Category: San Francisco CRE (33)

Source: CoStar News
By: Mark Heschmeyer
Date Posted: December 20, 2016

Fred’s Inc. (NASDAQ: FRED) has signed an agreement with Walgreens Boots Alliance Inc. (NASDAQ: WBA) and Rite Aid Corp. (NYSE: RAD) to purchase 865 stores and certain assets related to store operations located across the eastern and western United States for $950 million in cash.

Closing of the transaction is expected to take several months after Walgreens Boots Alliance’s proposed acquisition of Rite Aid is completed. The deal is also subject to approval by the Federal Trade Commission as well as customary regulatory approvals and closing conditions.

The pending $17.2 billion merger between Walgreens and Rite Aid first proposed in the fall of last year has lingered while the FTC analyzed its competitive impact. This past October, Walgreens Boots Alliance and Rite Aid announced an extension of their end date for the merger agreement to Jan. 27, 2017.

Walgreens executives continue to signal their confidence in closing the merger and have always expected that they would have to sell from 500 to 1,000 stores to help seal federal approval.

Shareholder approval is not required.

The store divestiture to Fred’s Pharmacy, if approved, is targeted to close during the first half of 2017 and will position Fred’s as the third-largest drugstore chain in the U.S. and create a new national competitor. Memphis-based Fred’s Pharmacy currently operates 647 discount general merchandise stores and three specialty pharmacy-only locations in 15 states in the southeastern US.

In connection with this transaction, the company said it has received financing commitments from BofA Merrill Lynch and Regions Bank to fund the purchase price, transaction-related costs, ongoing business operations and anticipated capital investments.

“This will be a transformative event for Fred’s Pharmacy that will accelerate our health care growth strategy,” said Fred’s Pharmacy CEO Michael K. Bloom, “We have been working for several months on integration plans to ensure a seamless transition.”

Fred’s appointed Michael Bloom as its new CEO last summer. One of his first moves was to hire Chris McDonald as vice president for real estate. McDonald previously was senior category manager at CVS and has extensive real estate experience from her time at Chase Bank and Walgreens.

In aggregate, the 865 stores are generally representative of Rite Aid’s pre-divesture store performance with respect to both sales and EBITDA. Fred’s Pharmacy expects that the acquired stores would be accretive to earnings and generate substantial cash flow.

Fred’s Pharmacy said it expects to keep certain store and certain field and regional team members, contingent on consummation of the transaction. Post-acquisition, the company will operate the acquired stores and will retain the Rite Aid banner through a 24-month transition.

A.T. Kearney served as a strategic advisor to the CEO and board and provided financial and operational diligence related to the transaction.

Link to article: Walgreens Rite Aid Merger

Source: CoStar News
By: Mark Heschmeyer
Date Posted: November 16, 2016

One group of business owners hasn’t benefitted from the rebound in property prices. Once a real estate mainstay, owner/user purchases of commercial properties by small businesses have declined over the first three quarters of this year, reversing four straight years of increasing sales, CoStar Comps data shows.


Through the first three quarters of this year, owner/user purchases of office, industrial and retail properties ranged from $150,000 to $1.5 million and totaled $8.79 billion. That is down 11% for the same period last year.

By way of comparison, owner/user purchases of properties of more than $1.5 million are ahead of last year’s pace: $20.76 billion for the first three quarters of this year vs. $19.7 billion for the same period last year, which marked a post-recession high.

Higher property prices may be to blame. Property prices in the small business category have been skyrocketing from a low in 2012 of $51.46 per square foot. At the end of September 2016, the average price per square foot for this category had climbed 28% to $66.08 per square foot, fast approaching the 2009 average price peak of nearly $69 per square foot.

By property type, office properties sold in the $150,000 to $1.5 million price range bought by owner/users climbed from an average of $91.12 per square foot in 2012 to $98.61 per square foot at the end of the third quarter of 2016.

Retail prices for such properties bottomed in 2013 at $85.41 per square square foot and are now selling for more than office properties at an average of $99 per square foot.

Prices for industrial properties in the same price range have climbed from an average of $32 per square foot to $42 per square foot for the same period.

At the same time, banks have been cutting back on their real estate lending to small businesses.

Bank lending to small businesses secured by non-residential properties peaked in June 2008. Banks had more than 1.2 million such loans ranging from $100,000 to $1 million on their books at that time totaling $346.6 billion, according to data from the Federal Deposit Insurance Corp. That total had fallen 22% to $271.3 billion at the end of June 2016, the latest data available.

