrounding communities,” Van Every said. “We’d like to take the next step and say how can we not just serve commuters, but how can we serve the greater region and Millbrae itself by redefining what we consider a gateway location.”

City approvals are pending, but Republic Urban, which is part of the Republic Family of Companies with offices in Washington, D.C. and Reston, Va., looks to break ground on the project by late 2015. The build-out should take five to seven years, Van Every said.

The project would be part of BART’s overall plan to create more transit-oriented developments around its stations to increase ridership and boost revenue, said Ellen Smith, a project manager at BART.

“The goal is to have higher ridership as a result of having uses surrounding the station that would bring more riders to us than the parking spaces do,” Smith said.

Because the Millbrae station also is a Caltrain station and includes a SamTrans bus pickup and drop-off area, the three agencies are coordinating to ensure “all access modes are supported” by the new development, Smith said. The station also is slated to be a stop on the planned high-speed rail line.

Additionally, Serra Station Properties is proposing a mixed-use project on 3.5 acres west of the BART station. That development would include approximately 270,000 square feet of office space, 32,000 square feet of retail space and 500 residential units, according to a report from the City of Millbrae. Serra Station is led by Vincent Muzzi, who did not return a call for comment.

The Serra Station project would occupy land the company already owns, which now holds a closed convalescent hospital, said Bill Kelly, a Fullerton, Calif.-based economic development consultant for the City of Millbrae.

Both projects are being analyzed by the city as it works to update its Millbrae Station Area Specific Plan and supporting environmental impact report. The specific plan, adopted in 1998, aims to redefine a vision for an approximately 116-acre area around the Millbrae BART/Caltrain Station and was adopted to encourage sustainable smart growth around the transit station. Republic Urban’s and Serra Station’s projects fall within the specific plan area. The updates will include changes such as land-use density and height requirements, Kelly said. Hearings about the plans with the planning commission and city council are expected during the first quarter of 2015.

Source: The Registry
Reporter: Nancy Amdur
Date: December 9, 2014

Link to article: Peninsula Development

Source: San Francisco Business Times
Author: Marlize van Romburgh

The site around the soon-to-be-demolished Candlestick Stadium in San Francisco is slated for redevelopment as a 500,000-square-foot shopping center. Homebuilder Lennar Corp. and shopping center developer Macerich are joint partners in the venture. The mall would include shopping, restaurants, movie theaters, a hotel, performance venue and an African-diaspora marketplace and would serve to anchor a planned 6,000-home project.

“We fully expect that the Candlestick Point project will be a magnet for economic activity and community-building,” Randy Brant, executive vice president of real estate at Macerich, said in a statement.

Candlestick’s development will kick off with the demolition of the defunct stadium in coming months and will include more than $1 billion of new investment and infrastructure over the next four years, the firms said.

“The partnership with Macerich to develop the urban outlet jumpstarts the overall Candlestick redevelopment,” Kofi Bonner, president of Lennar’s San Francisco division, said in a statement.

Up to 12,000 units of new housing are planned in new developments in the neighborhoods surrounding Candlestick Park. Lennar has started construction on The San Francisco Shipyard, a 6,000-home development just north of Candlestick Point. The project will also include 3 million square feet of office and commercial space as well as 230 acres of parks and open space. The first homes at the Shipyard hit the market in June.

Lennar said it has also started building out infrastructure for the nearby Alice Griffith affordable-housing community, a 248-unit project to be built on vacant parking lots next to Candlestick Park. Construction is expected to start next year.

“Rebuilding and redeveloping Candlestick and The Shipyard is helping us deliver on our promise to make sure San Francisco remains a City where families at all levels of the economic spectrum can succeed,” said Mayor Ed Lee, who is pushing an agenda to build or rehab 30,000 units in San Francisco by 2020, in a statement.


