The Registry June 2010 Issue

Have I Got A Proposition for You ...

Design: Palace Fit for Finest

State’s Landmark Prop. 13 is Under Attack Again pg. 8

San Francisco’s Palace of Fine Arts Renovation Nears End pg. 12

THE

Baiting the Hook

Property Buyers Should Consider Better Worms pg. 17

Final Offer with Jim Chapell Still Taking Care pg. 36

Registry

BAY AREA REAL ESTATE JOURNAL

JUNE 2010

Annual Issue

RETAILHOSPITALITY Hoteliers’ Long Haul pg. 14 Bending the Rules pg. 16 Retailers Engineer Rebirth pg. 18 Retailers, Restaurateurs Weave a New Web pg. 20 Recharging Design pg. 21

Cover: Santana Row; This page: Union Square

Contents JUNE 2010

RETAILHOSPITALITY

6

FEATURE PACKAGE

Inhospitable, pg. 14 Cutting Corners, pg. 16 A Deal Runs Through It, pg. 17 Shopped Out, pg. 18 Sticky Web, pg. 20 Opportunity in a Crisis, pg. 21 Retail LEEDs, pg. 22

8

News Desk

Government

28

Calendar of Events

29

REal People

10 Commercial Market Report Nose Above Water

Design Restored Vision

24

Rob’s REality

27

There They Go Again...

12

26

A summary of recent planning decisions from select cities, news about the industry and people on the move.

Green Credit When Due

Downforce

Residential | Legal Revolving Doors

Events Around Town

32

By the Numbers Rooms to Spare

34

Commercial Lease Report

35

Commercial Sales Report

36

Final Offer | Jim Chappell

FRONT COVER AND THIS PAGE PHOTOS BY STEFAN ARMIJO

THE

Registry

P.O. Box 1184 San Mateo, CA 94403 415.738.6434

Mission Statement The Registry is a real estate journal that aspires to fulfill the need of Bay Area professionals for accurate, unbiased and timely news, analysis and information.

Editorial Boards Board members of The Registry serve without expectation of recompense or reward. They advise the magazine’s executive team on matters of relevance to the region’s commercial and residential real estate community. The board’s makeup reflects the wide readership of the magazine including attorneys, architects, interior designers, residential and commercial real estate brokers, investors, lenders, general contractors and subcontractors, engineers and other professionals.

NORTH

Publisher Vladimir Bosanac vb@theregistrysf.com

President Heather Bosanac 415.738.6434 heather@theregistrysf.com

Bruce Dorfman

Stephen Austin, RPA

Marc Cunningham President AllWest

Principal Thompson | Dorfman Partners, LLC

Daniel Myers

Jeanne Myerson

Anton Qiu

Regional Property Manager Boston Properties

Daniel Huntsman, LEED AP

Jesshill E. Love III

President & Founding Principal Huntsman Architectural Group

Partner Ropers, Majeski, Kohn & Bentley

Editor-in-Chief Sharon Simonson 408.334.2512 ssimonson@theregistrysf.com

Creative Director Jelena Krzanicki

Photographer Stefan Armijo

Writers Robert Celaschi, Michael Fitzhugh, Eugene Gilligan, David Herbert, Brian Miller, John Sailors, Jessica Saunders, Sharon Simonson

Contributors

Partner, Real Estate Practice Group Leader Wendel, Rosen, Black & Dean LLP

President & Chief Executive Officer The Swig Company

Principal TRI Commercial

Terry de la Cuesta, IIDA, LEED AP

Jennifer Dizon, CPA

Erik W. Doyle

Norman C. Hulberg, MAI

Robert Kraiss, CFM

Phil Williams, P.E., LEED AP Vice President Webcor Builders

Paul Zeger

Principal, President & CEO Pacific Marketing Associates

SOUTH

Lynn Borkenhagen, Rob La Eace, Jackie Matsumura, John McNellis, Sonia Ransom

Advertising 415.738.6434

Printer Bay Area Graphics www.bayareagraphics.com

News news@theregistrysf.com

Director of Healthcare Synergy 4 Health, a One Workplace Company

Audit & Advisory Partner Hood & Strong, LLP

President Cornish & Carey Commercial

Geoffrey C. Etnire Co-Chair, Real Estate Group Hoge, Fenton, Jones & Appel, Inc.

Michael W. Field

Director, Commercial Real Estate The Sobrato Organization

Feedback letters@theregistrysf.com

Subscriptions subscriptions@theregistrysf.com

Ethics Policy The Registry embraces a strict ethics policy for its staff and contributing writers, including columnists and freelance reporters. No person employed by or affiliated with The Registry has accepted or will accept any compensation, monetary or otherwise, in exchange for editorial content. All information that appears in the magazine is selected solely for its informational value to readers.

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President Hulberg & Associates, Inc.

Director of Corporate Facilities & Real Estate Adaptec, Inc.

Jody Quinton

Regional Manager DPR Construction, Inc.

Patricia Sausedo

Vice President of Public Policy & Communications San Jose Silicon Valley Chamber of Commerce

Jeffrey A. Weidell

Executive Vice President NorthMarq Capital

Contributors Lynn Borkenhagen Revolving Doors, pg. 27

Media Partners The Registry would like to acknowledge its partnership with the following organizations:

Lynn Borkenhagen is a partner at law firm Allen Matkins based in San Diego. Her statewide practice focuses on common-interest development and Department of Real Estate regulatory work as well as construction contracts and design-consultant agreements. Her work includes urban high-rise condominiums; complex mixed-use hotel, commercial and residential developments; office and industrial condominiums; condominium conversions; and single-family masterplanned communities. Her clients range form local builders to national, publicly held developers.

Rob La Eace Rob’s REality, pg. 26 Responding to emergencies as a firefighter in a variety of uncertain situations and diverse neighborhoods taught Rob La Eace a lot about how people should be treated, not only during a crisis, but also in everyday problems. Today, these same skills are an asset to those who work with this San Francisco native in his career as a broker associate with McGuire Real Estate. The tools he puts to work as a firefighter are what makes the difference to the clients La Eace works with as an agent. While it may help that La Eace is the type of guy with a warm smile and a friendly attitude, his professionalism, organization and drive to succeed are what make him stand out in his career. Working in his sixth year in the industry, La Eace is in touch with his clients’ needs and with the city—putting a local’s perspective to work.

Jackie Matsumura Credit When Due, pg. 24

Jackie Matsumura is a shareholder in the tax practice of Bay Area accounting firm Burr Pilger Mayer Inc. She has 15 years experience in public accounting with an emphasis on compliance and planning for real-estate partnerships and limited-liability companies. Her expertise includes tax planning, research and consultation involving partnership restructuring, and planning for transactions involving distressed real properties including foreclosures, short sales and debt restructuring.

Before joining BPM, she was a tax manager for Arthur Anderson and the in-house tax manager for a NASDAQ-listed company.

John McNellis A Deal Runs Through It, pg. 17 John McNellis is a Palo Alto-based retail developer and property owner. He practiced law in San Francisco with Landels, Ripley and Diamond and co-founded McNellis Partners in 1982. A graduate of UC Berkeley and the University of California’s Hastings College of The Law, McNellis is a member of the Urban Land Institute and a founding member of both its Environmental Task Force and Environmental Coordinating Committee. He is also a member of the International Council of Shopping Centers. He has served as the chair of the ULI’s Small Scale Development Council and is a member of the ULI’s Board of Governors. He is also a lecturer for both the ULI and ICSC.

Sonia Ransom Revolving Doors, pg. 27

Sonia Ransom is a land use-partner based in Allen Matkins’ San Francisco office. She co-chairs the firm’s land-use, environmental and natural resources group. Her statewide practice includes developing entitlement strategies and obtaining entitlements for residential, commercial and industrial projects across Northern and Southern California jurisdictions.

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theregistrysf.com 3

Letter from the Publisher Dear Reader, During this depression, we have had a chance on many occasions to tap into the best and the brightest industry minds and leaders. We have spoken with them for interviews and privately at events or meetings. They have all seen recessions come and go, and almost everyone has said that this one is deeper, broader and longer than any recession they have experienced—a depression.

