In the midst of the COVID-19 pandemic, it is essential that landlords continue to educate themselves, communicate openly, and surround themselves with experts in order to stay on top of the ever-changing legal landscape. To help make this possible I am sharing a great conversation I had last week with attorney Daniel Bornstein of Bornstein Law who specializes in landlord-tenant matters. For over 26 years, rental housing providers have relied on Daniel to cauterize risk, realize the full potential of their investment property, and power through unique challenges inherent with owning and operating a real estate business.
Below are some of what I felt were the most relevant and prudent points we discussed.
Daniel, with all that is going on right now, how can landlords in Alameda County best be prepared?
Most important to note right now is that the courts are closed for non-payment of rent cases, there are no jury trials because of social distancing. Alameda County across the multiple cities has issued a prohibition against eviction for non-payment of rent which means right now, if you have a tenant who is not paying rent, you really want to be on-top of communication with that tenant. You should be actively asking why aren’t you paying the rent, is it related to COVID-19, loss of job, childcare needs or something else? Then you need to make a decision: are you going to be differing the rent, renegotiating the lease, or negotiating a buyout of the lease?
One important point is that from a landlord’s perspective knowing the courts are closed, it is in some cases better to have a vacant unit than a tenant not paying the rent in the unit. There is a possibility that you’re not going to gain possession, the non-payment of rent may elapse for more than 6 months, and there is no clarity as to when you’re going to get that vacancy. So, if a tenant says I am willing to vacate if you let me out of the lease that may be perfectly prudent because what is the alternative? The courts are closed, you’re not receiving rent, and to do an eviction right now is not permissible and may not be permissible this year. We are in a very unfortunate situation for many landlords around Alameda County right now.
How would you approach a situation where you have a tenant who is communicating openly and requesting a rent reduction?
That is a good question, and I take it on an individual basis – if you just started a tenancy, and the rent is at market rate, and we are seeing downward pressure on rents, it may be prudent to negotiate a 10-20% reduction in rent and keep that tenant in the unit and happy. In the end, cash-flow is better than no cash-flow, and the issue is whether this is a credible person that you want to do business with or not. In the event that you do have a tenant who is engaged and in good faith and is without a job, you’re going to have to make a decision of whether you are going to delay payment, differ payment or waive rent.
One big note, if you reduce the rent and you don’t do it correctly, you may reset the base rent so that you may be subject to that new base rent in later years when times change. All things equal, I’d rather you defer the rent or just keep track of the debt that is accruing and, in the future, come to a decision of whether you are going to waive it or try and collect it. Alameda County has done something very unusual in that they have indicated that tenants with rent debt that has arisen during the COVID-19 emergency are going to be given 12 months after the emergency is ended to repay that debt. If it is not repaid it will be transitioned to consumer debt, so you will not be able to evict a tenant for COVID-19 related debt. You can take it from the security deposit and you can file a lawsuit against them, but you’re not going to be able to use a three-day notice to pay rent or quit to recover it. Knowing that has basically pushed me to suggest the age-old adage, a bird in the hand is worth two in the bush. Which means if you can collect a portion of the rent now, do so because I don’t know that you’ll ever be able to recover it in the future.
All things being equal, and if you don’t want to get into the complexity – if the rent is $1,000 and you receive $750, you can accept $750 but follow it up with an email saying, ‘I’ve accepted $750, but be advised there is still a debt of $250 for the month of July.’ I’d do it that way and just keep track of the debt that’s accruing.
How has your business changed and what kinds of requests are you getting from clients at the moment?
It’s a tough time to be an attorney right now because the courts are closed! So, what I am typically doing right now is consulting, educating, empathizing and commiserating, because I don’t have that many skills that I can offer right now to help accomplish goals. Which translates to, compromise, compromise, compromise is really what I am suggesting. This is an outlier of an event, I’ve never been involved with a pandemic before, I’ve never seen the courts closed, so this is a work in progress.
As far as an outlook, what if any legal trends you are forecasting?
Trending in my mind is that there is going to be continued downward pressure on rent, and there is going to be more and more tenants that are unable to pay the rent. After July, if there aren’t additional unemployment payments then there is going to be even more tenants unable to pay. Then it will be up to the politicians to decide how they are going to handle this crisis, but my expectation is that we are in for a very long and difficult journey together.
I am particularly concerned about another issue, which is the courts are moving existing cases to September, and they will likely move the existing cases that have been moved to September, to December while we are getting a confluence of new cases that are arising. Our systems are clogged and only will get further clogged, which means if you can avoid litigation, if you can avoid a dispute with a tenant, avoid it, negotiate transitions, and don’t expect to accomplish your goals easily through litigation.
One easy analogy if you’ve been following the news lately, you’ll have seen the actor Johnny Depp has decided to pursue a claim in Britain against his ex. In the process of pursuing litigation, he has ensnared himself in something much larger and from a public standpoint it has been miserable for his reputation. In some respects, the optics of pursuing litigation on a tenant right now are not ideal and only in a last case solution would I pursue it. There are going to be times where you have to pursue it because you have a tenant who is not communicating or cooperating, and you have to seek judicial remedy but for all other instances see what you can do outside of court.
Written By: Teddy Swain, | July 29, 2020
About the Author:
Teddy is a commercial real estate broker and adviser at TRI Commercial Real Estate Services in the San Francisco East Bay. His expertise lies in the acquisition and disposition of East Bay Area Multi-Family and Mixed-Use property as well as Entitlement and Development Opportunities.
