Real estate giant Kilroy scoops up another SoMa development site

By Cory Weinberg: Reporter­ San Francisco Business Times

Kilroy Realty Corp. might get to call “bingo” in a game to collect sites in all of San Francisco’s major areas of office development.

The publicly traded real estate investment trust paid $78 million for the approved office industrial development site at 100 Hooper, a project with 450,000 square feet of space next to Showplace Square, where SoMa meets Potrero Hill. The seller was San Francisco-­based UrbanGreen Devco.

Kilroy (NYSE: KRC) has already funneled dollars into office sites in Mission Bay, the South Financial District and Central SoMa in just the last few years.

Together with its Exchange on 16th office project in Mission Bay, Kilroy will get to work on finding companies to fill the last two remaining fully entitled office sites in San Francisco that aren’t yet leased. Kilroy expects to start construction on the project this year.

“The demand (from office tenants) is moving south in the city. SoMa is filled up now and Mission Bay is basically filled out now. There aren’t a lot of large opportunities available,” Mike Sanford, Kilroy’s Northern California executive vice president, told the Business Times.

This part of the city – west of Mission Bay and east Potrero Hill, squeezed between the 280 and 101 freeways – is about to pop with change, even if it’s so far gone more unnoticed than other office submarkets.

The site is next to several large residential projects that are starting construction, such as Equity Residential’s 900 units in the Design District. The homes of California College of Arts and Dolby Laboratories are nearby. Payments startup Stripe just leased 300,000 square feet a few blocks away.

“When I was driving from SoMa to Mission Bay, I would drive along 7th Street. I started to notice what was going on over there,” Sanford said.

The project is also significant because it will reserve about 20 percent of the space, or 50,000 square feet, for manufacturing and industrial companies that employ lower-­to­-middle-­wage workers and can’t afford expensive space. That space will be owned and managed by PlaceMade, a non­-profit subsidiary of SFMade that focuses on providing affordable space for manufacturers and other related industrial users in San Francisco.

That will also make the project even more appealing to potential tenants, Sanford said.

“The collaboration between manufacturing companies and technologies companies make it an incubator. It’s just like what we’re seeing with tech and life sciences in Mission Bay,” he said.

Pfau Long Architecture as been working on the building’s design and brokerage Collier’s International on the building’s office lease.

http://www.bizjournals.com/sanfrancisco/blog/real-estate/2015/07/kilroy-buys-soma-office-site-sf-100-hooper.html

Agreement Reached to Preserve the San Francisco Flower Mart

By Jack Stubbs

“As we’ve always promised, this agreement guarantees that a new Flower Mart will be constructed right here at 6th and Brannan,” Mike Grisso, senior vice president of Kilroy Realty Corporation said during the June 29th media press conference and signing ceremony attended by members from Kilroy Realty Corporation, the San Francisco Flower Mart Tenants’ Association, the San Francisco Flower Mart LLC and the city of San Francisco. The event, held at 640 Brannan St., included the signing of a tri-party agreement that ends the proposed November ballot initiative that had the potential to stop the redevelopment of the San Francisco Flower Mart.

Due to the terms of the agreement, Kilroy will provide rent protection for the current tenants and will redevelop the Flower Mart as a mixed-use, state-of-the-art wholesale flower market on the existing site. The project includes a 115,000 square foot Flower Mart wholesale warehouse, 10,000 square feet of Flower Mart retail space, 20,000 square feet of neighborhood retail space, 1.5 million square feet of office space, a 150,000 square foot parking and loading area, and one acre of an open space public plaza. While the project still needs to go through the city’s approval process, construction is expected to begin in the second quarter of 2017. The expected completion date for the project is sometime in the fourth quarter of 2019.

Also discussed at the press conference were the broader details of the agreement between Kilroy and the tenants’ association regarding the new project. The deal is a collaborative agreement wherein current tenants will be able to provide their input, according to Grisso. “We said from the start that we would work closely with the tenants and make sure they’re involved with the design of the project and that the future rents would be affordable,” he said.

