Category: san francisco commercial real estate listings (39)

But in Current Competitive Environment, Other Banks Still Cutting Deals
Source: CoStar
By: Mark Heschmeyer
Posted: July 29, 2015

Even though the Fed today signaled that it remains on course to raise interest rates in September or later this year, a few banks have already begun raising interest pricing on their commercial real estate loans, particularly for multifamily property. While long expected given the overall strength of the economy, the bump in pricing is coming weeks in advance of an expected hike in the Federal Reserve Bank lending rate.

“We’ve seen rates increase, both on the Treasuries and on swaps, and we’ve seen the increase being sustained and we’ve been wanting to raise interest rates for the last several weeks,” said Joseph DePaolo, president and CEO of Signature Bank.

However, DePaolo said his bank wasn’t able to raise rates in the second quarter because their competition wasn’t moving.

“You can’t be a half or more [percentage points] higher because no matter how much they want you and no matter how efficient our commercial real estate team is, half is a half, and it means a lot,” he said, noting the highly competitive lending environment.

But that has changed in the last 10 days.

“We did some due diligence last week and again yesterday (July 20) and found that our competitors were raising their five-year fixed from let’s say as low as 3% to 3.25%,” DePaolo said. “We were 3% and we simply raised ours to 3.5% and that was yesterday.”

While all the signs appear to point to interest rates finally moving up after many previous fals starts, not everyone is convinced that higher rates will finally take hold.

“That’s possible, but there’s no guarantee,” said Peter Ho, chairman, president and CEO of Bank of Hawaii. “We have seen these [trends] in the past, where it sure looks like rates are moving up and margins stabilized only to find out that, it’s not really a trend, it’s an aberration. So it’s definitely possible, but as I said, I just can’t guarantee that.”

With the expected change in rates, Stephen Gordon, chairman, president and CEO of Opus Bank in Irvine, CA, said his bank has been cutting back on multifamily lending, reducing its multifamily loans in its portfolio from 59% of its holdings to 53% this past quarter.

However, while certain banks have begun the shift to more costly money, the improving economy has banks competing intensely for borrowers as they return to market. As a result, aggressive competition for commercial real estate lending is continuing across much of the country.

“In my opinion [lending competition] remains brutal,” said Mark Hoppe, president, CEO of MB Financial Bank in Chicago.

That is particularly true in CRE lending, Hoppe noted. Loan to values are clearly going up and the bank is seeing more relaxation in the amount of guarantees required in some deals.

“We understand that this is the world we live in, a very competitive one, and we’re going to compete on every front but do it where we think it makes sense,” Hoppe said.

CRE Borrowing Moving Beyond Major Metros

René Jones, chief financial officer of M&T Bank, noted a significant shift in CRE lending patterns. In previous quarters, most of the lending growth in M&T’s markets were primarily around the New York City metro area. That’s not the case this past quarter.

“Right now, growth is everywhere,” Jones said.

Total loans in upstate and western New York, were up 4%. In metropolitan New York and Philadelphia, up 8%; in Pennsylvania, up 12%; in Baltimore, up 7%; and in its other regions, loan growth went up 5%.

Other CRE lending trends noted among the nation’s major banks emerged from mid-year earnings conference calls. Highlights follow:

The Eyes on Texas

“The Eyes of Texas” is the school spirit song of the University of Texas at Austin and the University of Texas at El Paso, but from an economic and CRE standpoint all eyes have been on just Houston for the last three quarters. With energy prices not rebounding much from their 2014 collapse, there has been a lot of concern about how Houston multifamily and office properties will hold up.

Although lenders are seeing some softness in the market, second quarter results appear to be muted.

“Our office construction portfolio is very modest in size. And the office term loan portfolio is performing well there,” said Scott J. McLean, president and COO of Zions Bancorp in Salt Lake City. “On the multifamily piece, we’ve had about five, six multifamily transactions that have come out of the construction period and they’re achieving rents that are actually above the pro formas. But clearly, there will be softness there for office and there will be softness in multifamily, but we think our real estate portfolio is about $1.5 billion less going into this downturn than it was going into the 2009 downturn,” McLean said.