Teddy also serves as the Technology Officer on the board of directors for the Certified Commercial Investment Member’s Northern California Chapter (CCIM).
DRE# 02067677 Email: teddy.swain@tricommercial.com –
Direct:925.296.3360
Read original article on The Registry here.
The cost of doing business and heightened competition in top markets such as the Bay Area, Silicon Valley and the Los Angeles metro is increasingly untenable, and companies are setting their sights on inland markets.
By Lisa Brown | July 20, 2020 at 04:00 AM
WALNUT CREEK, CA—Before the global pandemic that roiled the economy and commercial real estate industry, commercial real estate brokers were noting a growing trend of companies moving out of dense West Coast markets. Faced with rising prices, and lack of office and industrial space, along with the rising cost of housing and business taxes, many small- and middle-market enterprises were under pressure.
The cost of doing business and heightened competition in top markets such as the Bay Area, Silicon Valley and the Los Angeles metro was untenable, and companies began to set their sights on inland markets. The COVID pandemic is projected to accelerate this trend, according to Edward Del Beccaro, executive vice president with TRI Commercial/CORFAC International.
In California’s major markets pre-March 2020, vacancies were decreasing in every sector except retail, which had exhibited an overall demand dip regardless of location. At the same time, the affordability and availability of housing in California were making it difficult for working- and middle-class people to find homes. In 2019, Census data showed that more people had moved out of California than had moved in for the seventh year in a row and a University of California Berkeley poll found 71% of people cited high cost of housing as the top reason for wanting to leave the state.
Mid-sized and small businesses such as billing companies, insurance firms, enterprise service companies, and smaller manufacturing and logistics firms couldn’t compete with larger employers for space or talent. Those firms needed to relocate where workforces could find lower cost of living and better quality of life.
“Particularly in the Bay Area, our firm has seen companies reach their limits,” Del Beccaro tells GlobeSt.com. “Because the Bay Area is constrained due to water, companies have spread out as far as Sacramento 60 miles northeast, creating super-commutes for their employees with travel times exceeding 1.5 hours one way. Business owners are looking beyond the Bay Area where both they and their employees can find better value and have more balanced home life. The COVID crisis also has companies looking at remote working and even leasing satellite locations in the outer suburbs away from downtowns.”
In the Western US, smaller companies have increasingly moved into inland states including those in the near west such as Utah, Nevada, Colorado and Arizona. Chief Executive reported that from to 2015, more than 1,800 companies left California.
One beneficiary of the Cal exit is Nevada, where the favorable business climate and growth of companies following a new Google data center in Henderson is causing a new housing boom. MDL Group/CORFAC International, a brokerage based in Las Vegas, recently found flex industrial space for a solar panel company moving from Fontana, CA.
“We expect this trend to continue with similar type energy-related companies because the overall cost of living and cost of doing business within the Southern California market is excessive,” said Hayim Mizrachi, president and principal of MDL Group. “Plus, Nevada has an excellent new home market and construction market, which will drive demand for alternative energy sources. Our climate is ideal for solar use and related businesses.”
While the full impact of the COVID-19 pandemic is yet to be known, one possible trend brokers are watching is that more businesses will look to spread beyond dense urban centers and coastal cities, which have been harder hit by the virus. Similarly, as remote work becomes more accepted, resulting in changing needs for space and staffing, companies may no longer need to be in expensive coastal cities. The California exodus may accelerate as middle-market firms choose to relocate operations to cities that are friendlier for business and more livable for employees, Del Beccaro says.
Read original article on GlobeST.com here.
By GEORGE AVALOS | gavalos@bayareanewsgroup.com | Bay Area News Group
PUBLISHED: June 15, 2020 at 5:45 a.m. | UPDATED: June 15, 2020 at 8:57 a.m.
OAKLAND — PG&E sought for years to find ways to exit its inefficient San Francisco headquarters complex and transplant its offices to the East Bay before finally striking a deal for a downtown Oakland office tower, bankruptcy court records show.
Court documents also reveal PG&E’s official estimate for the number of workers the utility expects to deploy to the new Oakland headquarters: 4,500.
PG&E’s deal for a lease with an option to buy a 28-story office tower perched on the shores of Lake Merritt is intricate, according to documents in PG&E’s $58 billion bankruptcy case that’s now in its final days.
Yet it appears the deal is a win for PG&E customers, the utility, and for TMG Partners, the veteran developer that intends to ultimately lease and sell the highrise to PG&E.
“For PG&E ratepayers, it’s a smart deal for the company to make. For TMG, it’s a brilliant deal,” said Edward Del Beccaro, an executive vice president with TRI Commercial/CORFAC International, and Bay Area managing director for the commercial real estate firm.
The utility’s deal for the downtown Oakland office tower includes a base rent of $57 a square foot per year, which works out to $4.75 a month per square foot, U.S. Bankruptcy Court files show.
“That rental rate is very low for downtown Oakland office space,” Del Beccaro said. “I would have predicted it would have been $70 a square foot per year.”
PG&E is poised to shell out up to $892 million if the utility buys the 300 Lakeside Drive tower, which totals 910,000 square feet, from TMG Partners.
The $892 million is an over-arching “all-in cost” with several components. Court files state the elements are: $420 million as the basic purchase price to acquire the office tower; $141 million for required code improvements and building improvement costs; $171 million for development fees, carrying costs, and transaction fees and expenses; and $160 million in allowances for custom-tailored tenant improvements that include technology systems, security, floor arrangements, and seismic work. These work out to $230 a rentable square foot.