Author: Randyl Drummer

Continued Demand for Warehouse/Distribution, Light Industrial Space Expected to Meet Supply Wave
With Few Modern Logistics Facilities Available (For Now), Investors Gobbling Up Available Portfolios

Absorption of U.S. industrial real estate, which was fairly muted in the first three quarters of the year due to lack of new supply, is expected to end 2014 on a strong note as developers wrap up construction on an estimated 50 million square feet of new warehouse and light industrial space.

Demand wasn’t red-hot for industrial property through the first nine months of 2014 by historic absorption levels, according to analysts presenting the CoStar Third Quarter Industrial Real Estate Review and Outlook. While demand for U.S. warehouse space has traditionally stepped up each quarter in previous years, 2014 has bucked the trend, posting consistent but relatively flat net absorption totals.

Look for leasing and absorption to spike in the last three months as dozens of new build-to-suit and speculative buildings open their bay doors before Dec. 31, CoStar Portfolio Strategy Real Estate Economist Donald Hall said.

“We expect to see a strong fourth quarter. One theory is vacancies have been so low, that there’s really no place for tenants to move into, particularly for newer space,” Hall said. “If even half of the 50 million square feet of new deliveries expected is absorbed, absorption should be much higher in the current quarter, barring an unexpected scare in the economy.”

Senior Real Estate Economist Shaw Lupton also noted that logistics construction is ramping up — and more of it is being built on a speculative basis without any signed tenants in tow. Rising rents justify construction in most markets and developers have once again become confident enough to build on spec.

Today, the U.S. has around 100 million square feet of logistics under construction, more than half of it without signed sales or leases – and that figure remains about 30% below what Lupton believes is the market’s potential based on the last cycle, which peaked in 2007.

The U.S. vacancy rate has fallen to 6.9%, edging below the same point in the last cycle, and rents are within about 0.8% of their long-term trend, prompting developers to warm up their bulldozers for more building as rents rise at a higher rate than replacement costs, Lupton said.

Rent growth is 3.4% year over year through the third quarter across both logistics and light manufacturing — a very strong showing, albeit with significant performance differences between higher quality and less functional space. Rising rents are pushing construction beyond the main logistics and industrial hubs into the middle of the country, where land is cheaper and tenant costs are lower.


Calco Commercial has represented the Landlord in the leasing of 2130 Oakdale Avenue to Hocckke Yeo, LLC. 2130 Oakdale Avenue consists of 12,800+/- square feet of clearspan warehouse with 25′ ceiling height, concrete construction, 400 amp 3 phase power, sprinklers, and one (1) large drive-in loading door. 2130 Oakdale is located in the Bayshore Corridor area of San Francisco, which is bounded by Highway 101, I-280 and Cesar Chavez. This industrial property has great access to both Downtown San Francisco and the Peninsula Areas.

Per CoStar, industrial product in the 10-15,000 square foot range in the Bayshore is quickly evaporating, with only two buildings actively available for lease in the same square footage. If you would like more information on the San Francisco commercial real estate market place, or our other available listings, please call 415.970.0000.

2130 Oakdale_Photo_for web

Calco Commercial real estate has facilitated a 7-year lease at 1950-2170 Cesar Chavez between the Landlord and the new Tenant, McMillan Electric. The leased property is a total of 40,500+/- square feet which includes dock load, office area & private fenced parking. The premises is part of the Gibraltar Business Center located on Cesar Chavez in between Highway 101 and I-280.

For more information on our other listings, or current San Francisco commercial real estate conditions, call 415.970.0000.

1950 Cesar Chavez

1950-2090 Aerial-Outline

12,500+/- square feet of superb and centrally located distribution space will be available for lease December 1, 2014 at 2170 Cesar Chavez. The space includes 4 docks, 1 drive-in loading door, a small office area and large exterior loading and parking. The lease rate is $1.25 PSF, IG. 2170 Cesar Chavez is located off the Bayshore Corridor and within close proximity to Highway 101 and I-280.

For more information on this property, our other commercial real estate listings, or the San Francisco marketplace, call 415.970.0000.

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Source: San Francisco Business Times
Author: Adam Weintraub

These are exciting times to be a manufacturer in San Francisco. But nerve-wracking, too.