While Grisso could not disclose specific details about rents, he emphasized that they would be reasonable and would allow tenants to remain at the redeveloped location for years to come. “[The rents] are way below market and they’re going to help the flower mart vendors continue in the future and stay here for as long as [possible],” he said. During construction of the new project, current tenants will be relocated to a temporary location somewhere in the city. “We’re still working on securing that site, and the tenants will be able to operate there with minimum disruption during construction,” Grisso added. In the terms of the agreement, tenants also have approval rights of the temporary relocation site.

An exciting prospect for both the developer and the tenants, the imminent redevelopment of the Flower Mart at 6th and Brannan St.—a project that allows the Flower Mart to remain in the vibrant SoMa neighborhood—fits into a long history and tradition associated with the institution. “The Flower Mart is not just a 102-year-old institution of San Francisco. [It is] a place that is full of stories and of multiple generations of families from around the world that have made the Flower Mart their home,” District 6 Supervisor Jane Kim said. For many of the tenants, the space represents not only an occupation, but a livelihood as well. “[Many of the tenants] grew up in the Flower Mart their entire lives, following in the footsteps of their parents, cutting flowers, building their craft every day, arranging unique wreaths and bouquets,” Kim added.

The tri-party agreement is a momentous occasion for all involved, considering the history that has led up to this moment, according to Rob Shibata, owner and operator of Mt. Eden Floral Company. “As part of the tenants association, I can say that reaching this agreement has been like running a relay race. Many people have run their leg of the race and deserve credit for getting this agreement to the finish line today,” he said. Just as all three parties involved in the agreement worked tirelessly to make it a reality, the hope is that everyone in the surrounding community will also benefit from its impact.

On a local scale, the agreement will help to sustain and strengthen the surrounding community. “Saving the Flower Mart means that locally owned businesses will be able to continue to call this space here in SoMa their home for generations to come. We will be preserving industrial production distribution and manufacturing spaces that SoMa has historically been known for,” Supervisor Kim said. While local businesses will undoubtedly benefit from the deal, the broader San Francisco community was very much in support of the Flower Mart as an institution—over 20,000 San Francisco residents signed a ballot measure in support of the space.

The redevelopment of the Flower Mart shows a long-term commitment to the larger flower industry, according to Bob Otsuka, executive vice president and general manager of the San Francisco Flower Mart LLC. “[The project] allows us to continue the flower business and show a commitment to the business going forward,” Otsuka said. While Kilroy’s redevelopment of the San Francisco Flower Mart is certainly a huge coup for the flower business and for the Tenant’s Association, it also has more far-reaching implications. “We’re going to work together to continue selling flowers, and that’s the most important thing, to service the flower needs of the greater Bay Area, the state of California, and the rest of the nation,” Otsuka added.

One important aspect also under consideration is how to make the transition to the market easier, according to Grisso of Kilroy. “What excited us most about this project to begin with was incorporating this [existing] Flower Mart, with all its history and traditions, into the new project,” he said. The new Flower Mart—an expansion and refinement of the existing one—will provide more opportunities for the tenants. “[Right now], they don’t have the capacity to do farmer’s markets and all kinds of industry events that they’ve wanted to do. The new Flower Mart will [help them to do that],” Grisso said. The project’s focus on industrial use also fits into the city’s larger vision for the SoMa neighborhood, according to Grisso.