If there were a common thread among them (spare one recent interview to which I will return), it is that the Bay Area seems positioned exceptionally well for the eventual rebound. We are surrounded by leading technology innovation, diverse industry and world-class academia. Our climate is the envy of the world, and our housing markets by and large are not bulging with excessive supply. The Bay Area has shown resilience in the past, both from natural and man-made calamities, and it seems all the ingredients are here to help us out of the rut faster.

Except perhaps one thing: the cost of doing business in the Bay Area. It is expensive to live and do business here, and even during this depression, those variables have not changed much. So, the jobs that are leaving us, much like during the dot-com bust, are probably not going to come back. And now, all the technology that we have developed over the last decade to help us work remotely and be as effective as we could be at the office among our colleagues will finally prevail. And the reason is not our love for technology but simply the financial model. Why hire a fulltime employee when you can get a couple of consultants?

Why expand office space when you can just give them a laptop and a phone, then be connected to them when you need? Why not tap into engineers and researchers in Asia for a fraction of the cost? The technology has been around for years that has enabled that to happen; yet it is this depression that may actually tilt the scale (the financial scale, for sure) toward strong adoption. CFOs are in charge now. They like the increased productivity of the crew left on the ship, and the market is responding positively, too.

This brings me back to that one impressive interview in which the interviewee actually doubted the Bay Area is poised for quick revival: billionaire venture capitalist and real-estate investor Carl Berg. Berg was featured in our Final Offer last month. He is not convinced of the common sentiment expressed by others. Neither am I, because I am seeing businesses employ specialists in places where it is cheaper to live and conduct commerce. Even the smallest of Bay Area companies can partner with talent across the globe and achieve tasks at a fraction of the cost it takes to do things here. Budgets for consultants are approved faster, projects are quicker to execute and Web tools allow them to be in touch with their employers across time zones. Welcome to the post-depression economy.

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This does not bode well for some of the established industries in the Bay Area. The hotel industry, as covered in several articles in this month’s feature package, is likely going to take years to recover. As Brian Miller reports on page 14 in the story “Inhospitable,” the industry in the Bay Area was still recovering from the malaise of the post-dot-com era when the latest nausea hit, and experts predict that it will not see significant improvement for years. If two-thirds of your revenue comes from business travelers, as it does in San Francisco, and businesses are struggling through a depression, it is no wonder that more than 100 regional hotels are in loan default.

Hotel patrons will likely start noticing that towels are getting older, walls could use a fresh coat of paint and some services they had grown to expect may not be there anymore.

In our story “Cutting Corners,” Robert Celaschi writes about how skinny financial times are affecting hotel operations and the relationships among brand managers, property owners and hotel operators. I suspect the level of service that the airlines are giving us these days is a good harbinger of things to come.

This month, we balance our coverage of the hotel industry with our third-annual retail feature package. Retail also has been hit exceptionally hard in the last several years, and there has been wide expectation that reduced American consumption habits may be on a new long-term trajectory.

In the story “Shopped Out,” Jessica Saunders provides an in-depth look at the state of the industry and how retailers and landlords are attempting to claw back. As you’ll see on page 18, the A-plus retail centers are holding up relatively well. But the back story is that the negotiating power has shifted hard toward the retailer. Some provisions that only the largest, most powerful companies were able to command in the past now are making their way into far more common lease contracts. Discount retailers (often priced out of the Bay Area until recently) are locking in 30-year leases on big spaces with options.

Finally, another effort to change Proposition 13 is swirling in Sacramento. This on-again, off-again topic has percolated for nearly 20 years, invariably linked to the state’s budget tides. In the last decade, it has been a near-perpetual focus of a legislature casting wildly about for fresh income.

In our article aptly titled “There They Go Again...,” by Editor Sharon Simonson, the timing of the bill introduced by San Francisco Assemblyman Tom Ammiano is important, not only as the state faces another budget shortfall, but as we progress into the gubernatorial election cycle.

Thank you again for your interest in The Registry. We welcome feedback and discourse at Letters@TheRegistrySF.com.

Regards, Vladimir Bosanac

#OMMERCIAL 2EAL %STATE 7OMEN 3AN &RANCISCO IS PLEASED TO ANNOUNCE THE

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NEWS

Desk

PLANNING NEWS from around the Bay SAN FRANCISCO 950 Mason St.

City of San Francisco

The San Francisco Planning Commission set a public hearing for June 20 to evaluate the draft Environmental Impact Report for the proposed addition of a 160-unit condominium tower to the historic Fairmont Hotel. The project would replace the existing hotel tower and podium structure built in 1961. The new residential tower would be integrated with the landmark 1906 eight-story hotel building. The proposed project would reduce the number of hotel rooms and upgrade the hotel. The project sponsor is the Fairmont Hotel Company—San Francisco LP.

Mayor Gavin Newsom signed the Green Landscaping Ordinance, which amends city code with regard to new development and significant alterations. The law seeks to increase landscape plantings and make existing plantings healthier, to improve soil permeability in front yards and parking lots, to encourage responsible water use through increasing climate-appropriate plantings and to expand and improve the screening of parking and vehicle use areas like gas stations.

Parkmerced, Southwest San Francisco

Grand Boulevard Initiative

An ambitious 30-year redevelopment of the 152-acre, 3,221-unit residential development will get a public hearing in June. The project would triple the number of mostly rental homes to approximately 8,900 and comprehensively re-plan and redesign the site, located in southwest San Francisco adjacent to Lake Merced. Parkmerced consists of 11 high-rise apartment towers and hundreds of two-story garden town homes surrounding private courtyards. The neighborhood’s courtyards, medians and other open spaces were designed by famed San Francisco landscape architect Thomas Church, and its octagonal layout of boulevards radiating from a circular wooded park, Juan Batista Circle, was conceived by New York architect Leonard Schultze. The project would retain the towers but demolish the town homes in phases, replacing them with new mid-rise and high-rise buildings. It would also add a new elementary school and other facilities and new open space uses such as athletic fields, paths and community gardens. Proposed transportation improvements include rerouting an existing MUNI line. The San Francisco Planning Commission is scheduled to meet June 17 to hear public comments on the project’s draft Environmental Impact Report. The project sponsor is Parkmerced Investors.

555 Fulton St. The San Francisco Planning Commission cleared the way for the construction of a five-story, 136-unit residential building with space for a ground-floor supermarket. The developers plan to demolish an existing twostory office and industrial building with about 70 surface parking spaces to build a 55-foot tall, 245,610-square-foot building with 32,800 square feet of ground-level retail space and a two-level underground parking garage with up to 205 spaces. The commission on May 13 upheld a mitigated negative declaration finding in the project’s environmental review and approved a conditional use authorization for the site. The project sponsor is the Trust for the Children of Henry Wong.

SAN MATEO/SANTA CLARA COUNTIES The Grand Boulevard Initiative is a collaboration among 19 cities and counties, local and regional agencies that have responsibility for the condition, use and performance of the 43-mile El Camino Real (State Highway 82). The roadway stretches from the northern Daly City border to central San Jose. The draft plan will be presented to the Grand Boulevard Task Force at its June meeting. The strategy and guidelines represent early concepts of how El Camino Real could be redesigned to accommodate new multi-modal transportation. The Grand Boulevard Initiative welcomes public review and comments of its draft version of the Grand Boulevard Multi-Modal Access Strategy and Context-Sensitive Design Guidelines.