Since the early 2000s, PG&E has been mulling what to do with the San Francisco office buildings, executives stated in court records.
“Many of the utility’s (headquarters office complex) employees commute to San Francisco from the East Bay area, where the cost of living is far more affordable than in downtown San Francisco,” PG&E said in a court filing.
Plus, the San Francisco headquarters complex has become steadily more expensive to operate.
“The costs of maintaining a headquarters in San Francisco have continued to increase due to both the growth of the local real estate market and significant costs PG&E would face to upgrade and maintain the San Francisco office complex,” the utility stated in court documents.
By early 2018, PG&E intensified its efforts to extract cash from the San Francisco properties and hired TMG to evaluate the company’s real estate prospects in San Francisco and the East Bay. In September 2018, PG&E tasked TMG with finding an East Bay site for the future headquarters, bankruptcy papers show.
“The utility most recently began evaluating a number of specific options to monetize the San Francisco General Office headquarters complex, including a full or partial sale of the San Francisco offices, in early 2018,” PG&E stated in the bankruptcy court records.
The PG&E office complex in San Francisco consists of 77 Beale St., 215 Market St., 245 Market St., and 45 Beale St., court records show.
TMG and PG&E scouted an array of East Bay sites, including the Bishop Ranch business park in San Ramon and a portion of the redevelopment project at the Concord Naval Weapons Station. No deal materialized.
“By mid-2019, PG&E had been unable to locate a satisfactory property in the East Bay area that could meet the utility’s various business needs,” the court records stated.
PG&E pondered selling 77 Beale St. and moving workers into 245 Market St., or the reverse. But 245 Market was deemed too small, and 77 Beale was too large.
Then came a break. In November 2019, realty firms Swig Co. and Rockpoint Group put on the block the 300 Lakeside Drive tower along with an adjacent mixed-use office building and a big parking garage.
Well aware of PG&E’s unrequited ardor for a new East Bay headquarters, TMG raced to make Swig and Rockpoint an offer.
“The utility quickly investigated and determined that the Lakeside Building would provide significantly greater economic benefits” than retaining a San Francisco headquarters. the court papers stated.
In January 2020, PG&E agreed to a deal for 300 Lakeside. A month later, Swig and Rockpoint picked TMG as the buyer of the tower, the mixed-use building, and the parking garage.
TMG negotiated a purchase of the complex while well aware PG&E was waiting in the wings as a 300 Lakeside tenant after the departures of tenants BART and the University of California Office of the President.
“PG&E intends to use the Lakeside Building as its new company headquarters, where it can consolidate approximately 4,500 employees currently located in San Francisco and at least two satellite offices in the East Bay,” the court records state. The East Bay sites are in Concord and San Ramon.
The 300 Lakeside renovations are slated to start in 2022.
“It is currently anticipated 3,200 employees will be relocated to the Lakeside Building by early 2023, approximately 600 employees in 2025, with the balance of the space to be made available for an additional 600 employees beginning in 2026,” the bankruptcy files stated.
TMG, after selling the tower to PG&E, would retain the parking garage and smaller mixed-use building. Those sites have a large enough footprint that they could be developed into one or more towers.
Obstacles remain. TMG must buy the site. A bankruptcy judge must grant approval. PG&E’s track record of a string of fatal disasters that include an explosion and wildfires creates uncertainty.
“You can’t always predict what will happen with PG&E,” Del Beccaro said.
Read original article on Mercury News here.
Written By: Teddy Swain, TRI Commercial Real Estate Advisor
Given all that is going on in the world today – Covid-19, shelter in place, record unemployment – it is now more than ever crucial that we continue to see the much needed affordable and market rate housing be built in the Bay Area. Cities and counties are still under pressure from state guidelines to meet the needed housing production thresholds despite a market that has been at a standstill for the last two months.
As things begin to open back up, it won’t take long for investors, builders, and developers to remember that the Bay Area remains one of the most underserved housing markets in the nation. To discuss how these projects can still get funded during this public health crisis I interviewed Vern Padgett, a 40+ year banking and finance veteran and colleague of mine at TRI Commercial.
Vern – I appreciate you taking the time today to talk over Zoom. Can you share a bit about your background in finance?
I started my career in business out of college back in 1977 as a management trainee at the Mechanics Bank. At that time the bank did engage in commercial real estate lending but it was typically activity in support of clients that the bank had worked with for multiple generations. It was a rather docile institution from a business development standpoint.
As I worked my way up through Mechanics Bank, I became involved more and more with CRE lending and eventually started the corporate banking division. We basically revamped the bank into a real estate industries group and a corporate banking group. I took over the real estate industries side as that was my specialty for several years and eventually left the bank in 2006. I was then a founding member of Presidio Bank and after that the Chief Banking Officer at Bay Commercial Bank. Eventually I left Bay Commercial to start Black Oak Ventures where we offer more creative bridge financing for borrowers who aren’t quite ready for the institutional lenders for whatever reason.
Let’s jump right in with two examples of spec housing development: an 8 unit condominium project and a 100 unit mid rise apartment building. Both are speculative housing developments but both have vastly different debt requirements. How are those loans typically funded?
The first, smaller project would be of interest to your local or regional bank and there are any number of those banks in the Bay Area that would be interested in funding those loans today.