As an interesting side note though, banks make up five of the largest six sellers of properties to small business owner/users in the last two years. Wells Fargo accounted for about $37 million in such sales; PNC Financial Services, $26 million; Fifth Third Bank, $18.5 million; SunTrust Banks, $16.4 million; and Bank of America, $13.5 million, according to CoStar data.

Meanwhile, capital outlays by small businesses has been trending down, according to the National Federation of Independent Businesses, a small business trade group. The percentage of owners surveyed monthly making an outlay peaked for this recovery in July 2015 at 61% and held close to that through January 2016 but has faded since, according to NFIB’s October data.

The percent of owners planning capital outlays in the next three to six months was 27%, an historically weak number. Seasonally adjusted, the net percent expecting better business conditions fell 7 percentage points to a net negative 7%, which means that now, more owners expect that conditions will worsen. Only 9% of small business owners thought that now is a good time to expand.

Link to full article: CoStar-Small Business Lending Decline

Vacancy Remains under 3%; Rents up 3.85%

The San Francisco industrial market ended Q3 2016 with vacancies increasing slightly to 2.8% from Q2 vacancies of 2.7%. Although the vacancy rate reflects a net negative absorption of 16,706 square feet, vacancies remain south of 3% . Reported rents for the same time period have increased by nearly 4%. Sublease vacancy also decreased modestly in Q3 2016 to 200,217 square feet from 173,183 square feet reported in Q2. Conversely, industrial sales activity is up in Q2 2016 with total sale revenues equalling $131,278,489, and averaging $215.42 per square foot, compared to $100,718,100 in revenue, and $204.17 average per square foot in Q1 2016. Year-over-year sales are lower than 2015, but investors are seeing higher CAP rates averaging 5.62% in 2016 compared to 4.47% during the first half of 2015.

San Francisco's Industrial Bayshore Corridor Area

San Francisco’s Industrial Bayshore Corridor Area

The San Francisco industrial leasing activity, as reported by CoStar, for Q3 2016 decreased slightly, however other firms, including Calco Commercial, have reported steady leasing activity with positive absorption rates. Calco Commercial leased several notable industrial properties in Q3 including: 2045 McKinnon Avenue (25,251+/- sf), 650 Potrero Avenue (21,650+/- sf) and 201 Toland (32,580+/- sf land). Calco Commercial leased 61,680+/- square feet in Q2 compared to 125,253+/- square feet in Q3. Due to the continued lack of quality product coupled with no new construction, and the redevelopment of industrial properties into other uses (i.e. residential & office) demand for industrial space persists. For these reasons, now is the time to consider leasing, subleasing, selling or re-positioning your asset.

Calco Commercial is a leading industrial & commercial real estate firm. We have completed more transactions in the industrial market than any other firm in San Francisco. We have decades of experience in Landlord /Owner representation, and repositioning assets into net leased properties with in-place income streams. Calco Commercial is a full service firm that can help make the most of your real estate properties and investments.

Click here to download the full report: Calco Q3 2016 Industrial Report

SocketSite has reported that permits for the 410,000+ square foot, 11-story office campus have been filed by UBER. The modern glass structure, designed by SHoP Architects, is being developed by UBER and Alexandria Real Estate Equities.

The San Francisco Business Times also reported the UBER story, stating that construction will commence by the end of September and the project (which will be located next to the future home of the Warriors) is slated for completion in 2018.

An exterior rendering of the future Uber Headquarters in San Francisco's Mission Bay (Photo courtesy SHoP Architects/Uber)

An exterior rendering of the future Uber Headquarters in San Francisco’s Mission Bay (Photo courtesy SHoP Architects/Uber)

Related Stories:

Business Insider–Uber Green Light

Fortune–Uber Files $8 Million Permit in Oakland

Earlier this year, residents of San Francisco passed Prop C–a measure increasing the on-site affordable unit count of new housing developments to 25% from 12% (on residential developments of 25 dwellings or larger). Click here for more details regarding Prop C: PROP C

SF Neighborhood

Last week, The San Francisco Business Times reported that a feasibility study, completed in conjunction with the Controller’s office, suggests that Prop C could hurt the housing stock by discouraging new residential developments–thereby decreasing the overall amount of available housing.

The The San Francisco Chronicle reported that a final submission of the feasibility study will be submitted by the Controller’s Office to the Board of Supervisors in September. Supervisors Jane Kim, Aaron Peskin originally supported the measure.

As reported by The Registry on August 18, 2016, Greenland USA and the Ping An Trust have acquired The Landing at Oyster Point in South San Francisco for $171 Million. The partners, along with the Agile Group and Poly Sino Capital Limited are slated to invest $1 Billion into the project by developing a office complex geared towards R&D and the life science industry.