OAKLAND

15th and Jefferson Streets Affordable Housing Associates has sought federal income-tax credits to help finance its renovation of two historically significant residential hotels in downtown Oakland. The adjacent Hotel Savoy and Hotel Oaks will be combined to provide 102 housing units for low-income residents, said city planner David Valeska and AHA senior project manager Teresa Clarke. The Oakland Planning Commission approved the project in April. The renovation will improve the buildings’ seismic strength, add kitchenettes and bathrooms to every unit, overhaul the lobby and redo finishes throughout, Clarke said. Construction would begin within 150 days if the project is approved for the tax-credit program on June 7. The developer also hopes to win Build It Green and LEED Gold certification. The Hotel Oaks was built in 1914 and designed by famed Oakland architect Clay N. Burrell, while the Savoy was built in 1912 to a design

by Remy J. Pavert. Both buildings are considered contributors to downtown Oakland’s historic district, said Gail Lombardi, a researcher with the Oakland Cultural Heritage Survey. continued on page 31

SENT to us One Hawthorne Makes Its Debut One Hawthorne, a new boutique luxury condominium tower on Hawthorne Street in San Francisco, has opened for sales.

The 25-story glass, concrete and stone tower, designed by EHDD Architecture, features 165 one- and two-bedroom homes—most with a den/home office alcove—as well as twoand three-bedroom penthouses. One Hawthorne is the only new high-rise condominium development projected to open in San Francisco in 2010. Prices start from the $400,000s. One Hawthorne’s lead investor is California Urban Investment Partners, an affiliate of CalPERS. Amalgamated Bank’s ULTRA Construction Loan Fund, a labor union pension fund, provided the construction loan together with Bank of America, and the general contractor is Webcor Builders.

Developer Starts Construction on 108 New Apartments Federal Realty Investment Trust, the owner and developer of San Jose shopping and living center Santana Row, has begun construction of 108 new rental housing units located behind Anthropologie and Borders Books. The new fourstory building is expected to be complete by late summer 2011 and will bring the total number of residential units at Santana Row to 622. The new units will consist of 98 flats, ranging in size from 750 square feet (1 bedroom/1 bath) to nearly 1,600 square feet (3 bedroom/2 bath), and a row of 10, four-story, 3 bedroom/2 bath town homes. Beneath the residential podium will be one level of subterranean parking containing 160 parking spaces for the residents.

The units will share a landscaped courtyard that includes a picnic area with outdoor barbecue grills, a lounge area and an outdoor fireplace. The building’s amenities also include a business center with an 8-person conference room, internet stations, entertainment lounge and a fitness center.

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Watsonville Water Resources Center Named Top Ten Green Project The American Institute of Architects’ Committee on the Environment has selected the city of Watsonville’s Water Resources Center as a Top Ten Green project for 2010.

San Francisco-based WRNS Studio designed the facility. The Watsonville Area Water Resources Center supports the Water Recycling Project, a joint effort of the city and the Pajaro Valley Water Management Agency to provide recycled water to farmers throughout the coastal areas of South Santa Cruz and North Monterey counties. Groundwater in the Pajaro Valley is consumed more quickly than it can be replenished, causing saltwater to intrude into coastal wells. By treating wastewater for the $400 million local agricultural industry, the Water Recycling Project recharges the aquifer and significantly reduces wastewater discharges into the Monterey Bay National Marine Sanctuary.

University Circle Wins BOMA Pacific Southwest TOBY Award The Building Owners and Managers Association Silicon Valley has awarded University Circle at 1900-1950-2000 University Ave. in East Palo Alto its Pacific Southwest Regional TOBY. The TOBY award, which stands for The Outstanding Building of the Year, acknowledges the exceptional operation of the three Class A office buildings, totaling roughly 480,000 square-feet. University Circle now advances to the International TOBY competition at the BOMA International Conference in Long Beach on June 29.

University Circle is Energy Star certified and registered with the U.S. Green Building Council for evaluation to become a LEED certified building. continued on page 31

PEOPLE on the move Real Estate Search Firm Adds New San Francisco Director RETS Associates, previously known as Real Estate Talent Solution Inc., has named Cheryl Thornburg the director of its San Francisco office. Thornburg specializes in recruiting commercial real estate and financial services professionals in the Bay Area. She will be working in tandem with Diane Blake in RETS Associates’ Silicon Valley office to serve the firm’s client base in Northern California. Thornburg most recently worked with Sullivan Research West where she secured professionals for companies of all sizes including Wells Fargo Bank, Westaff: Business Staffing Solutions and Genentech.

Brokerage Names New Director Catherine E. House, a 15-year veteran of the commercial real estate investment market has joined Sperry Van Ness as a director.

House will be responsible for private capital investment sales from $500,000 to $30 million. As part of the firm’s asset recovery team, she will also be responsible for selling both performing and nonperforming debt. House was previously an investment broker with CB Richard Ellis’s Private Client Group focusing on the San Francisco Bay Area. She is currently president of the Commercial Real Estate Women San Francisco chapter and a board member of the British American Business Council Northern California.

Brokerage Hires New Executive Cassidy Turley BT Commercial has hired broker Jason Burch as a vice president in its San Francisco office. Burch’s expertise is tenant representation, corporate tenant advisory and landlord representation and acquisition. Burch has completed more than 100 transactions with more than $250 million in total consideration. He is responsible for representing such clients as Comverse Technology, San Francisco Municipal Transportation Agency, Mainsail Partners and Hub Insurance Services.

BOMA Silicon Valley Elects 2010-11 Officers and Directors At the Building Owners and Managers Association Silicon Valley annual business meeting on April 26, the Nominations Committee chaired by George Denise, Cushman & Wakefield at Adobe, presented a slate of officers and directors at large for 2010-11. Principal members in attendance unanimously voted to accept the slate. The new officers include: President – Eric Dameron-Drew (LBA Realty) Vice-President – Liz Walker, CPM (Reliable Property Management) Treasurer – Bruce Schilling (1575 Adrian Associates, LLC) Secretary – Gizelle Lamb, RPA, FMA (J.T. Wakimoto Management, Inc.) Director at Large – Leslie Fisk (CBRE) Director at Large – Jessica Henderson (LBA Realty) Immediate Past President – Susan Crow, RPA (CBRE) Remaining on the board as non-voting members are associate member co-chairs Fred West (Marble West) and Jennifer Mullins (Bozzuto & Associates nsurance Services). The new board will be sworn in at the July 8th luncheon and will assume its position August 1.

Law firm Adds Attorneys to Land Use Practice Miller Starr Regalia will expand its land use practice group with the addition of Nadia Costa as senior counsel and Sean Marciniak as an associate. These attorneys bring extensive experience in land use, environmental and litigation matters. Costa and Marciniak will have offices in Miller Starr Regalia’s Walnut Creek office.

Nadia Costa’s practice centers on land use and local government law, specializing in the processing and implementation of land use entitlements. She has extensive experience counseling landowners, developers and public agencies in all aspects of land-use processing.

Sean Marciniak represents public agencies, landowners and developers in a variety of environmental and land use matters, focusing on litigation and counseling under CEQA. Both attorneys join Miller Starr from the San Francisco office of Bingham McCutchen.

Global Real Estate Services Firm Adds Five Executives in Silicon Valley Jones Lang LaSalle announced a significant expansion of real estate services within its Silicon Valley operations designed to deepen the firm’s client service capabilities. Emily Bielen has joined as senior marketing manager. She joins from Jacobs Engineering Group Inc. where, as an inside sales leader, she was responsible for business development throughout California. Prior to Jacobs, Bielen was a marketing manager with Jones Lang LaSalle in the Washington, DC office. Andrew Boyd joined the firm as a senior financial accountant. He joins from Maxim Integrated Products, where he served as a cost accountant. He has also worked for PriceWaterhouseCoopers as an audit associate where he served semiconductor and real estate firms. Mark Kindred has joined the Silicon Valley office as senior research analyst. He brings 10 years of research and analysis continued on page 31

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GOVERNMENT

There They Go Again ...

State legislators are trying for the seventh time since 2001 to change California’s Proposition 13.

Above: San Francisco state Assemblyman, Tom Ammiano

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regard to the two key measures that determine tax burden. “There was to be one tax rate and one way of determining assessed value,” he said.

The California Tax Reform Association, the advocates behind the 1991 attempt to change the law, are behind the current overhaul attempt as well. The word “loophole” figures in their literature then and now. San Francisco Assessor Recorder Phil Ting also supports the change. “California cannot continue to mortgage the future to protect corporate tax loopholes for commercial properties,” Ting is quoted as saying at closetheloophole.com.

