By Cory Weinberg: Reporter for San Francisco Business Times
Uber Technologies Inc. will open a large office in Oakland, taking all of the workspace in the refurbished Sears building that will open in two years, according to a source with knowledge of the deal.
The deal gives Uber all 330,000 square feet of the building. Uber made the deal official Wednesday morning, announcing it bought the building from Lane Partners, the building’s owner, for an undisclosed price.
For Oakland, the deal may ignite a real estate market that hasn’t seen a new office building built in over a decade and hasn’t gotten a bite of the region’s huge growth in $1 billion technology companies. It could also give investors more confidence to finance the construction of thousands of residential units that developers want to build.
“Oakland just changed. Wow,” Chris Foley, a land broker in San Francisco and Oakland for Polaris Pacific, said when reached by phone and told of the news.
For Uber, the deal shows more of its massive growth. The $50-billion-plus ride-app company already has about a half-million square feet of space rented across three buildings on Market Street and another 423,000 square feet that will open in its new Mission Bay headquarters by 2017. The San Francisco-based company had been kicking the tires on Oakland this summer, meeting with developers about potential spaces, as I reported earlier this month.
Uber also has partial ownership future Mission Bay building, though owning real estate is still a rarity for such a young company.
The former Sears building, which recently covered up its rooftop logo with a sign designating it as the rebranded “Uptown Station,” has room for 3,000 employees, according to the building’s marketing website.
If Uber fills that space completely, it would become Oakland’s largest employerthat isn’t a government agency or medical center. It would also surpass the size of downtown offices rented by private companies like Clorox and Pandora, which lease 275,000 square feet and 200,000 square feet, respectively, according to the brokerage Cushman & Wakefield.
This deal is a huge win for Menlo Park-based developer Lane Partners, which bought the failing Sears building at 19th and Broadway last year for $25 million and has been working on a $40 million gutting that will transform it into prime tech space. A rough San Francisco comparison for that bet would be Shorenstein Properties’ investment in an old furniture market that became Twitter’s global headquarters, now worth $900 million. It’s unclear whether Lane will stay onto the project as a fee developer until the renovation is completed.
Lane has shown its confidence in getting a deal done, wrapping up sites for residential development around the Sears building, I reported this month. Rumors have been escalating about a potential lease lately as Lane apparently stopped marketing the building to new tenants.
Industry sources have said Lane was shopping the space to tenants for about $45 a square foot annually once you factor in operating expenses – 28 percent higher than the average price of downtown space in Oakland, according to the brokerage Avison Young.
The building sits on top of the 19th Street BART Station, adding to its lure for potential employers, who increasingly stress their employees’ needs for access to public transit to avoid clogged bridges and highways. It’ll also be packed with amenities, like a rooftop strewn with picnic tables and fire pits for workers. About 50,000 square feet on the ground floor will have a large food hall and retail space. Gensler, which recently opened an office across the street from the project, is the architect for the renovation.
The building is the centerpiece of the Uptown neighborhood’s decade-long comeback. In recent years, the neighborhood has seen the revitalization of landmarks like the Fox Theatre and new housing built by real estate giants like Forest City.
Meanwhile, the city has had some of the fastest-rising residential rents in the country with paltry construction of market-rate housing.
Major residential and hotel projects still sit in the city’s pipeline, and real estate insiders have reported that investors are still lukewarm about committing equity to Oakland projects. The presence of a globally known technology company will change that, Todd Vitzthum, a broker for Cushman & Wakefield, said last week.
“We’re 5 years into the (economic) cycle with continued rent and value growth – why haven’t we built yet? We’re just at the point to get capital support for projects,” he said. “There’s a tremendous amount of anticipation on who will move into old Sears building. If it’s a high-profile, marquee tenant, it’ll have a very positive effect across Oakland.”
The question now becomes: Will more technology companies follow?
Right now, there’s no major spaces where they can land. Oakland has two major office sites controlled by SKS Investments and Shorenstein Properties, who won’t start construction until they have tenants wrapped up. Other land deals for potential offices are being shopped, too.
The city should be a destination for startups who want to save money in particular, said startup investor Chamath Palihapitiya at Social + Capital last week.
“It’s fine to fail,” Palihapitiya told attendees, according to TechCrunch. “But if you fail because you didn’t have the courage to move to Oakland and instead you burned 30 percent of your cash on Kind bars and exposed brick walls in the office, you’re a (freaking) moron.
So far, Oakland has been successful in cultivating strong homegrown startups without huge venture funding. Design firms, law firms and other types of companies have also been trickling from San Francisco to Oakland.
The public policy think tank SPUR cautioned in a report earlier this month that Oakland can’t bank on a cascade of large companies coming across the bay.
“Downtown has about a dozen co-working spots and a half dozen or more distinct business incubators and accelerators. Future growth should build off this existing infrastructure,” read the report.