However, McLean likes the overall direction of the Houston economy. While job growth won’t be the 80,000 to 100,000 new jobs it has averaged over the last couple of years, McLean said the market could see 10,000 to 20,000 new jobs this year and about 30,000 new housing starts.

“Sure Houston continues to be a dynamic market,” said Keith Cargill, president, CEO of Texas Capital Bancshares, but “there is no change in our view that we will see muted growth in CRE.”

“We know we are early relative to what appears to be still a very healthy market really in all categories. Our multifamily is still extremely strong. Even in our Houston market where we have some projects, I had some concern about six or eight months ago. They are holding up quite nicely and as they complete they seem to be hitting pro forma rates or better. And so we hope that continues,” Cargill said.

“We just believe strongly that you can have too much of a good thing in terms of concentration risk,” he added. “And while today [CRE, building and energy] are three of the healthiest businesses we have, they have more cyclical risk in a down cycle. And that’s the only reason that we are tamping down the growth rate.”

Lending for the Long-Term, Borrowing for the Short-Term

Rapidly escalating CRE prices are a mixed bag for banks. On the one hand, they create demand for loans. Banks are pricing those loans based generally on 10-year payback periods. But with the run-up in CRE values stretching into its fifth year, borrowers are flipping investments much more quickly than that.

Loan prepays are definitely on the high side, said Russ Colombo, president and CEO Bank of Marin in Marin County, CA.

“There is a fair amount of profit-taking going on,” Colombo said.

Link to article: Fed Move

Exclusive: One of the World’s biggest developers hunts for mega projects in Oakland, S.F.
Source: San Francisco Business Times
Reporter: Cory Weinberg
Date Posted: June 30, 2015

One of the world’s largest real estate developers, Shanghai-based Greenland Holding Group, is in talks to invest and build in the Bay Area for the first time, the company’s U.S. head told the San Francisco Business Times.

commercial real estate

I-Fei Chang, who is overseeing $6 billion worth of development for Greenland’s Los Angeles-based subsidiary, is looking for opportunities to park billions more. She said she travels to the Bay Area “biweekly” to meet with local companies and city officials about building the company’s third U.S. project here.

A development deal would draw even more Chinese capital to Bay Area real estate and introduce to the region an investor that has so far been elusive. But for a foreign company only looking at mammoth deals, finding the right project can be a headache.

“We do have something (in the Bay Area) in mind. We are busy paddling,” she told the Business Times at a National Association of Real Estate Editors conference in Miami. “It’s like a duck — you keep calm on the surface of the water but the feet are quite busy paddling in the water.”

“It always takes time. We wish it could be quicker,” added Chang, a native of Taiwan and a graduate of Yale University. “It just really depends on the accessibility of the projects that we’d have the opportunity to invest.”

Greenland Holding claims to be world’s largest property developer by floor space under construction (250 million square feet) and by sales revenue ($40 billion), the Wall Street Journal reported.

The company, which is owned by the Chinese government, took a pass on investing in Lennar Urban’s $8 billion Hunters Point Shipyard project. It instead bought a majority stake in Forest City’s $4.9 billion Pacific Park Brooklyn project next to Barclays Center. Last year, Greenland broke ground on the $1-billion downtown Los Angeles hotel, condominium and shopping complex called Metropolis, which it bought in 2013.

Greenland USA then took another stab at investing in San Francisco. Late last year, the company lost out to Shanghai-based Oceanwide Holdings in buying the First and Mission Streets property– which will span 2 million square feet of office, condominium and hotel space by 2019.