For the larger loan you are going to look for somebody in the market that is looking to fund a larger deal. Wells Fargo is the knee-jerk option because they are probably the most active in that space. They are very fussy about who they lend to so you’re going to need to be a Wells Fargo client in order to get a Wells Fargo loan. Union Bank would also be a lender that may be interested as they are also a large player in that space. All these guys basically operate in a similar way; they have hold limits so they’ll do a $100MM loan but they won’t hold the full amount. They’ll participate out with bank partners so you may have a Wells Fargo originating the loan but they’ll have a ‘bank club’ and bring in say Union Bank, B of A, California Bank and Trust and they’ll spread the $100MM across their partners and keep the piece they want.
So essentially on the larger loans banks are spreading out their holding risk with a select number of bank partners?
Yes – that’s the business that a lot of these big lenders are in. They’re in the business of managing the big relationships, taking care of their client needs, absorbing the amount of balance sheet exposure that is best for them and shedding the rest to their bank participants. Loan demand isn’t high enough for a lot of the bank participants who try and originate their own deals and they don’t have the clients to fill their balance sheets. We are wash with liquidity right now, so as one of these banks you don’t want to be running at 60% loans to deposits because you don’t make any money, you want to be up around 80%, 90% or 100%. That’s why these partner banks are out there anxiously buying participations.
How has the underwriting for these loans changed given the trouble our economy is facing?
Well, there hasn’t been that much done in the last month and a half. Things have pretty much tamed down as people wait to see how things will play out but I’ve talked to a number of construction lenders recently who are still actively soliciting projects and have closed construction loans on the smaller type deals that we discussed. However, post Covid-19 the rules on those loans have changed: you need to be able to underwrite a hold on the loan as though you are going to hold the asset long term as an apartment building and cover it at a Debt Service Coverage on a 25-year amortization of that construction loan fully funded based on your proforma. Construction lenders today are looking to price their loans on an either or basis; say prime plus 1 – prime is currently 3.25% – so that is a 4.25% minimum rate but they probably are going to fix the floor at 4.5%. So, you can look at it as prime plus 1 or 4.50%, the higher of those two.
I would say that the underwriting metrics have been tightened down a quarter twist on the screw. Deals that would have been done at say 70% of retail value are now being done at 65%. So you’re seeing like a 5% cram down on the tightness of the underwriting. I think we still need a couple of months to see really where things will land.
We are currently in the midst of the pandemic; do you see lenders’ ability to fund construction loans like the two in our example continuing?
The answer to the question really depends on the product type and the track record of the sponsor. Retail development right now is somewhat radioactive so you’re probably not likely going to see much ground up retail development… for obvious reasons. Multifamily though is radically underserved especially in the Bay Area. It is very difficult to achieve entitlement for multifamily and the cities are under immense pressure from the state to fulfil their housing mandates and so I would suspect there will continue to be heavy demand as lenders like to see unfulfilled demand as a driver behind the reason to develop real estate. Not withstanding all the trouble that the economy is dealing with at large today as a result of COVID-19 and the SIP regulations; I can’t imagine that there will be any kind of long term interruption in that category from a lending standpoint.
There seems to be a shift towards pursuing business with existing clients rather than procuring outside clients that lenders may not have an existing relationship with, is this correct?
Yeah, it’s not as though we are in the midst of a go-go upcycle where banks are going to stretch to open up the doors to people who have very limited experience. People who used to work for a homebuilder and now want to BE a homebuilder are going to have a tough time. Those that have relationships and can demonstrate a successful track record in-line with the deal that they are trying to get approval for will still be able to find success today.
If you had to summarize our conversation into a few main takeaways what would they be?
I recently had a discussion with Bank of Marin regarding post Covid speculative for-sale residential product. Some of the key points that we discussed were:
By Blanca Torres – Reporter, San Francisco Business Times
Jan 3, 2020, 7:47am PST Updated Jan 3, 2020, 10:59am PS
While many office tenants feeling squeezed in the core Bay Area have left the region — or the state altogether — a Solano County landlord is now hoping to lure them.
To capture some of the exodus, the Wiseman Co. plans to break ground by April on a 50,000-square-foot, Class A office building at 5000 Wiseman Way in Fairfield with no tenants signed up. The site is 50 miles northeast of both San Francisco and Oakland.
“We are seeing an increasing number of corporate executives realizing that, due to lifestyle and financial reasons, this option is better than Austin, Denver and Phoenix, and because of their love for the Bay Area,” said Zen Hunter-Ishikawa, chief business development officer for the Wiseman Co.
The landlord owns a dozen other buildings in Fairfield, Napa, Suisun City and Woodland.
Wiseman plans to build its new building on a 2.75-acre vacant lot. The $20 million project, designed by TWM Architects & Planners, will be built by Midstate Construction. ZFA Structural Engineers is also part of the development.
The landlord has had some success attracting new tenants from other parts of the Bay Area, albeit for leases under 5,000 square feet.
In the past year, companies including San Francisco-based internet security company TrustedSite and Michigan-based Flagstar Bank each took about 3,000 square feet to expand into Wiseman-owned buildings.
Another tenant, information technology security firm BPM LLP plans to triple the size of its office to 2,400 square feet this year in the Green Valley Executive Center at 5030 Business Center Dr. Fairfield. The satellite office of the larger corporation started out in Fairfield more than a decade ago with employees working remotely before moving into Class A office space.