Ultimately, the culminating agreement reached was a matter of fulfilling old promises. “Promises were made, but in our society, they don’t become real until they’re set down in writing,” Aaron Peskin, former San Francisco supervisor, said. The agreement not only finalizes the practical, financial and logistical details of the new project: it also reaffirms the collaborative and collective nature of the Flower Mart as a longstanding enterprise, according to Shibata. “By signing this agreement, Kilroy has accepted responsibility, not just for the real estate here at 6th and Brannan, but to partner with the tenants and with the management of the Flower Mart, so that they [Kilroy] become part of the Flower Mart as an institution,” said Shibata.

http://news.theregistrysf.com/agreement‐reached‐to‐preserve‐the‐san‐francisco‐flower‐mart/

1155 Market Could be Sold for As High As $700 per Square Foot

By Jon Peterson

The sale of the 1155 Market Street office building in San Francisco could be sold for somewhere in the range of $700 per square foot or $72.5 million, according to sources who are familiar with the details of the property.

The sale of this property is under a unique set of circumstances; only floors 1-8, a total 103,613 square feet, is for sale. The remaining floors, 9 through 11, were acquired by the San Francisco office of the Lighthouse of the Blind and Visually Impaired, which will be relocating into this space later this year.

San Francisco-based Patson Companies had paid $72.6 million or $518 per square foot to buy the entire property in June of last year. “We felt that now was a good time to sell the asset as values on many office buildings have risen significantly since we bought the property. I think that there is a lot of capital that is looking to buy office buildings in our market,” said David Harrison, co-founder of Patson Companies.

The cap rate on the sale is projected to be lower this time around. Patson had earned a sub 6 cap rate when it acquired the property last year. “I would think that the cap rate on the sale would be in the low five percent range. This return would be based on the property’s current net operating income,” says David Terzolo, a senior vice president with CBRE in its San Francisco office. This company is handling the sale for Patson. Another person involved in the sale is Josh Peterson, vice president.

1155 Market is now a 100 percent occupied property. The tenant in the space that is up for sale is the City and County of San Francisco, and its lease runs through January of 2023. This kind of asset would seem to attract core buyers that are looking for years of stable and secure cash flow. The one year projected net operating income for the property is $3.76 million.

There has been over $14 million spent on a renovation of the asset in the past three years. One part of this was new tenant improvements built by The City of San Francisco with its lease that was signed in 2013. Some of the other work included a fully renovated entryway and main lobby and upgraded restrooms and elevator lobbies on all floors.

The property is located in the Mid-Market sub-market in San Francisco. This submarket has a direct vacancy rate of 1.43 percent, which puts it among the lowest of any sub market in San Francisco, according to sources that track this information. Tenant demand is very strong in the city. There are over 150 active tenants seeking over 4.5 million square feet of office space.

http://news.theregistrysf.com/1155‐market‐could‐be‐sold‐for‐as‐high‐as‐700‐per‐square‐foot/

New Agent Announcement – Lawrence Chan

On behalf of TRI Commercial we are pleased to welcome Lawrence Chan to the San Francisco Office.

Lawrence Chan

Lawrence has a B.S. in Biochemistry from the University of California, Davis and an MBA from the Kellogg School of Management, Northwestern University and has spent the last 25 years in the biotechnology industry in sales and marketing positions.  He is a proud native of San Francisco and lives in the city with his wife, Michaela, two children, Mila (9) and Kian (6), and Jax, the family cat.

Specialization

Through acquiring and managing a large portfolio of properties, Lawrence grew a passion for and specializes in Multi-Family investments and has become extremely well-versed in the San Francisco’s rent control ordinance.

Lawrence Chan

Investment Advisor

Direct: 415.268.2272

Fax: 415.268.2299

Lawrence.Chan@tricommercial.com

BRE License #01892831

In Massive Rincon Hill Sale, Timing Played a Key Role

Posted on July 8, 2015 by publisher in Commercial, Hot Lot, INDUSTRY news, Residential

When it was announced last week that a partnership between the Rockpoint Group and Maximus Real Estate Partners is in the process of purchasing the 298-unit luxury residential tower at 401 Harrison St., the big news was the roughly $1.34 million price paid per unit, or nearly $400 million for the entire tower two of the One Rincon Hill development. After reviewing the the offering document, which The Registry was able to procure, it’s evident that in this case that timing was one of the main factors that played the role in this transaction.