Greenland Holding has invested about $20 billion in overseas development projects since 2013, including developments in London, Sydney and Toronto. The company has more than $55 billion in global assets, according to a report by Knight Frank. Chinese builders have looked toward the western world mostly because their own residential market has cooled significantly. The Chinese government has also recently relaxed limits on outbound investments.

Investment hurdles

Greenland USA is looking to develop large mixed-use projects like their deals in Brooklyn and Los Angeles, Chang said. That separates Greenland from other Chinese developers like Vanke, the Lumina condo complex joint venture partner, and R&F Properties, the 555 Fulton St. developer, who have focused on solely residential projects.

Chang wouldn’t say how deep current development talks are. She also spoke at length about investing in areas of cities that are undergoing “transformation” and in need of middle-class housing. But she also lamented rising construction and labor costs as the U.S. real estate market heats up.

She said construction costs have risen by 20 percent on Greenland’s two current U.S. projects since the company got involved.

“We have the stomach, and we envision there’s so much space that’s under transformation quickly,” she said. “But we still want to break even with what we build… We also see some prices that are overheated and those prices go sky high. That concerns us.”

Rob Hielscher, the Western U.S. head of JLL’s International Capital Group, said a many development projects make financial sense in San Francisco, but finding large-scale development opportunities can be a struggle, particularly with the city’s Proposition M office space cap limiting the amount of office space that developers can deliver in San Francisco.

“The bigger issue is the lack of large-scale development opportunities that are currently available for groups like Greenland to purchase or invest in” he said.

Some of the biggest mixed-use projects in San Francisco’s development pipeline include Forest City’s 5M and Pier 70 projects, the Giants’ Mission Rock and Kilroy Realty Corp.’s Flower Mart. Only the Giants’ project has priority to squeeze under the office space cap.

The only mixed-use proposals of over 1 million square feet in Oakland is the Brooklyn Basin waterfront project, which attracted investment from China’s Zarsion Holdings two years ago, and East Oakland’s Coliseum City, which is fraught with political risk.

But if it does find the right deal, Greenland’s global clout will likely give it a leg up over other Chinese investors that may be less recognizable to U.S. builders, Hielscher said. “They’re a name brand that many domestic groups would want to work with,” Hielscher said.

Ready for Oakland?

Zhang Yuliang, Greenland Holding Group’s chairman, told reporters in December, that “we’d increase our investment in cities where there is potential for growth, in the big cities.”

In the Bay Area, that doesn’t just mean San Francisco. Rachel Flynn, Oakland’s planning director, and Darlene Chiu Bryant, head of the San Francisco-backed nonprofit China SF, confirmed that Greenland has met with officials from both cities about development opportunities recently.

“They seemed really interested in our city, but nothing seems imminent,” Flynn said, who added that the city told Greenland about its upcoming downtown specific plan that should clear hurdles for development. “It will be interesting to see what they end up focusing on.”

Chang seemed high on Oakland. She brushed off a question about what made her enthusiastic about a city that struggles to attract big investors because of a reputation for crime and poor government, as well as its uncertain payoff on building highrises.

Instead, she extolled Oakland’s short commute to San Francisco on BART, the proximity to the University of California at Berkeley, and the city’s waterfront.

“There’s no crime in the city if you have believers who want to believe they’re pioneers.” she said. “Why can’t we have more housing projects for the middle class that includes an easy commute? Oakland is just like a Brooklyn for us on the Pacific side.”

“It’s all about what we can do for your city and how we can have that partnership,” she added.

Interview with I-Fei Chang

What is Greenland’s mission?

It’s our mission to not only bring over Chinese capital but expertise of large-scale, mixed-use urban experience that we have in China and from our development experience in the U.K., Canada, Malaysia. We hope to invest and reach out to the community to understand the city’s vision. Our long-term partner is the city and community, to be there a long time.

Why did you land in Brooklyn and Los Angeles first? Why not the Bay Area?