“The decision for our team, even when it was small, to move to Green Valley, was to be centralized to our existing employees and attract those who might drive in, but want to commute under 30 minutes,” said Sarah Lynn, a partner with BPM who heads the Fairfield office.
Moving to a larger city would mean higher rents for similar space, more traffic, and longer commutes for employees. Fairfield also offers proximity to colleges and military bases where the company can recruit, Lynn said.
Colliers International counts about 5.3 million square feet of office space in Solano and Napa counties with about 15% vacancy. Average asking rates for Class A space run around $24 to $28 per square foot — a steep discount compared with more than $80 per square foot in San Francisco and $60 per square foot in Oakland.
Fairfield sits in what one real estate broker called the third loop of the Bay Area. Companies priced out of San Francisco and Oakland, the first loop, then look at the second loop, which includes San Ramon, San Mateo and Marin County, said Ed Del Beccaro, a longtime East Bay broker and San Francisco Bay Area Manager for TRI Commercial.
If the first and second loop become too expensive or crowded for office space and housing for workers, some tenants will then consider the third loop if they want to stay in the Bay Area metropolitan region, Del Becarro said.
“It will happen, but it won’t be dramatic in the next five years,” he said.
So far, the exodus to markets such as Solano County has been “a trickle.” The move only really works if most of a company’s employees live within a 30 mile radius such as in the East Bay, Del Beccaro said. Employees living in San Francisco or the West Bay are unlikely to follow their employer to Solano County.
A major shift to the third loop “is going to take time,” Del Beccaro said. “But the fundamental premise that over time, inner bay tenants will migrate to Solano County is correct. …The only question is how fast and how much.”
Read original article on the SF Business Times here.
Fire, garbage and homelessness increasingly plague the Golden State.
By Conor Dougherty , Dec. 29, 2019
SAN FRANCISCO — Christine Johnson, a public-finance consultant with an engineering degree, was running for a seat on the San Francisco Board of Supervisors.
She crisscrossed her downtown district talking about her plans to stimulate housing construction, improve public transit and deal with the litter of “needles and poop” that have become a common sight on the city’s sidewalks.
Today, a year after losing the race, Ms. Johnson, who had been in the Bay Area since 2004, lives in Denver with her husband and 4-year-old son. In a recent interview, she spoke for millions of Californians past and present when she described the cloud that high rent and child-care costs had cast over her family’s savings and future.
“I fully intended San Francisco to be my home and wanted to make the neighborhoods better,” she said. “But after the election we started tallying up what life could look like elsewhere, and we didn’t see friends in other parts of the country experiencing challenges the same way.”
California is at a crossroads. The state has a thriving $3 trillion economy with record low unemployment, a surplus of well-paying jobs, and several of the world’s most valuable corporations, including Apple, Google and Facebook. Its median household income has grown about 17 percent since 2011, compared with about 10 percent nationally, adjusted for inflation.
But California also has a pernicious housing and homeless problem and an increasingly destructive fire season that is merely a preview of climate change’s potential effects. Corporations like Charles Schwab are moving their headquarters elsewhere, while Oracle announced that it would no longer stage its annual software conference in San Francisco, in part because of the city’s dirty streets. “Shining example or third-world state?” a recent headline on a local news website asked.
“You get depressed if you listen to everything going on, but you can’t find a contractor and the state continues to create jobs,” said Ed Del Beccaro, an executive vice president with TRI Commercial Real Estate Services, a brokerage and property management company in the Bay Area.
Whether it’s by taming bays and mountains with roads, bridges and power lines or grappling with a lack of water and crippling earthquakes, California is perennially testing the limits of growth. Its population has swelled to 40 million and the state’s economy has grown more than previous generations had thought possible, cramming more cars and more people into cities that were supposed to be tapped out, while seeding new companies and new industries as old ones died or moved elsewhere.
But today it has a new problem. For all its forward-thinking companies and liberal social and environmental policies, the state has mostly put higher-value jobs and industries in expensive coastal enclaves, while pushing lower-paid workers and lower-cost housing to inland areas like the Central Valley.
This has made California the most expensive state — with a median home value of $550,000, about double that of the nation — and created a growing supply of three-hour “super commuters.” And while it has some of the highest wages in the country, it also has the highest poverty rate based on its cost of living, an average of 18.1 percent from 2016 to 2018.
That helps explain why the state has lost more than a million residents to other states since 2006, and why the population growth rate for the year that ended July 1 was the lowest since 1900.
“What’s happening in California right now is a warning shot to the rest of the country,” said Jim Newton, a journalist, historian and lecturer on public policy at the University of California, Los Angeles. “It’s a warning about income inequality and suburban sprawl, and how those intersect with quality of life and climate change.”
You can see this in California economic forecasts for 2020, which play down the threat of a global trade war and play up the challenge of continuing to add jobs without affordable places for middle- and lower-income workers to live. You can see it in the Legislature, which has raised the minimum wage, and next year is poised to debate a bill that could reshape the state by essentially forcing cities to allow multistory buildings near transit stops. You also can see it in the stories of people like Ms. Johnson and other highly educated workers who have gone elsewhere.
For Bryan Diffenderfer, leaving was about acquiring financial breathing room. Mr. Diffenderfer is a 36-year-old native Californian who until recently worked in sales and lived in a 1,200-square-foot townhouse in a Bay Area suburb with his wife and 2-year-old daughter. They had the means to buy a bigger home, but the mortgage payment would have been overwhelming. They bought a five-bedroom house outside Indianapolis for about $500,000, and Mr. Diffenderfer quit his job to work for his wife, who runs an ad-supported fashion blog and social media business.