Ting and the Tax Reform association are joined by labor interests, public-school teachers and social activists in wanting the law changed.

Business and property interests including CB Richard Ellis, LBA Realty, the Marin Builders Association, Borelli Investment Co., Pier 39, Ellis Partners, PS Business Parks and Public Storage oppose modification.

In a 2008 report prepared for two business-supported organizations, Hamm and a co-author projected economic outcomes if commercial properties were treated differently under Proposition 13. The same study analyzed the premise that commercial property owners are paying an increasingly smaller share of overall property taxes, an assertion that advocates for change use to buttress their argument.

If commercial property is taxed more heavily, the state will lose jobs, the Hamm study found. Local governments will have an even greater incentive to build more commercial real estate and less housing.

Business will push to pass the incremental tax increase on, putting upward pressure on rents and downward pressure on wages. The incentive to invest further in California wanes.

To the extent the tax cannot be passed on and new revenues are not used to improve the state’s larger business climate, existing commercial property values fall. Rather than look at property tax revenue, Hamm evaluated commercial, industrial and housing’s taxable values relative to their market values.

The purpose of Proposition 13 was to limit annual increases in properties’ taxable value to no more than 2 percent annually, using the purchase price or initial construction cost as the starting point.

Over time, because market values have risen faster than 2 percent a year, market value and taxable value diverge. When market values go

P H O T O F R O M W W W.T O M A M M I A N O . C O M

C

ommercial real estate is again the target of state legislative attempts to raise public revenue in the face of fallout from the global correction. San Francisco state Assemblyman Tom Ammiano has introduced a bill that aims to open more commercial properties to higher taxes when companies are bought and sold. The law also would affect single-family housing, apartments and farms, small businesses and mobile-home parks that are owned by legal entities rather than individuals.

Removing protections afforded housing from commercial real estate under California’s Proposition 13 has been the subject of legislative interest as far back as 1991. Change proponents say interpretations of a key clause in the law open a “loophole” for businesses to evade justified property taxes. They cite numerous circumstances where properties have not been reassessed when companies sold, such as former mortgage lender Washington Mutual’s sale to JP Morgan Chase in 2008. Legislators have tried seven times since 2001, as California’s fiscal crisis has progressively intensified, to modify the law’s definition of “change in ownership” to increase tax receipts. Property taxes are the largest revenue source for local government.

Opponents to change say current law and regulation functions well, producing steady government revenue that tempers wilder swings in sales and capital-gains taxes. “A lot of what they say the bill does is already covered under current law,” said Matthew Hargrove, a senior vice president at the California Business Properties Association.

“We don’t understand the flaw they are trying to fix.”

The state’s Constitution requires that property be reassessed when there is a “change in ownership,” but it does not define the phrase, according to the Legislative Counsel, a public agency that, among other things, prepares digests and opinions on proposed law. The current legal interpretation was laid out immediately after Proposition 13 passed and is based on a “separate entity” approach, whereby the purchase of a company did not trigger re-assessment of its real estate so long as the legal entity that owned the property did not change. This arrangement was modified shortly later to say that whenever a legal entity bought or otherwise acquired more than 50 percent ownership of a corporation or other legal entity, the real property must be reassessed because a change in company “control” had occurred.

But in cases where an entire company is sold but no single buyer attains the 50 percent ownership threshold, property is not reassessed under the theory that there has been no control change. The Legislative Counsel suggests this final interpretation is inconsistent with voters’ 1978 intent. “It is unlikely that the idea of enabling multiple, affiliated purchasers of a corporation, each acquiring less than a 50 percent ownership interest, to completely avoid a reappraisal of the corporations’ underlying property was contemplated by voters when approving Proposition 13 or by the Legislature ... ,” it concludes in its assessment of the Ammiano bill.

Economist Bill Hamm, who headed the Legislative Analyst’s Office in 1978 and personally helped prepare the review of Proposition 13 included in voters’ handbooks, contests the use of the word “loophole” in promoting the current change. The word is “pejorative” and implies questionable intent, he said. He is adamant that Proposition 13 is clear on one point: the equal treatment of all California property with

By Sharon Simonson

“If commercial property is taxed more heavily, local governments will have an even greater incentive to build more commercial real estate and less housing.”

The Economic Effects of California Adopting A Split Roll Property Tax, William G. Hamm and Jose Alberro

down, the taxable value derived from the 2 percent increase formula can rise above market value. In those tax years, taxable value and market value are one and the same.

In 2008, Hamm found that commercial and industrial properties were assessed at 60 percent of market value, while owner-occupied housing was assessed at 53 percent. In an interview with The Registry, Hamm cautions that these ratios change as market values fluctuate.

Given the huge declines in commercial and residential property values in the last several years, it’s hard to know where the ratios stand now, he said.

In a study released in May, the California Tax Reform Association evaluated relative tax burdens differently, dividing total property tax receipts among the property types. The study finds that with the exception of three counties—Marin, Modoc and Plumas—residential properties are assuming a greater share of total taxes paid across the state. In San Francisco County, the percentage of residential property tax revenue increased from 41 percent of the whole in 1979 to 57 percent in 2009, while the percentage of commercial property tax revenue decreased from 59 percent to 43 percent in the same time.

In Santa Clara County, residential properties account for 64 percent of tax receipts in the current fiscal year, up from less than 50 percent when Proposition 13 passed. In Alameda County, residential properties pay a whopping 75 percent of all property taxes.

The study’s authors concede that properties are not classified uniformly across the state, with apartments being the most obvious swing class, categorized as housing in some places and as commercial properties in others.

Santa Clara County Assessor Larry Stone says the issue in his mind is practicality. Treating commercial and residential properties differently under the law amounts to an administrative nightmare, he says. At the same time, he quarrels with the complaint that commercial properties are missed en masse for re-assessment, at least in his county. “We are re-assessing many of these properties that have been involved in mergers and acquisitions,” he said.

For his part, Marc Intermaggio, executive vice president of the Building Owners and Managers Association of San Francisco, suggests the entire debate could be avoided by adopting a different point of view: Legislators, instead of worrying about how to increase tax revenues, could cut state expenditures instead.

COMMERCIAL MARKET REPORT

Nose Above Water SBA data show Bay Area small-business real estate borrowers are faring better than their U.S. peers.

T

“I’ve seen what’s happening in other markets, and it’s so much worse elsewhere.”

Ken Mannina, senior vice president, Bridge Bank

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By David Herbert

housands of Bay Area small businesses that have borrowed to buy real estate for their own use though a federal program have outperformed their nationwide peers during the recession. But proposed changes to Small Business Administration rules to make the program more flexible could go a long way toward relieving the stress of falling commercial property values, experts on the program say. Those declines in some cases are harming small companies that otherwise might survive.

Companies apply to the U.S. Small Business Administration for up to 40 percent of the total they wish to borrow through the so-called 504 Loan program.

The loans must be used to purchase fixed assets, usually land, buildings and equipment. The SBA caps its commitment at $2 million in most cases. The SBA participation entices banks to extend credit, too, because they can recoup their share of the loan before the government if the business defaults.

The proposed modifications to the program can’t come soon enough, said Barbara Morrison, president of San Francisco’s TMC Development, the largest 504 lender in Northern California. Press coverage of the foreclosure crisis has focused on residential real estate, but small businesses also are grappling with declining commercial property values, Morrison said.

Despite the numbers, which indicate distress among Bay Area small companies is considerably less than in the nation at large, stress among her borrowers is greater than at any time since she went into the business in 1981.

“In the past, we never had more than a handful of problem loans. Before they have always been able to sell the property and move to smaller, leased space,” she said. “After labor, occupancy is generally a business’ second biggest cost, and if you can’t reduce your occupancy costs, it can sink you,” she said. She can help borrowers modify the SBA portion of their loans, but not the bank piece.

Nationally, the default rate on 504 loans (the SBA calls it the “purchase rate” because they are buying the bad loans) has increased substantially since 2007.