Those two markets, we just were lucky to have the opportunity to select the right project at the right time — two important economic-driver kind of projects . Of course, we’d love to have the opportunity to enter the northern gate of California, to be in the Bay Area. It just really depends on the accessibility of the projects that we’d have the opportunity to invest.

You earlier called Los Angeles, not San Francisco, the “capital of the Pacific.” Why is that?

Just the population, the diversity. It’s an entertainment center. But you have the wineries.

Who is your target residential customer in the U.S.?

Two million people buy from us in China. But here it’s most important to provide urban living experiences, to develop mixed-use projects in U.S. cities. Our target customer would be U.S.-based, young professional or early retiree. They just want to enjoy urban living so we provide the facility, the garden, the daycare center, the school and the public green space to get an apartment, hotel or office; that kind of mixed-use project, a one-stop solution.

Are you finding it more difficult to locate and find opportunities in the states?

We need to meet our business cycle. What’s driving this overheated market that we are cautious of is land price and construction costs. After we obtained these two projects, construction costs rose 20 percent. And the target sales prices of the unit, we have to be cautious about what will be the next opportunity for us to choose. What will be middle-class income, and what is the price they can support if they want condominiums?

Are those opportunities even existing at this point?

Our strategy is certainly for one way to approach private owners and explain to them our vision here, our sense of urgency to make a change here. We reach out to city officials, planners, economic directors, and so on, to see if publicly-owned land can be obtained and have a public-private partnerships.

But how do you get to middle-class housing solutions? In the Bay Area, we have a lack of supply. Market rates are out of reach for the middle class, and those units fund below-market-rate units that middle-class families don’t qualify for.

There are multiple ways. I know architects and developers in Japan and Russia. In Russia, the land is dirt cheap. The land is controlled by the government, so the developers just lease, so the cost is very cheap. It (brings down) the construction costs. The government just needs to be very smart to find some developer with an injection of cash into the government land. There are various ways to utilize urban land.

Link to article: Greenland Holding

Why Office Rents are Surging in these East Bay Cities
Source: San Francisco Business Times
Reporter: Roland Li
Date Posted: June 30, 2015

Rents are rising in the East Bay office submarket along the northern I-680 highway corridor as local companies expand, despite still-high vacancy rates and limited migration from companies outside the area, according to brokerage Newmark Cornish & Carey.

Commercial Real Estate

The submarket, which includes Concord, Walnut Creek and Pleasant Hill, has seen rents increase in some areas by as much as 30 percent, said Tom Fehr, executive vice president and regional manager of Newmark Cornish & Carey. Rents range from $48 per square foot in Class A space in Walnut Creek near the BART station to $24 per square foot in less desirable space in Concord, he said.

The vacancy rate in the submarket of roughly 10 million square feet remains high at 15.3 percent, but it is down from 16.7 percent at the beginning of the year, according to Newmark Cornish & Carey data. Concord has improved to 17.8 percent vacancy, from 20.4 percent at the start of the year.

“What is driving it is organic growth within our market,” said Fehr. “These tenants are not, for the most part, tech companies. The tech companies are staying in San Francisco.”

The northern I-680 submarket is still rebounding from the 2008 recession, when a swath of businesses related to home buying closed, including mortgage bankers, insurers and homebuilders. “We got hit pretty hard. Our recovery’s been much slower,” said Fehr.

Part of the market’s appeal is its proximity to more affordable housing in the East Bay. Workers also typically encounter lighter traffic when driving northeast, in contrast to crossing the Bay Bridge into San Francisco, said Fehr.

Newmark is now fielding more inquiries on space from companies considering a relocation from Oakland or San Francisco. “We’ve been waiting for the spillover to happen probably since the second quarter of 2013,” said Fehr.

Rents aren’t near the $60 per square foot that would justify new construction of office space, and the vacancy rate in the area further discourages any new construction. But if the submarket is able to continue the current momentum to lure more tenants, the area may see its biggest recovery since the recession.