Link to article: Oyster Point

Oyster Point

Related articles:

San Francisco Business Times


Source: San Francisco Business Times
By: Rolandi Li
Date Posted: August 8, 2016

According to The San Francisco Business Times Twitter has listed over 183,000 square feet of its Headquarters at 1355 Market Street for sublease.

Wired reported in February of this year that Twitter’s value has decreased significantly from its peak in 2013 and is now valued less than other tech “unicorns.” Could the recent sublease by Twitter indicate more woes for the tech giant?

1355 Market-Twitter HQ

Related articles:

USA Today

San Francisco Chronicle

Source: CoStar News
By: Randyl Drummer
Date Posted: July 20, 2016

Prologis, the world’s largest developer and owner of industrial real estate, reported the first six months of 2016 were the strongest in its company’s history as moderate levels of new supply paired with a strong appetite by e-commerce and other companies created the tightest market for tenants since the first internet boom of the early 2000s.


The San Francisco company owns or has interests in 3,347 buildings totaling 666 million square feet of property in 20 countries, including nearly 380 million square feet in the US. As such, the publicly traded REIT serves as a bellwether stock for the global warehouse and logistics market.

The REIT’s same-store net operating income increased 6.1% in the second quarter, securing an average 17.8% rent increase at lease expirations while delivering $621 million in new projects. Prologis had more than $3.7 billion in cash liquidity, its highest on record.

“All in all, the last six months have been the best in our company’s history,” said Hamid Moghadam, chairman and CEO of San Francisco-based Prologis (NYSE:PLD). “E-commerce and supply chain reconfiguration continue as big drivers of demand for our product. The Class A market is where the action is.”

Building Fast, Leasing Faster

CoStar and other CRE services firms, including CBRE Group, Inc. and JLL, noted the increasingly limited availability of U.S. industrial space at midyear as online sellers, third-party logistics firms, food and beverage and consumer goods firms scoop up newly constructed bulk warehouses and other industrial buildings as fast as they are built.

Even though developers added 158 million square feet of new warehouse/distribution space over the past 12 months, the overall vacancy rate for industrial property continued to inch down to 5.5% as of June 30 of this year.

According to a preliminary analysis by CoStar of midyear logistics and industrial property leasing data, that’s nearly 2 percentage points lower than the 2004-2007 expansion cycle, and within a few basis points of the lowest vacancy rate for industrial property since the Internet-driven demand boom of the late 1990s and early 2000s.

CBRE said it expects the global economy will continue to sustain demand for industrial space.

“While we’ve had some shocks to the global economy, the U.S. economy still is moving along at a slow and steady space and that will sustain industrial demand,” said Jeffrey Havsy, CBRE chief economist for the Americas. “Retail sales have been above expectations, posting pretty strong gains in April and May. That will help both the retail and industrial sectors.”

More than 210.5 million square feet of industrial space was absorbed by tenants over the last year, according to CoStar. The nearly 46.9 million square feet of net absorption in the second quarter, while down just under 10% from a year earlier, remains consistent with the average pace of demand growth throughout the long expansion, said CoStar Senior Real Estate Economist Shaw Lupton, in a preview of the company’s midyear industrial market review and forecast webinar scheduled for July 28.

Link to article: Demand for Warehouse Space Skyrockets

Source: San Francisco Business Times
By: Riley McDermid
Date Posted: July 19, 2016

According to the San Francisco’s Office of the Assessor-Recorder and the San Francisco Business times, the entire value of all properties in San Francisco has broken historical records by exceeding $208 billion. The total property value has increased by 9% over last year’s assessment, and will also mark an increase in the city’s tax revenues and General Fund budget.


Click here for the full article: SF Property Value

Source: BisNow News
By: Aswin Mannepalli
Date Posted: June 14, 2016

Tesla is gobbling up Bay Area real estate as it aims to build 1 million cars by 2020. The automotive company is closing in on Apple and Google as one of the major real estate holders in the region.


While Tesla officially declares 6.6M SF of commercial space, the San Francisco Chronicle reports the real number is closer to 8.3M SF. The first number only takes into account holdings such as the 5.4M SF factory and 350k SF headquarters. The 8.3M SF figure, however, adds all stores, service centers and 1M SF in facilities that will come online soon. Analysts expect the company to keep growing rapidly to meet production targets. It remains to be seen if the company will grow in the Bay Area or move east as it did when it built the Gigafactory in Reno. Electric car companies such as Tesla competitor Faraday Future also have pursued Bay Area space for their expansion plans. [SFC]

Link to Bisnow Article: Tesla Major CRE Player

Link to SF Chronicle Article: Tesla’s CRE Empire