Default rates have gone from 6.69 percent on loans issued from 2001 through 2004 to nearly 17 percent on loans issued from 2005 through 2008, the most recent period available, according to the SBA. Most borrowers who are going to default do so in the first two to four years.

That means the 6.69 percent default rate probably won’t continue to rise much but the 17 percent rate likely will.

The SBA issued more than 21,000 504 loans in the four years from 2001 through 2004; it issued about 31,000 such loans in the four years from 2005 through 2008.

At the same time, the default rate on loans issued from 2001 through 2004 in San Jose is 7.7 percent. On loans issued from 2005 through 2008, the default rate is 9 percent. In San Francisco, default rates are running at less than 5 percent on 504 loans issued in the later period, up from less than 4 percent from 2001 through 2004.

The proposed amendments would increase the limit on the SBA loan participation to $5 million and allow small businesses to re-finance existing conventional debt using the SBA program. “When a business loses its home,

generally that means everyone who works for that business is out of a job, and the ripple effects on the economy are significant,” Morrison said.

Morrison’s company has originated and continues to service 1,600 outstanding 504 loans in California and Nevada with an aggregate value of more than $1 billion.

One of its recent transactions with the Bank of America involved the purchase of a $10.5 million San Leandro building by a company that installs modular office furniture. The borrower got $4 million from the SBA 504 program because it could show its energy consumption would fall by at least 10 percent in the new property. The same SBA increase is available when there is a renewable energy source such as solar equipment added to the project financing.

It is harder to use SBA loans to gauge market health on the Peninsula and in the East Bay. The SBA issues relatively few 504 loans in smaller cities, and the sample size is too small to draw many conclusions about the health of local markets. The SBA backed 11 loans in Vallejo from 2001 to 2004, with not a single default. The agency issued 10 loans from 2005 to 2008, again with a zero percent default rate.

Yet few would argue that those rates reflect a strong real estate market or economy in Vallejo, where the city is struggling through bankruptcy, and housing prices have tumbled from a $436,000 median on Feb. 1, 2007 to $164,000 on Jan. 1, 2010, according to Zillow. In fact, you could argue that the small and decreasing number of loans in some cities reflects a poor economy. Redwood City businesses scored 29 loans from 2001 to 2004, but just 17 from 2005 to 2008, for instance.

Despite the high concentration of technology companies in the Bay Area, they are not the typical 504 borrower. Instead, the borrowers tend to be contractors, medical and dental service providers, retailers, hotels and restaurants.

Even if the SBA allows entrepreneurs to refinance their underwater mortgages through the 504 program, it will not be a panacea. Ed Radzikowski has run a machine shop out of a 1,800-square-foot garage in his San Jose backyard for more than 20 years. He took out a second mortgage to buy new equipment in 2000, but the latest recession has slowed business to a crawl.

He is now two years behind on his $810-a-month mortgage payment, and he needs to drum up $28,000 or Bank of America will foreclose on his home and business. “To me, it seems like we’ve been in a recession since 2001,” Radzikowski said. “I don’t care what the economists say.”

Ken Mannina, a senior vice president at Bridge Bank in San Jose who focuses on SBA lending, is not surprised that Bay Area delinquency rates on 504 loans are better than the nation at large. Still, he says better is a relative term. “I’ve seen what’s happening in other markets, and it’s so much worse elsewhere,” he said.

The higher SBA loan limits and the new refinancing capability would go some way toward filling the gap that has been left by conventional lenders’ pullback from the market, he said. If the changes are made, he said, “I think the demand is there, and the loan volumes will materialize.”

DESIGN

Restored Vision A long-awaited rehabilitation of San Francisco’s Palace of Fine Arts enters the final phase.

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hen San Francisco’s business and civic leaders gathered in 1910 to discuss plans for the city to host the century’s first great world’s fair, they took two hours to raise $4 million to beat competing cities Washington, D.C., and New Orleans. It has taken considerably longer to raise the $21 million needed for the restoration of the landmark Palace of Fine Arts, the iconic structure that remains from the 1915 Panama Pacific International Exposition. Now the finish line is within sight.

The Maybeck Foundation, named for palace architect Bernard Maybeck, has at last raised the sum, and bids are out for the final construction phase with a targeted January 2011 end date. Work started on the palace’s reconstruction in October 2003. “I can’t believe we pulled it off,” said Jan Berckefeldt, the foundation’s director.

The rehabilitation will be worth the wait, she says, because the palace is a living reminder of an exhibition that in many ways gave birth to the economic dynamo that is modern-day California. The exposition provided the world tangible evidence that San Francisco had recovered from the powerful 1906 earthquake and fire. It also celebrated the launch of the Panama Canal.

“The canal opened California to greater trade,” Berckefeldt said, and the world began learning about California products. The Sun-Maid raisin girl was introduced at the expo, and many visitors got their first taste of Ghiradelli chocolate, she said. That the expo attracted 19 million attendees is all the more remarkable given the limited transportation of the day and that World War I was raging.

The palace, which is situated on 17 acres next to a lagoon, has a nearly 3.5-acre footprint and a 1,100-foot wide rotunda that reaches 162 feet in the air. While the palace may seem of extraordinary scale today, it

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fit the exposition’s other massive structures and was dwarfed by many, said Charles Duncan, a principal at San Francisco’s Carey & Co. Inc., an architecture firm leading the renovation. The palace includes a large barn-like structure laid out in a semicircle around the back of the rotunda and a colonnade that features 30 Corinthian columns. It was built to house an international arts showing that featured 11,000 pieces including a large selection of French Impressionists. It was the first showing of such art west of the Mississippi and is credited with inspiring the California Impressionist school.

The palace was designed by Bernard Maybeck, a long-time Berkeley resident born in 1862 who was a contemporary of Frank Lloyd Wright and studied at the Ecole des Beaux-Arts in Paris. He designed the palace in the Classical style favored by many architects of the day. Apart from the palace, Maybeck’s most famous work is the First Church of Christ Scientist in Berkeley, a national historic landmark. Both the palace’s rotunda and colonnade are made of reinforced concrete.

Not quite a hundred years after the exposition, the palace, a favorite of wedding photographers and a setting for such movies as “Vertigo” and “Foul Play,” was crumbling. Its rotunda and colonnades were ravaged by mold and bacteria; the lagoon had become what Duncan called “nutrient rich.” While much of the palace’s restoration has been undertaken to correct these defects and to seismically strengthen the rotunda and colonnades, another major mission has been to restore the palace to be more faithful to Maybeck’s vision. For example, when the palace’s dome was refurbished during the rehabilitation’s second phase, it was restored to its original color, burnt orange. It had been painted grey in the 1930s while under repair. North and south visitors’ entrances will be refurbished in the final phase, and landscaping will be used to create an intimate setting for visitors in preparation for the grandeur of the site.

“That is a hallmark of [Maybeck’s] work,” Berckefeldt said. “There would be intimate rooms that would lead to grander rooms,” leading finally to what she described as “tah-dah” experiences.

The landscaping will be faithful to Maybeck’s original plan, featuring plants that thrive in a Mediterranean climate. “To Maybeck, plants and buildings were inseparable,” Duncan said. In homes he designed, he used trellises to mimic sun filtered by a California oak, for instance. Some expo officials wanted to drain the palace’s lagoon, but Maybeck believed visitors would gravitate to it and its swans.

The rotunda’s floor will be replaced with decorative concrete, based on Maybeck’s original design. The design was not used in the beginning, Berckefeldt said, because the expo’s organizers ran out of money.

The organizers envisioned San Francisco as the “Athens of the West,” a theme particularly promulgated by Phoebe Hearst. The mother of William Randolph Hearst was a big benefactor to University of California, Berkeley, and its first woman regent. She wanted to promote San Francisco as a center of learning and culture.

P H OTO S CO U R T E SY O F S F P U B L I C L I B R A RY A R C H I V E

By Eugene Gilligan

P H OTO S BY D O U G L A S N E L S O N / R H AA

The rehabilitation has had its complications, Duncan said, not the least of which is its location in what he called a marine environment, which can be “very corrosive” and cause reinforcement bars in concrete to rust. “That causes the concrete to pop,” he said. “We had to cure that.”