“It’s the first time since 2010 that we’ve had a really dynamic six-month period,” said Fehr.

Link to Article: EAST BAY OFFICE RENTS

Calco Commercial Real Estate has sold 360 Barneveld Avenue. 360 Barneveld Avenue consists of 3,775+/- square feet of clear span warehouse with 16′ ceilings and second floor offices. The property includes one (1) large drive-in door and is located in the Bayshore Corridor Area.

360 Barneveld_Exterior Photo_for Web

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

Prices Indices Rise at Double-Digit Rates for all U.S. Regions, Major Property Types
Source: CoStar
by: Randyl Drummer
Date Posted: May 13, 2015

Amid some of the strongest investment sales on record, commercial real estate prices rose across both the high and the low ends of the market during the first three months of 2015 as strong capital flows and healthy fundamentals converged to support broad pricing gains.

The latest release of the CoStar Commercial Repeat Sale Indices (CCRSI), an analysis of commercial property sales through March 2015 that provides one of the broadest measures of repeat sales activity, reflected increases across virtually every segment of the real estate market during the first quarter of 2015.

The value-weighted U.S. Composite Index, influenced by sales of high-quality assets in core markets, increased by 4.7% in the first quarter of 2015 and is now 11% above its previous peak in 2007. The equal-weighted U.S. Composite Index, which weighs each transaction equally and reflects the impact from the more numerous smaller transactions, rose 4.8% in the first quarter, although its price recovery started later in the cycle and remains 10% below its previous peak.

The General Commercial segment of the CCRSI Composite Index, made up of smaller deals typical of second- and third-tier markets, gained by 5% in the first quarter of 2015 and 15.9% for the 12 months ending in March 2015, moving to within 11.3% of its previous peak as deals outside of the primary markets continued to attract more investor attention.

The investment grade segment of the Composite Index, which encompasses larger-sized, high-quality properties most often purchased by institutional investors, posted solid but more modest growth of 4.6% in the first quarter and 10.5% in the 12-month period, moving to within 6% of its prior peak.

Q115CCRSI

As the CRE recovery spread across more markets and property segments, all regional sectors and building types posted double-digit annual gains in the 12 months through March 2015. The Multifamily Index has already fully recovered, eclipsing its previous peak, while the retail and industrial indices climbed to within 10% of their previous peaks. The Office Index remained 15% below its previous 2007 high mark.

Among CCRSI’s regional indices, strong investor demand in core coastal metros propelled the Northeast Composite Index to 6.1% above its prior peak during March, while the West Composite Index moved to within 8.4% of its prior high.

Property sales transaction activity, which reached a cyclical high last year, remained strong in the first quarter of 2015, typically the weakest quarter of the year for sales activity. Total sales pair investment volume of $27.8 billion in the first quarter was still more than 50% higher than in the same period last year, suggesting that capital flows will continue to be strong through 2015.

The low cost of debt has helped support the robust deal volume, with low interest rates helping keep wide spreads over the risk-free bond rate, despite historically low capitalization rates.

All six property type indices logged double-digit gains in the 12 months. The CCRSI prime industrial and apartment indices, measuring sales of the properties in the top metros in each sector, saw limited growth due to the run-up in pricing in many core markets. However, the prime office and retail indices grew faster than the overall market average during the same period.

Apartment investment led all building types in annual growth, with the Multifamily Index increasing by 14.8% for the 12 months ending in March. While strong investor appetite for 5- and 4-Star assets in primary markets has propelled the Prime Multifamily Metros Index to lead all repeat sale indices in the recovery and is now 27.6% above its previous 2007 peak, new supply entering the market is beginning to exert downward pressure on occupancies and rent growth. Consequently, the Prime Multifamily Metros index slowed to 10.3% for the 12 months ending in March 2015, compared with 24% for the same period a year earlier.