“I love California, but you hear about people who are cash-poor because they have to invest so much in their house,” he said. “Moving gave me the flexibility to leave my job and go into our family’s business.”
A decade ago, California was mired in the Great Recession along with the rest of the nation. Unemployment was 12 percent, the state had a yawning budget gap and foreclosures were bad enough that skateboarders were rejoicing at the surplus of empty swimming pools. Far from lamenting the influence of tech companies, San Francisco extended tax breaks to get them to stay.
When growth picked up, driven by a once-in-a-generation tech boom that accompanied the proliferation of social media and the widespread adoption of smartphones, California became the foremost example of an innovation economy. Start-ups pitched themselves as the Uber of X, while cities promoted themselves as the Silicon Valley of Y.
But the underlying fault lines were still there. Rents and home prices stayed high, especially in the coastal areas where job and income growth was strongest. As the economy picked up and housing costs resumed their rise, lower-paid service and professional workers moved to distant exurbs, while homelessness spiraled to the point that local political leaders are all but declaring they are out of solutions.
Elected officials in Los Angeles have urged the governor, Gavin Newsom, to declare a state of emergency over homelessness, while the governor is in turn telling the federal government that a state with a $215 billion annual budget cannot solve this on its own. But President Trump has belittled California’s homelessness problem and repeatedly sought to punish the state, whose 55 electoral votes went to Hillary Clinton in 2016. With their traffic and trash, California’s biggest cities have gone from the places other regions tried to emulate to the places they’re terrified of becoming.
There are increasing complaints in Oregon, Nevada and Idaho that rents and home prices there are being pushed up by new arrivals fleeing California. A recent election in Boise, Idaho, was seen as a referendum on California-style growth. And Oregon’s decision to essentially ban single-family house neighborhoods has been billed by lawmakers as a bold intervention to pull the state away from a California-like trajectory.
People have short memories, of course, and as soon as there is another recession, the focus of Californians and their leaders is bound to turn from the strains of growth to creating jobs. From 2009 to 2011, in the aftermath of the last recession, the poverty rate reached 23.5 percent.
“A decade ago they were cutting school funding and social services,” said Stephen Levy, director of the Center for Continuing Study of the California Economy. “There are people injured by prosperity, but obviously a recession is more damaging to most people.”
For now, voters and businesses are less concerned about where growth will come from and more concerned with figuring out how to address its discontents. In a recent poll, by the Public Policy Institute of California, homelessness was tied with the economy as voters’ top concern, the first time it has been a top issue in the 20-year life of the survey. Another survey by the institute showed that almost half of Californians have considered leaving because of high housing costs.
Restaurants and other businesses are hiring fewer workers than they might because they can’t find enough people who can afford local housing costs. It’s also an issue for giant technology companies like Apple, Google and Facebook, which have pledged a total of $4.5 billion to build subsidized housing.
Greg Biggs is adding more machines and moving jobs to cheaper locations. Mr. Biggs is the chief executive of Vander-Bend Manufacturing, a company in San Jose that makes metal products including surgical components and racks where data centers store computer servers. Vander-Bend has doubled its head count over the past five years, to about 900 employees, and pays $17 to $40 an hour for skilled technicians who need training but not a college degree.
This is precisely the sort of middle-income job needed in the Bay Area, which like many urban areas is bifurcating into an economy of high-wage knowledge jobs and low-wage service jobs.
The problem is he can’t find enough workers. The unemployment rate in San Jose is around 2 percent, and many of Vander-Bend’s employees already commute two or more hours to work. To compensate, Mr. Biggs has bought several van-size robot arms that pull metal panels from a pile then stamp them flush, bend their edges and assemble them into racks. He has opened a second location 75 miles away in Stockton, where labor and housing costs are a lot lower.
This is in most ways a success story. Vander-Bend is raising wages and training workers. The machines aren’t replacing jobs but instead make them more efficient, and the company is bringing higher-wage positions to a region that needs more of them. But for workers, even substantial income gains are being offset by rising costs.
A decade ago Manuel Curiel made $22 an hour as a production worker at Vander-Bend. Today he is 37 and, after several promotions, makes a six-figure salary. Almost anywhere else, that would be a shining example of how the longest economic expansion on record is reaching more workers, including those, like Mr. Curiel, who dropped out of high school.
But this good-news story comes with a catch. In the decade that Mr. Curiel’s salary tripled, the rent on his family’s small two-bedroom apartment in Santa Clara more than tripled, from a little over $600 to more than $2,200, including a 35 percent increase one year. He has since joined Vander-Bend in moving about 80 miles east to Manteca, near the factory in Stockton, where he lives in a house offering more space for about the same rent.
Ben Casselman contributed reporting from New York.
Conor Dougherty is an economics reporter. His work focuses on the West Coast, real estate and wage stagnation among U.S. workers. He previously worked at The Wall Street Journal, the San Diego Union-Tribune and The Los Angeles Business Journal. @ConorDougherty
Read original New York Times article here.
WALNUT CREEK, CA—TRI Commercial/CORFAC International has increased its roster by nearly 25% in the last year, adding new brokers in the East Bay, San Francisco and Roseville. And, just one year after joining TRI as executive vice president and manager of the company’s East Bay offices, veteran Edward Del Beccaro’s recruiting efforts have paid off, with his subsequent promotion to San Francisco Bay Area regional manager.