Because the lagoon is also home to fish and fowl, work couldn’t be done at certain times of year, said Doug Nelson, principal of Mill Valley landscape architects Royston Hanamoto Alley & Abbey, another project partner.

The Maybeck Foundation deserves credit for getting the project so close to the finish line, Duncan said. “They’ve raised money in a very difficult environment,” he said, and he praised the city and the Maybeck Foundation for “rising to the occasion.”

Phil Ginsburg, general manager of the San Francisco Recreation and Parks Department, says the public-private partnership between the city and Maybeck was critical to getting the restoration done. “The city’s parks have $1.7 billion worth of unmet capital needs. We in government can’t go it alone anymore,” he said.

One initiative was to solicit donations from the descendants of the 40 businessmen who supplied the money for the expo. “We are not a museum, where you have a list of donors that you can always call upon,” Berckefeldt said. She credits the state and city for their help as well as some major donors, but reaching out to the community for smaller donations was a major part of the fund-raising campaign. “The palace is loved by so many people,” she said. “We put the focus on [receiving donations] from smaller donors.” Ultimately, 40 percent of the restoration was financed with city and state monies, and the remainder came from private donations, 1,200 contributors in all.

The future holds both promise and problems. The long-term use of the nearby Presidio, a National Park, is in flux, she said. Another concern is who will replace the Exploratorium science museum when it relocates in 2013, vacating the space it shares with the Palace of Fine Arts Theatre in the building that was once the art gallery. One plan, replacing the Exploratorium with a private sports club, concerned her, because she favors keeping it open to the public. “Talk of that has faded away,” she said.

Ginsburg, the San Francisco parks’ general manager, says the palace restoration, the new Crissy Field Center and the $1 billion Doyle Drive replacement project are all about improving an area of San Francisco that is known world over: “You look out over the bay, and see the Golden Gate Bridge and Alcatraz, and you know you are in a special place.”

While much of the palace’s restoration has been undertaken to correct defects and to seismically strengthen the rotunda and colonnades, another major mission has been to restore the palace to be more faithful to architect Bernard Maybeck’s vision.

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“Current analysis is showing that the time and manpower needed to foreclose on smaller loans is costly in proportion to the value of the asset.�

Alan Reay, president, Atlas Hospitality Group

Inhospitable

By Brian Miller

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Hotels face years of struggle.

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inens are fraying for San Francisco hoteliers. Loaded with debt and crippled by reduced travel, owners are struggling to hang on to their properties. Ironically, they are aided by lenders who want them even less. Even as the economy shows signs of turnaround, everyone is cowed by the haul that remains: Forecasters predict revenue won’t recover its peaks for three or more years.

“Even though the city’s occupancy has held up, there’s been a free fall in rates nationwide,” said Suzanne Mellen, San Francisco senior managing director for HVS, a global consultant to the hotel, restaurant, leisure and gaming industries. “California had just climbed back from the dot-com bust, then it gets whacked again.”

Irvine-based property broker Atlas Hospitality Group estimates that more than 400 California properties are in foreclosure. Up to 1,200 more are operating under forbearance agreements whereby a lender won’t exercise its right to foreclose if a borrower agrees to a catch-up payment plan. In the Bay Area, more than 100 hotels are in foreclosure or delinquent on their debt, according to Atlas. Atlas President Alan Reay expects it will take as long as five years to work through all the distressed assets.

“I just got back from a hotel conference in L.A. where a major special servicer said it was putting up [for sale] a $1 billion loan pool in which the average loan balance was $3.5 million,” Reay said. “It is doing so because current analysis is showing that the time and manpower needed to foreclose on smaller loans is costly in proportion to the value of the asset.”

In instances where forbearance agreements don’t or won’t solve problems, lenders are modifying or selling loans to avoid a protracted and often expensive foreclosure process, Reay said. Not too long ago, lenders refused to sell loans at big discounts. But current analysis indicates they will fare better if they take the financial hit now, avoid controlling the property and move on.

The servicer also is eyeballing the billions of dollars raised in the last several years to exploit the much-anticipated buying opportunities in the commercial property sphere, he said. Buying a loan on a distressed property is one way to get at the collateral.

Chip Conley, chief executive officer of San Francisco’s Joie de Vivre Hotels, the largest independent hotel operator in the state, has been negotiating loan modifications with lenders and seeking $150 million in new equity. The company, which expanded significantly in recent years, operates 36 California hotels; with partners, it owns 14. Conley says the company has cut deals with lenders for 10 properties; an additional eight are in need of new financial arrangements.

“A lender gets a little more willing to reduce the note when they see the market is not going to have much of an upgrade in the next two or three years,” he says. “What we’ve gotten in some cases are agreements that reduce the note by $2 or $3 for every $1 of equity we bring. That’s a normal deal. Where that’s not being done, in some cases, where there’s an interest-rate floor, they are lowering that floor.”

Market conditions appear to be improving, though they have a long way to travel to reach levels before a dismal 2009. Beginning in 2004 the industry saw consistent, strong income growth for five consecutive years, according to a statistical profile of the San Francisco-San Mateo metropolitan market prepared by Smith Travel Research Inc. Revenues

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peaked in 2008 at $2.2 billion, up from $1.5 billion in 2004. But in 2009, revenue fell nearly 20 percent to $1.8 billion. In the first quarter of this year, they ticked up slightly, by 2.7 percent.

Room count remained nearly unchanged during the period, starting at 52,206 in January 2004 and closing at 51,951 in March. The region lost 12 hotels during the time settling at 398.

The San Francisco hotel market has historically been one-third leisure, one-third business travel and one-third meetings and conventions. With business and convention travel well off, that means 66 percent of historic demand segments are currently handicapped.

Once the market has recovered, San Francisco still has another cross to bear—the high cost of doing business in the city. Those in the hotel industry believe the market’s strong union representation drains profitability, not only at unionized properties but at non-unionized ones as well because they compete for the same workers. Labor unions counter that big hotel operators are still making millions of dollars and can afford to share more with workers.

The current dispute has been simmering since August 2009, when contracts between about 60 San Francisco hotels and roughly 9,000 members of the hotel workers union Local 2 expired. The agreement was signed in 2006 after two years that included a two-week strike, a lockout that lasted nearly two months and a union-organized boycott of hotels themselves.

When the 2006 contract was signed, the hotel industry was on the upswing. When it expired, the hotel market was in a free fall. The estimated 30 percent revenue drop means net operating income has been halved due to fixed costs, says HVS’ Mellen, and some hotels are experiencing negative cash flow even before debt service.

Again in contract limbo, Local 2 has re-activated its boycott, of seven hotels this time, and workers at the Hilton Union Square walked off the job in early April for a limited three-day strike. A key issue is health care. Hotel operators now pay $1,080 for each employee each month, according to published reports, which allows workers to get family coverage for $10 per month and pay $5 for most medical care, including emergency-room visits.

Industry leaders say health care costs have risen more than 40 percent since the contract was signed and workers need to share some of the burden. Unions contend the solid health care coverage is trade for low wages—an average of $25,000 to $35,000 a year—and needs to remain largely intact.

The union also argues that despite the economic downturn, the hotel industry remains fundamentally profitable, both in San Francisco and nationally, pointing to companies like Hyatt Corp., Starwood Hotels & Resorts Worldwide Inc. and Hilton Hotels Corp. While not antiunion, Rick Swig, a hotel investor and founder of San Francisco’s RSBA & Associates, says the argument is misleading. Companies like Hyatt, Hilton and Starwood don’t own many of the hotels operating under their flags, he notes. In those cases, the owners’ financial fortunes are largely severed from those of their franchisors.

“The owners are individuals with a significantly high cost basis and responsibility for paying their debt service and creating a fair return to investors,” Swig said. “They are the ones directly affected by the day-today cost of operations. I will promise you, they are not profitable unless they have a pre-2000 cost-basis,” which very few do.