With the rise of the ‘maker’ movement and rebirth of artisan food and drink, manufacturing firms and jobs in the city are burgeoning after several decades of decline.
That growth is creating its own problems: It’s driving up rents and increasing competition for space from tenants that can pay more than a low-margin manufacturer. Rents have surged in the last two years, and rich sale prices for industrial sites suggest that new owners will charge rents too high for the mainly small firms behind San Francisco’s manufacturing rebirth.
Even the city’s recent effort to create incentives for construction of more light-industrial space — by allowing developers to combine it with office development — faces looming clouds. With the first combined office/industrial project under the new rules getting ready to face the Planning Commission, officials worry that a flood of office development proposals will quickly hit the Prop. M development ceiling.

“We remain very concerned about how tight the market is right now for industrially zoned space,” said Kate Sofis, executive director of SFMade, a nonprofit supporting the manufacturing sector and companies in the city. “We’re seeing asking rents nudge up above $2 a square foot (per month), which is very difficult for a traditional manufacturer.”

Bidding wars
Dave McLean started searching in 2010 for a larger space to produce beer for his Magnolia Brewing Co., which had maxed out capacity in the basement of his Haight-Ashbury brewpub. He found about 10,000 square feet in one of the few available spaces at the American Industrial Center at 2505 Third St. in Dogpatch. He opened the brewery late last year and Smokestack BBQ restaurant in May.

“I suspect the window may have shut right as we got in,” said McLean, who calls the giant AIC complex with its hundreds of small spaces a unique asset in San Francisco’s manufacturing world. “I don’t think I’d want to be looking right now.”

The space crunch has bakers and chocolatiers competing for space with repair shops and HVAC distributors, and now also with small clothing manufacturers, 3D-printer developers and robotics startups. Some firms are struggling with bootstrap finances while others are backed by investors, and there can be a big difference between the profit margins on a robotic manipulator and a barrel of beer.

That sets up bidding wars for so-called “PDR” space (for “production, distribution and repair”) just as it does for offices, with high-margin or well-financed tenants squeezing out those with weaker cash flow.

“It’s certainly getting to the point price-wise where a lot of business services (companies) are having a tough time making rent,” said Scott Mason, president of Calco Commercial Inc., a real estate brokerage firm with extensive experience in San Francisco industrial property from SoMa to the Bayshore.
“There is a shortage right now; rents are up 30 to 40 percent just in the past two years or so,” said David Lai, a principal with Yosemite Investment LLC, of South San Francisco. The company develops and runs industrial space, including at Yosemite Plaza, a former bottling plant in the Bayview where tenants have included a tech accelerator, a commercial kitchen, a chocolate maker and a towing firm.

Now Yosemite is looking to replace a 1,200-square-foot storage building and surface parking at 2200 to 2250 Jennings St. with a 13,500-square-foot industrial building, 26 feet high, which could be divided into six individual spaces for lease or sale, according to preliminary plans filed with the city. “There is a lot of demand for small spaces,” Lai said.
Rising demand and prices have attracted some investor interest. ASB Real Estate Investments, in a joint venture with SKS Partners and ProspectHill Group, said in July it would buy the 103,000-square-foot office-warehouse complex at 1400 16th St. in Showplace Square that’s been the headquarters of Jessica McClintock Inc. SKS declined to comment, but the buyers have said they intend to redevelop the three-building complex for R&D, prototyping and manufacturing.
SFMade chief Sofis said the word in the marketplace is that the price was high enough that she’s expecting rents in the neighborhood of $2 to $3 per square foot per month. “That’s not an ideal outcome from the standpoint of SFMade,” she said.

San Francisco’s strategy toward PDR space has its roots about 15 years ago, when the dot-com boom raised the same kinds of concerns heard today that residential and office development would crowd industrial businesses and jobs out of the city.

Prop. M looms
The Eastern Neighborhoods plan carved out areas preserved for light industrial uses. That was before the growth of the ‘maker’ movement, which diversified the kinds of businesses seeking space and increased demand for small, flexible production sites. (And, as one city planning official noted, from almost the moment PDR districts were created, residential and office developers were trying to nibble at their edges.)