“Ed is a dynamic leader with a clear vision for the future of TRI that aligns perfectly with our mission and strategic initiatives. His appointment to oversee Bay Area operations is a reflection of our ongoing commitment to provide great service to our brokers and empower talent throughout the company,” said Charles A. Wall, TRI chairman.
In his new position, he will have direct responsibility for the management and recruitment of the San Francisco office as well including recruiting a day-to-day brokerage manager for that office.
“We are focused on recruiting dynamic brokers, a brokerage manager for our San Francisco office and hiring young talent,” Del Beccaro tells GlobeSt.com. “We have a very defined training program that includes milestones and accountability.”
When he joined TRI, Del Beccaro was tasked with a major revitalization of the East Bay operations, to lead recruitment efforts and handle day-to-day operations. His recruitment efforts have already brought some well-known faces in the brokerage community to TRI.
“Ongoing efforts to grow a stronger more competitive regional presence require intention and purpose. Ed has the knowledge and experience to take TRI to the next level. He shares our belief that by offering competitive splits and building a sophisticated platform, we empower our brokers to achieve their business goals,” said TRI president Tom Martindale.
Del Beccaro’s career in commercial real estate spans more than 40 years in the Bay Area. He began at Grubb & Ellis in 1977 and ran his own development company for nine years before returning to brokerage in 1992. Previously, he served as East Bay manager at Colliers, Grubb & Ellis and most recently Transwestern, where he built the East Bay and San Jose offices to more than 40 brokers, property management and staff.
“My goal in this new position is to create a San Francisco Bay Area and Northern California regional real estate services powerhouse,” Del Beccaro tells GlobeSt.com. “The company will be a full-service real estate company that will include class-A brokerage, property management, project management and consulting services lines. My goal is to disrupt the old TRI model to embrace cutting-edge marketing tools in order to provide our clients the sophisticated services they deserve. We are not a Wall Street firm. Our goal is to create a real estate culture of innovation, excellence and entrepreneurship.”
Del Beccaro’s capabilities include brokerage operations management, property management, development, entitlements and consulting.
View original GlobeSt.com article here.
November 15, 2019
Activity remains hot in San Francisco’s central SOMA (South of Market) district as developers target the area for new opportunity. Buyers remain on the hunt for opportunities to reap the benefits, snapping up properties as they hit the market. Barry Bram, Principal of TRI Commercial/CORFAC International, recently represented sellers of two unique properties in this district, 465 Tehama and 960 Howard, selling for $8.4 and $5.6 million, respectively. At 465 Tehama, TRI Principal Cal Nakanishi represented the buyer.
The two buildings sit at the heart of a burgeoning wave of development in central SOMA, just blocks from Brookfield’s proposed 5M development near Mission and 5th Street. Plans for the nearly 1.7 million-square-foot mixed-use project will include seven buildings and 60,000 square feet of open space. Proximity to this type of development activity draws interest and bodes well for building owners.
Zoned for mixed-use residential (MUR) development, the Tehama property is a fully rehabbed 8,000-SF state-of-the-art building with major upgrades to the structure/foundation, ADA life safety, electrical and plumbing systems. The buyer, Peacock Construction, will occupy the building as owner/user.
Bram offered a few words of advice for buyers interested in property undergoing significant renovation or rezoning, “Buildings in this area are few and far between, and any building with a significant footprint is fought over by interested buyers the minute it becomes available, or is even thought to be available. Zoning and use continue to be an area worth investigation prior to leaping forward, but it rarely creates an insurmountable challenge.”
Over the past five years, the price per square foot for office buildings in central SOMA has increased by more than 35% and industrial flex by 44%, respectively. Recently, Ellation, Akga and Pivotal took significant blocks of space and Nektar Therapeutics is expected to move into more than 100,000 square feet nearby.
With all the current details and potential pitfalls of zoning and owner use, Nakanishi said “the buyer of Tehama formed a team consisting of a land use attorney, San Francisco zoning consultant, architect, broker and lender to minimize unforeseen complications related to zoning and use. The negotiations were efficient and minimized delays since all team members were communicating with input.”
The Howard Street property, a longtime family-owned asset, sits on two parcels with a total footprint of 12,000 square feet, just two blocks off Market Street. Bram noted the buyer has plans to develop office and residential space. “It was a major coup for the buyer to be able to secure this purchase, with the pace of development in Central SOMA and limited investment opportunities,” he said.
About TRI Commercial/CORFAC International
Founded in 1977, TRI Commercial/CORFAC International is a leading Northern California commercial real estate brokerage and property management firm (with more than 4 million square feet of commercial property under management) specializing in San Francisco, East Bay and the Sacramento Metro property markets. The company has expertise in tenant and landlord representation services and helps clients buy and sell commercial and investment-grade property. The company serves office, retail, and land, multifamily and industrial property sectors, with offices in San Francisco, Walnut Creek, Oakland, Roseville, Sacramento, and Rocklin. For more information call Dina Gouveia in Corporate Marketing at 925.269.3305
CORFAC International is comprised of privately held entrepreneurial firms with expertise in office, industrial and retail properties, tenant and landlord representation, investment sales, multifamily, self-storage, acquisitions and dispositions, property management and corporate services. For more information on CORFAC’s International presence, call the Chicago headquarters at 224.257.4400
View the original article on The Registry here.