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Cutting Corners Lenders aren’t the only ones giving hoteliers some slack.

Jim Abrams, attorney, Jeffer Mangels Butler & Marmaro LLP

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he California real estate crash has left the hotel business in turmoil. Of the roughly 600 Bay Area properties, at least 106 were in loan default in late April, according to PKF Consulting. “The long and the short of it is that all hotels’ income has dropped precipitously since 2007,” said Thomas Callahan, a PKF co-president who oversees San Francisco. “Almost any hotel refinanced or acquired in the bubble is probably having a difficult time paying debt service.”

As bad as conditions are for any commercial property, at hotels they are often worse. Striking away bureaucratic bramble to get at better operations can be tough. For starters, besides an owner and lender, hotels almost always have a third player: the operator. For non-luxury properties, there’s often a fourth: The company that licenses the brand name and ties together a national reservations system. Each has different priorities: debt service, daily cash flow, brand standards, renovations and upgrades.

Tension rises when there’s not enough to pay for it all.

For now, most players are bending their rules to keep injured hotels functioning. “The brands that I have seen, most have been extremely willing to work with owners and help them figure out ways to cut costs, to put off necessary improvements, to modify the brand standards that, in an up market, you would not be able to do,” said Lynn Cadwalader, co-chair of the hospitality practice at law firm Holland & Knight in San Francisco.

Brand standards can cover specific amenities as detailed as television sets and toilet paper. “The people who are the brand—Embassy Suites or Doubletree—they conduct inspections and expect all properties that carry their name to have their brand standards,” said Jim Abrams, an attorney with Jeffer Mangels Butler & Marmaro LLP in San Francisco who advises the California Hotel & Lodging Association. At one San Francisco hotel that Abrams would not name, the brand agreed to relax standards on 47 of 72 specific amenities.

“There is a lot of creative financial engineering going on out there,” said Rick Swig, a hotel investor and president of San Francisco consultant RSBA & Associates. Negotiations with banks are difficult, but owners have an even tougher time working out deals when the hotel has been financed using commercial-mortgage-backed securities. CMBS financing covers about a third of all hotel loans in the country.

Unlike a bank loan, where a loan officer can work with a borrower, securities are typically owned by multiple entities, each with interests of their own. Only a designated special servicer can alter loan terms and typically only after a default. But, Swig says, “The lending rules are

changing daily. A year ago, when a commercial-mortgagebacked security loan was due, it was due. Now, the federal government realizes if they maintain that stringency, there would be chaos.”

The question now is how long everyone can wait for the economy to come back. Swig predicts conditions won’t improve much for some time. Business and convention travel, which account for about two-thirds of San Francisco’s trade, won’t bounce back until there is dynamic national economic recovery, Swig believes. “When this country shows three months of solid job increases, add six months to that. That’s when business travel and meeting activity will start increasing,” he said. “This year is a horrendous year for conventions, next year is not much better, 2012 is pretty good, and 2013 is expected to be solid.”

Cadwalader and others expect to see more discounted bank-note sales and more buyers from China and India.

Their primary interest is typically in urban markets such as San Francisco, though they’ll venture into the hinterlands for a trophy property. “I think there is great opportunity for joint venture arrangements with some of these foreign investors, with companies here that can teach them the ropes,” she said. Many foreign owners also want to become approved, third-party operators, a formal process that requires them to establish their stability and capacity to handle the job.

The current turmoil may change long-term contract practices between owners and operators. In the past the standard term was 20 years plus options. Now Cadwalader sees more owners seek terms of eight to 12 years. That makes it easier to switch operators down the line.

Meanwhile, all parties are dusting off existing agreements to remember the exact protections they have. The focus is on “subordination, non-disturbance and attornment clauses,” known by initials SNDA. These establish which player’s rights are subordinate and superior to others’, declare management status if a borrower defaults and spell out if the management agreement is turned over (“attorned”) intact to a new owner.

Those who survive the current financial squeeze may fight for different SNDAs in the future. Banks that have given SNDAs to more marginal hotel operators in the past will refuse in the future, predicted attorney Gregory Shean, head of the real estate department at San Francisco’s Farella Braun + Martel LLP. In the past some managers gave up a SNDA clause preventing the lender from terminating them. “But I certainly think managers who found out that their SNDAs weren’t as good as they should have been will be more focused on the issue,” he said.

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“At one San Francisco hotel, the brand agreed to relax standards on 47 of 72 specific amenities.”

By Robert Celaschi

A Deal Runs Through It Fishing for deals proves to be a popular sport across the country.

By John McNellis

R

emember Brad Pitt fly-fishing in that breathtaking Missoula river? Gracefully casting his rod back and forth, back and forth, and then splashing his fly in the exact spot where the trout lazed? Well, with the spring thaw, every

property buyer out there is casting back and forth—some more gracefully than others, few like Brad, yet almost no one is getting a strike. The sellers still aren’t biting. Why? The short answer of course is that buyers—to overwork the metaphor—aren’t baiting their hooks.

For a longer answer, your correspondent has been hip-wading the traditional pools of real-estate wisdom including the annual spring meeting of the Urban Land Institute in Boston. Direct answers were in shorter supply than decorum at a Raider’s game, but the announced good news/bad news was that the recession ended last summer, but every sector of American real estate will remain overbuilt until 2013.

Would-be vultures to a person, the ULI attendees felt a tad better upon learning that the famous Grave Dancer, Sam Zell himself, isn’t finding any cemeteries either. In a public Q&A session, Zell was asked if he had put together a war chest. He shrugged. “What’s the use of having an opportunity fund if there are no opportunities?” he said.

Zell is instead investing in retail in Brazil.

The ULI’s various prognosticators—the pundits, sages and seers—attributed the annoying lack of American deals to the weather, more specifically, to tsunamis.

Like the doomsday prophet who pushes back his end-of-world deadline every six months, the pundits were guaranteeing the banks would drop their “amend-extendand-pretend” strategy any day now and a tsunami of bank real estate would, in the manner of the life-giving Nile, swamp us all with career-saving deals.

The sages took the opposite view: namely, that a tsunami of opportunity funds (except for a few of the waiters, everyone in the banquet hall was starting one) would drive prices ever higher and that good deals would be harder to find than Baptists at a barn dance.

The seers’ crystal ball was more far-reaching—they zeroed in on Washington’s trillions in deficit spending and the certainty that this would one day produce high-teen interest rates and Zimbabwean inflation. More or less like cocaine,

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they said, it would kill us, but they wouldn’t say when.

One observer (well, OK, me) decided the REO tsunami would smack into the Opportunity tsunami and then the two would wrestle the Inflation tsunami; instead of Armageddon, however, these great forces would counteract one another in the same inexplicable way the opposing powers of the universe always do when the hour is darkest on “Star Trek.” Thus, like Kirk and Spock, we’ll all be fine (if not in a parallel universe wherein life companies actually have to lend to borrowers who need money) and business will be as always: a good deal here, a lousy deal there.

In addition to ululations over the dearth of deals, this spring has been marked by another recurring theme—the need for recurring income. Quite suddenly, even titans of real estate who formerly couldn’t find their local bank branch with MapQuest are now adding the disdained “c” word to their titles. Large and small, developers are swearing to bemused lenders that their life’s ambition has always been to manage troubled assets and be a consultant. While some will no doubt back away from this career pursuit when they learn that being a work-out specialist involves neither gyms nor weights, many will persist. But success is by no means assured. The banks fear the entrepreneurs’ conversion to righteousness will be short-lived and that,

In addition to ululations over the dearth of deals, this spring has been marked by another recurring theme— the need for recurring income.

at the mere whiff of recovery, their newest employees will desert them en masse. The banks also cleverly suspect— they don’t have all the money for nothing—that many developers and brokers are only angling for the keys to the henhouse so they can be on the inside when the chickens are at last sold.