More recently, the city has tried to create incentives for construction of new PDR space, recognizing that the lower rents make industrial space unattractive or infeasible for developers to build. An ordinance backed by Supervisor Malia Cohen, Mayor Ed Lee and others created incentives by allowing developers on 15 largely vacant sites to build a combination of office and PDR space (see story at right). The higher rent on the office space would subsidize the industrial space.
“It’s kind of an experiment, but some of those parcels have very low intensity,” now featuring parking lots, storage buildings or weeds, said Joshua Switzky, a San Francisco senior planner.
But with a long line of office development projects moving toward the approvals process, some fear the limits imposed by the 28-year-old Prop. M office development cap could keep this new approach from producing a single new building. Manufacturing interests fear that attractive, high-profile office towers may get preference over less flashy office/PDR ventures if choices have to be made.

Looking to Pier 70
City officials say they’re committed to helping makers thrive as a part of a vibrant, diverse economy. “We need to make sure they have new, modern efficient, well-located space in order to stay and grow,” said Todd Rufo, director of the Office of Economic and Workforce Development.

They also point to the prospect of new industrial space as part of Orton Development’s rehabilitation plans for Pier 70. McLean, of Magnolia Brewing, said one key tool for companies is to include a retail element with their manufacturing, noting that the zoning of American Industrial Center allows him to do both. “It’s one thing to pay $3, $4, $5 a square foot (per month) for a retail business where you’ve got that retail mark-up,” he said, and manufacturers can use that mark-up to support manufacturing even if the rents are a bit steep.

American industrial Center: 800,000 square feet, and full
Greg Markoulis has lived through decades of the challenges faced by manufacturers. His family bought the 800,000-plus-square-foot American Industrial Center, a former can-manufacturing plant, in 1975. At one point, the garment industry occupied some 275,000 square feet there, but within five years after the North American Free Trade Agreement (NAFTA) took effect in 1994 it had dropped to 10,000 square feet.

“We diversified tremendously after that,” said Markoulis, general manager of AIC. The family divided the property into roughly 320 different spaces over the years, catering to smaller tenants and startups and accommodating them as they grew, he said. The owners have changed their approach as the industry changed and keep lease rates low, and that keeps occupancy high.
But demand is fierce, Markoulis said. “For the last three years we’ve been over-full.”

Markoulis prefers to have a half-dozen vacant spaces in the complex so he has flexibility to shuffle if a tenant needs more room, but the property now stays booked almost solid. “We’ve stopped giving guesstimates as to when a space will be available,” he said.

Mixing manufacturing with other uses: is it the recipe?
One of the 15 parcels where San Francisco hopes to experiment with mixing manufacturing and other space is also in the sights of Dan Murphy, principal with UrbanGreen DevcoLLC.
Murphy has submitted preliminary plans to convert the San Francisco Mini Storage and truck rental site at 100 Hooper St. into a mixed-use urban campus with two 58-foot, four-story buildings linked by elevated walkways above a courtyard.

The project is envisioned with 60,000 square feet of PDR and 333,000 square feet of ‘flexible commercial space,’ which could include office, PDR, retail or other uses, including room for classes or other activities by the nearby California College of the Arts. Murphy received a preliminary project assessment for 100 Hooper in 2012 and will hold a community meeting Sept. 13 to present plans to neighbors; he hopes to present the project to the Planning Commission this fall.

“It’s extremely well-located; it’s a gateway property to Mission Bay,” Murphy said. Murphy sees the opportunity to create an industrial version of the fertile cross-pollinating tech communities that have grown in SoMa, with part of the courtyard serving as a pedestrian public space for the complex and part allowing access to loading bays for distribution and deliveries.
SFMade officials and Murphy are both concerned that the Prop. M office limits could create a new obstacle to building industrial space.

“It’s a little alarming that we may get folded into some new (review) process,” Murphy said.

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