October 10, 2019 Dean Boerner, Bisnow San Francisco Reporter
When Pacific Gas & Electric Co. broadened its shut-off map to about 600,000 customers Wednesday night, the utility company also added to the number of owners and property managers forced to enact emergency measures.
It’s a potential, but untenable, new normal for Northern California.
“There has to be a better way,” said Ed Del Beccaro, executive vice president of TRI Commercial, a prominent Northern California brokerage and property management firm. “We can’t be doing this four or five times a year. This can’t become the new norm.”
PG&E did not reply to a request for comment about how often it expects to enact rolling blackouts.
In San Diego County for much of the decade, Public Safety Power Shutoffs by San Diego Gas & Electric Co. have been a norm of sorts. The utility company has executed 13 such power shut-offs since the first instance in 2013, SDG&E told Bisnow.
SDG&E’s PSPS have affected largely the more rural, less densely populated East County, San Diego area, the Southern California Rental Housing Association said Wednesday. PG&E’s power shut-offs to over 30 counties in Northern California have impacted considerably more multifamily and office buildings.
Thrust into new territory starting Wednesday morning with the North Bay Area and counties inland falling into outage zones, Bay Area office and residential property managers have had to do some thinking on the fly while utilizing long-existing protocol.
“You can’t be in a building without power,” Transwestern Northern California Vice President of Asset Services Blake Peterson said.
For the many older office buildings throughout the Bay Area, that means working remotely, or not at all, and hiring personnel for emergency 24/7 services.
“The whole building card access system goes down, and a lot of times that system is not on emergency power, but runs independently,” Peterson said. “Engineers are on-site, security is on-site checking IDs, letting people in, often just to get medicine or cellphones.”
Both Peterson and Institute of Real Estate Management San Francisco President Vanessa Honey say constant fire watch is a necessity. Honey says security will be compromised to an extent, even with more personnel brought to monitor darkened, unpowered multifamily buildings.
“We actually have to hire someone who is trained to use their eyes and their nose to monitor buildings and notify the fire department in the event of a fire,” Peterson said.
Many of Transwestern’s buildings, including its 1M SF footprint of life science ones in south San Francisco, have generators, but the company has faced several outages in unspecified properties in San Ramon and Walnut Creek. Peterson said Transwestern has taken precautionary measures for properties “on the cusp” of PG&E’s shut-off map, which is based largely on weather forecasts, and has been in flux.
“We have a four-story building in Oakland, and we decided to stop using the elevators,” she said. “The really critical piece is communicating with building occupants and owners.”
IREM has stepped up its customer service, according to Honey. Many of its employees have dedicated their time to that given limited productivity on other tasks due to shut-offs. Most of IREM’s leasing offices don’t have generators.
“IREM professionals are going the extra mile from the leasing perspective and being extra kind and understanding during these times,” Honey said. “We have more time because we have less to do with our computers down.”
Transportation has been a widespread concern among tenants and property managers this week, including only recently allayed concerns that the vital Caldecott Tunnel would close and problems with BART would arise.
“The Public Safety Power Shutoffs are not affecting BART train service in any way because of the enhanced power redundancies we have put in place across BART’s system,” a BART spokesman told Bisnow.
But many were kept from work nonetheless, say Honey and Del Beccaro. Word that the Caldecott Tunnel would remain open barely arrived before outages commenced.
“I bet there is going to be a run on generators,” Peterson said. “There is potential for landlords to recognize that lack of occupancy means lack of productivity and employers are going to want to be in buildings that can sustain through this type of thing. Our hands are completely tied by what PG&E chooses to do.”
“Is this the new normal? That’s the question everyone is asking.”
Read original BisNow article here.
October 2, 2019
SAN FRANCISCO – Continuing a year-long trend of growth and service enhancement, TRI Commercial/CORFAC International is transitioning its San Francisco headquarters from their long-time address at 100 Pine in the Financial District to Stevenson Place at 71 Stevenson, a major client-owned building in the South Financial District. The move coincides with a strategic repositioning initiative, which includes a major recruitment effort, branding upgrade and augmentation of the regional management team.
“TRI executed some major objectives this year,” Chairman Charles Wall said. “We’re focused on purposeful growth and optimizing our service platform while continuing to offer industry-leading splits. We’ve successfully repositioned our East Bay and San Francisco offices. The next step is continued enhancement our San Francisco leadership team to boost recruitment and execution of our strategic vision.”
Stevenson Place is commuter-friendly Class A building positioned ideally between Market Street and the Transbay Terminal, providing easy BART/Muni access in one of the city’s hottest growth areas. With both LEED Gold and Energy Star certifications and amenities like secure bike storage, the building is equipped to support greener business practices. TRI will reside on the 14th floor, with dramatic city views and an abundance of natural light.
About TRI Commercial/CORFAC International
Founded in 1977, TRI Commercial/CORFAC International is a leading Northern California commercial real estate brokerage and property management firm (with more than 4 million square feet of commercial property under management) specializing in San Francisco, East Bay and the Sacramento Metro property markets. The company has expertise in tenant and landlord representation services and helps clients buy and sell commercial and investment-grade property. The company serves office, retail, and land, multifamily and industrial property sectors, with offices in San Francisco, Walnut Creek, Oakland, Roseville, Sacramento, and Rocklin.
CORFAC International is comprised of privately held entrepreneurial firms with expertise in office, industrial and retail properties, tenant and landlord representation, investment sales, multifamily, self-storage, acquisitions and dispositions, property management and corporate services.
View the original article on The Registry here.
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