According to sources in the industry, the seller may have faced pressure in renting the units at pro-forma levels that could have been difficult to achieve even in this market, and having made the decision to market the property made the decision to cease all leasing activity. And while the $1.34 million price tag per unit is high, it does not seem as high if the one considers the price per net saleable square footage, a better metric to use, since unit sizes are not uniform and the average figure is only directional.

“At $400 million, you’re over $1,100 [per net saleable square] foot,” said Kyle Kovac, senior managing director at Newmark Cornish & Carey in San Francisco who was not involved in the transaction. “Ground up condo construction is approximately $1,000 per square foot, so while this is higher, the construction risk has been eliminated and the units can be delivered to the market sooner than later.” Kovac thought ownership will have the opportunity to sell the units—once and if they convert to condos—for north of $1,500 per square foot on average.

And this could be part of the equation. The rental building has already applied to convert the rental units into condos. By purchasing the finished building the developer avoids construction risk, pays a slight premium over construction costs and makes an investment to update finishes. At the same time, they reap the benefits of acquiring a brand new, completed building in a market where supply of condos and escalating condo prices work in their favor in an excellent location in proximity to the new Transbay neighborhood.

Another benefit acquiring this property today is the time to market. The offering document alludes to this, as well. If successfully converted to a condo building, the owners could have the only offering of scale to close condo sales for the remainder of 2015. Most new condo development projects are still in planning phases expecting delivery in 2017 and beyond. Tishman Speyer’s Lumina project is perhaps the only competitive offering in the very active Transbay neighborhood, however, those units are still under construction, whereas Rincon Hill’s are ready for move in.

According to a recent, June 2015 report from The Mark Company, the Condominium Pricing Index, which they produce, for May of this year was $1,263 per square foot, a decrease of 2 percent from last month, however still 12 percent higher than the same month a year ago. Roughly 150 condos went into contract in May with approximately 800 new units available for sale, according to the same report.

Over the last several decades, San Francisco has struggled to fulfill its housing needs, which is not news to anyone tracking the housing market in the Bay Area. The offering document gave an insight into that, as well stating that since 1990, San Francisco’s occupancy has never dipped below 95 percent, with an average occupancy of 96.7 percent from 1990 through 2014.

The neighborhood, the amenities that include a sky lounge and clear, unobstructed views of the bay and surrounding neighborhoods and the timing of this sale could make the Rincon Hill purchase pay out nicely for the buyers.

The buyer and the sell, along with the broker, Eastdil Secured, were not available to comment.

Jeff Weber, senior managing director, Steven Van Dusen, managing director, Jason Flynn, managing director, along with Kara Wiard, Joseph Angiuli and Eve Myers from Eastdil Secured represented the seller, Principal Real Estate Investors.

http://news.theregistrysf.com/in‐massive‐rincon‐hill‐sale‐timing‐played‐a‐key‐role/

Fitbit Signs 164,000 SF at 199 Fremont

John Walz, Reporter  – CoStar

Fitbit Signs 164,000 SF

Fitbit, Inc., maker of activity tracking products, signed a lease for 163,629 square feet at 199 Fremont St. in San Francisco. The new office will be part of the company’s existing headquarters.

The 20-story, Class A office building totals 405,000 square feet in the city’s south financial district. The property is owned by German pension fund company GLL BVK Properties and U.S. pension fund company AFL-CIO Building Investment Trust, according to CoStar information.

Fitbit’s lease will be for the entire 8th, 9th and 11th – 18th floors. Other tenants in the building include StubHub and Fremont Group.

The lease expires on July 31, 2024, subject to the company’s option to extend the term of the lease for an additional five years. The term of the lease is nine years with respect to certain portions of the premises and eight years and four months for the remainder.

John Brady of Savills Studley and James Saunders of Cresa represented Fitbit. John Cashin and Nick Slonek of Avison Young represented the landlords.