With new office construction in check and office job growth continuing to outstrip overall employment growth, prices for office properties increased 13.9% during the 12-month period ending March 30. The Prime Office Metros Index advanced by an even stronger 19% annually, with sales of larger core office properties that more resemble bonds in terms of value retention and appreciation enjoying strong pricing growth. Investors view such assets as reliable alternative investments with good relative value.

The U.S. Retail Index rose 43.5% from its recessionary low and 13.5% for the 12 months ending in the first quarter. Retail pricing is now just 6.8% below its previous peak — second only to multifamily among the four major property types. Pricing gains were strongest in top-tier trade areas within core coastal markets over the period, while late-recovery markets, especially fast-growing Sun Belt metros, offered the most price appreciation potential.

Industrial vacancy rates fell to lows not seen since before the last recession, while rent growth, usually unremarkable for industrial property, remained strong at over 5% annually for the 12 months. As a result, the Industrial Index advanced by a solid 12.4%. After a 5.1% increase over the last 12 months, the Prime Industrial Metros Index is still below last cycle’s peak, suggesting more runway for price appreciation as rents continue to escalate. These prime metros are expected to become increasingly competitive as new supply comes on line.

After relatively modest growth of just 4% in the prior period, the Hospitality Index surged by 20.6% in the 12-month period. U.S. hotel occupancies have reached their highest level since the mid-1990s, fueling growth in average room rates and revenue per available room (RevPAR).

Although the CCRSI Land Index gained 23.1% in the 12 months as developers bid up sites across all property sectors, the index has not yet reached its 2012 trough and is still in the earlier stages of its recovery. The Land Index remains 23.1% below its previous peak during the last cycle.

Link to article: CRE Prices Surge

San Francisco’s Vacancy Decreases to 3.6%
Net Absorption Positive 218,378 SF in the Quarter
Source: CoStar

The San Francisco Industrial market ended the first quar- ter 2015 with a vacancy rate of 3.6%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 218,378 square feet in the first quarter. Vacant sublease space increased in the quarter, ending the quarter at 413,869 square feet. Rental rates ended the first quarter at $16.40, an increase over the previous quarter. A total of two buildings delivered to the market in the quarter totaling 108,080 square feet, with 252,593 square feet still under construction at the end of the quarter.

shutterstock_9808078_for web

Absorption

Net absorption for the overall San Francisco Industrial market was positive 218,378 square feet in the first quarter 2015. That compares to positive 265,569 square feet in the fourth quarter 2014, negative (20,730) square feet in the third quarter 2014, and positive 958,846 square feet in the second quarter 2014.

Tenants moving out of large blocks of space in 2015 included U-Save Equipment & Tool Rental moving out of (21,000) square feet at 1258 Bayshore Blvd.

Tenants moving into large blocks of space in 2015 include: Green Leaf moving into 105,600 square feet at 455 Valley Dr, Myokardia moving into 45,404 square feet at 333 Allerton Ave, and CloudFlare moving into 43,519 square feet at 101 Townsend St.

The Flex building market recorded net absorption of posi- tive 3,656 square feet in the first quarter 2015, compared to positive 129,751 square feet in the fourth quarter 2014, positive140,779 in the third quarter 2014, and positive 276,608 in the second quarter 2014.

The Warehouse building market recorded net absorp- tion of positive 214,722 square feet in the first quarter 2015 compared to positive 135,818 square feet in the fourth quarter 2014, negative (161,509) in the third quarter 2014, and positive 682,238 in the second quarter 2014.

Vacancy

The Industrial vacancy rate in the San Francisco market area decreased to 3.6% at the end of the first quarter 2015. The vacancy rate was 3.8% at the end of the fourth quarter 2014, 4.0% at the end of the third quarter 2014, and 4.1% at the end of the second quarter 2014.

Flex projects remained at a vacancy rate of 5.3% at the end of the first quarter 2015 compared to the previous quarter, 5.8% at the end of the third quarter 2014, and 6.4% at the end of the second quarter 2014.

Warehouse projects reported a vacancy rate of 3.1% at the end of the first quarter 2015, 3.3% at the end of fourth quarter 2014, 3.4% at the end of the third quarter 2014, and 3.3% at the end of the second quarter 2014.

Sublease Vacancy

The amount of vacant sublease space in the San Francisco market increased to 413,869 square feet by the end of the first quarter 2015, from 285,144 square feet at the end of the fourth quarter 2014. There was 290,380 square feet vacant at the end of the third quarter 2014 and 314,753 square feet at the end of the second quarter 2014.

San Francisco’s Flex projects reported vacant sublease space of 186,108 square feet at the end of first quarter 2015, down from the 208,699 square feet reported at the end of the fourth quarter 2014. There were 91,366 square feet of sublease space vacant at the end of the third quarter 2014, and 129,748 square feet at the end of the second quarter 2014.

Warehouse projects reported increased vacant sublease space from the fourth quarter 2014 to the first quarter 2015. Sublease vacancy went from 76,445 square feet to 227,761 square feet during that time. There was 199,014 square feet at the end of the third quarter 2014, and 185,005 square feet at the end of the second quarter 2014.

Rental Rates

The average quoted asking rental rate for available Industrial space was $16.40 per square foot per year at the end of the first quarter 2015 in the San Francisco market area. This represented a 4.1% increase in quoted rental rates from the end of the fourth quarter 2014, when rents were reported at $15.75 per square foot.

The average quoted rate within the Flex sector was $26.61 per square foot at the end of the first quarter 2015, while Warehouse rates stood at $12.23. At the end of the fourth quarter 2014, Flex rates were $25.23 per square foot, and Warehouse rates were $11.94.

Deliveries and Construction

During the first quarter 2015, two buildings totaling 108,080 square feet were completed in the San Francisco market area. This compares to 0 buildings completed in the previous three quarters.

There were 252,593 square feet of Industrial space under construction at the end of the first quarter 2015.

Some of the notable 2015 deliveries include: 901 Rankin St, an 82,480-square-foot facility that delivered in first quar- ter 2015 and is now 100% occupied by Goodeggs and Mollie Stone’s Markets, and 1 Kelly Ct, a 25,600-square-foot building that delivered in first quarter 2015 and is now 100% occupied by CS Bio Company, Inc.

The largest projects underway at the end of first quarter 2015 were The Cove – Building 3, a 132,034-square-foot building with 0% of its space pre-leased, and The Cove – Building 4, a 120,559-square-foot facility that is 0% pre-leased.

Inventory
Total Industrial inventory in the San Francisco market area amounted to 94,507,020 square feet in 4,841 buildings as of the end of the first quarter 2015. The Flex sector consisted of 23,955,743 square feet in 789 projects. The Warehouse sector consisted of 70,551,277 square feet in 4,052 buildings. Within the Industrial market there were 516 owner-occupied buildings accounting for 12,428,802 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 fourth quarter 2014 in terms of dollar volume compared to the third quarter of 2014.

In the fourth quarter, nine industrial transactions closed with a total volume of $58,055,000. The nine buildings totaled 430,025 square feet and the average price per square foot equated to $135.00 per square foot. That compares to eight transactions totaling $80,684,000 in the third quarter. The total square footage was 349,762 for an average price per square foot of $230.68.

Total year-to-date industrial building sales activity in 2014 is up compared to the previous year. In the twelve months of 2014, the market saw 46 industrial sales transactions with a total volume of $410,518,100. The price per square foot has averaged $199.10 this year. In the twelve months of 2013, the market posted 31 transactions with a total volume of $191,567,100. The price per square foot averaged $176.40.

Cap rates have been higher in 2014, averaging 6.35%, compared to the twelve months of last year when they averaged 6.19%.

Link to Full Report: Costar Q1 Industrial Report 2015

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

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

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

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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.

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

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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.

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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.

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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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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