The ULI cognoscenti also proclaimed that, contrary to early fears, banks and special servicers are not going after personal guaranties on defaulted loans this time around. Instead, lenders are using the threat of these guaranties to keep their borrowers working hard on assets for which they would dearly love to hand in the keys. This could result in further delays for the deal- tsunami pundits: Some of these borrowers—despite themselves— are bound to work their way out, stabilizing their projects and hanging on.

Back in Northern California retail, many of the tenants who have been so absent these past 20 months are at last returning. With retailers in tow, we can start baiting our hooks with more money; hopefully, we’ll get a strike or two.

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This and opposite page: Santana Row

Merchants and landlords search for the next Holy Grail.

By Jessica Saunders

“The same conditions don’t prevail Bay Area-wide. For the A-plus or prime retail centers, which account for 25 percent to 30 percent of the market, traffic and sales are still relatively high, rents are healthy and available spaces get multiple offers.”

Rhonda Diaz, vice president, Terranomics 18 theregistrysf.com

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I

n a retail market such as today’s, what property owners want most are fresh concepts that generate interest from shoppers. Getting foot traffic back into malls and stores is half the battle in reviving consumer spending. Even though the Bay Area isn’t suffering the double-digit vacancy rates seen nationwide, empty storefronts remain the enemy. Landlords are working in strange and unusual ways to fill their empty holes. One retail property owner is in its second year of sponsoring a reality-show contest to find the next big thing. Meanwhile, behemoths like Gap Inc. and Microsoft Corp. are taking advantage of the bargain rents to test new retail concepts, and established retailers are applying the screws to swing lease terms and conditions their way.

All the uncertainty surrounding the consumer is changing the way deals are done, said Julie Taylor, senior vice president with Cornish & Carey Commercial/ONCOR International. “Because retailers are ultracautious in this environment, the majority are structuring deals with an exit provision or a shorter-term commitment than they would have a few years ago,” she said. In her 20 years’ experience, she had never before done the one- or two-year leases she is doing today. Five or 10 years has been the norm.

“National apparel chains would ask for the right to vacate if sales didn’t reach a certain threshold. But now it is far more pervasive. There are far more retailers asking for it,” Taylor said. Many landlords are willing to “roll the dice” with temporary tenants because they expect rents to rise in the next two years. Some brokers say the strategy is a substantial risk.

San Francisco leads Bay Area retail performance, with 4 percent vacancy in the first quarter, up from 3.4 percent at the end of 2009, according to commercial real estate information services firm Reis Inc. That compares to a 10.8 percent first-quarter average across the top 77 U.S. metropolitan markets. The San Jose metro area had 5.8 percent vacancy and Oakland 6.8 percent.

Area experts say market activity is at an unusually low ebb, and tenants have unprecedented negotiating power. “In my career I have never seen it this slow,” said Bruce Frazer, an executive vice president at Retail Real Estate Group in Santa Clara who has been in the business since 1976.

The same conditions don’t prevail Bay Area-wide. For the A-plus or

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Shopped Out

prime retail centers, which account for 25 percent to 30 percent of the market, traffic and sales are still relatively high, rents are healthy, and available spaces get multiple offers. A-plus space can be found in pockets within San Francisco and throughout the Bay Area, said Rhonda Diaz, a vice president at Terranomics, a retail brokerage. All other retail properties in the Bay Area are struggling to some degree.

“What will fill stores? Some retail product will need to adapt into something different, so that will take care of some vacancy,” Diaz said.

“Innovation and entrepreneurship, existing retailers adapting and new concepts that are going to be rolled out” should take care of the rest.

Among the new ideas being tested in the Bay Area is the first bricks-andmortar store for Petaluma-based Athleta, which specializes in functional and stylish women’s activewear. Gap Inc. bought the company for $150 million in 2008 and folded it into its online shopping destination. Earlier this year Athleta took a one-year market-rate lease, with options at Shelter Bay Retail Group’s Strawberry Village Shopping Center in Mill Valley, said Taylor, who represented the landlord in the deal.

What the store will look like was a closely guarded secret prior to opening in late May. A spokeswoman said it would be a retail environment that reflects the current product assortment, familiar to customers from the 10-year-old company’s Web site and catalog. Leisure and sporting apparel for women is a $31 billion market, said Louise Callagy, an Athleta spokesperson for Gap. No decision has been made on future stores, according to both Taylor and Callagy. News reports have said Athleta is looking for additional locations.

Gap has a spotty track record with bricks-and-mortar stores for new brands. Old Navy was a success, setting a retail record by reaching $1 billion in sales in its first four years of operation. But more recently, Gap’s Forth & Towne apparel concept, aimed at 35-plus women, fizzled after only 18 months. The division’s 19 stores closed in early 2007.

Another new retail concept comes from Microsoft, which opened its first bricks-and-mortar locations in luxury shopping malls in Mission Viejo in southern Orange County and in Scottsdale, Ariz., in 2009. Widely compared to Apple Inc.’s popular retail stores, Microsoft’s locations sell PCs, software, Xbox 360s and Windows phones, along with providing in-house expertise and interactive demonstrations. The software manufacturer plans to open another two stores in Denver and San Diego this summer, with additional outlets expected this fall, according to CNET. com. Whether any of the additional outlets will be in San Francisco, where Microsoft’s very first retail effort debuted at the Metreon in 1999, remains to be seen. The Metreon store, dubbed microsoftSF and described by Salon.com as a kind of “Pottery Barn for the computer crowd,” quietly closed in 2001.

Today’s Microsoft retail concept has much more in common with the Apple Store, with floor-to-ceiling glass walls in front, notebooks, smartphones and other devices displayed for demonstration on large tables and an in-person help desk at the back of the store. The Microsoft stores also have huge wrap-around media walls that can be used for branding, advertising and in-store training.

Not every locale is a sought-after site for a new concept from a Fortune 100 company, however. For locations such as San Leandro’s Bayfair Center, landlords have gotten creative. Washington, D.C.-based mall developer and owner Madison Marquette started the second year of its Retail*Star contest in April.

Company executives realized in 2008 that tenants would be driving the show as the economy slowed, said Whitney Livingston, regional marketing director. They came up with the idea of incubating businesses through a competition modeled on reality-TV contests like “The Apprentice”.

RETAILHOSPITALITY

The Retail*Star winner would get a year of free rent at Bayfair Center, plus a full build-out of the space, $25,000 cash and a two-year membership in the Chamber of Commerce. Contestants presented to a live audience and a judges’ panel over five months.

Ben Wanzo was selected from 66 contestants to open Teachbar, a tea and snack lounge that offers educational classes, in December 2009.

Wanzo has told the landlord that sales at his 1,400 square-foot store are good, and Madison Marquette hopes he will sign a permanent lease at the end of this year, Livingstone said.

One of the bonuses of Wanzo’s concept is that it brings people to the mall for a purpose other than shopping. “Teachbar is a 100 percent destination tenant,” Livingston said. Now, the company is considering rolling out the contest in other West Coast markets.

Among the concepts put forward by the 2010 contest’s 15 semifinalists are a performing-arts center, a gaming center, a store offering hair replacement and makeovers, and an eBay superstore, according to the contest Web site.

The silver lining in the retail cloud has been new opportunity. Discount retailers including dollar stores, Grocery Outlet, dd’s Discounts and Auto Zone are “making a big push to expand now,” Taylor said. These chains couldn’t afford some locations during the peak years. Today Santa Clara County rents have fallen some 50 percent to $12 to $15 a square foot, and there are a dozen or more properties in that price range in the county.

“They are making really long-term deals” of up to 30 years including options, she said.

The outlook for retail depends on economic recovery. Although signs are improving, Reis said it is still too early to tell. Its first-quarter retail report projects increasing vacancy and negative effective rent growth for neighborhood and community centers through 2011. “Until we observe systematic and consistent increases in employment and sales, we do not expect to deviate from our rather pessimistic appraisal of the retail market,” the company said.

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Sticky Web Retailers and restaurateurs are still learning how to weave through the Web successfully.

By John Sailors

“Nobody yet has been able to generate an ROI for all of this stuff, for social networking; there have been no ROI studies done.”

James Dion, retail trainer and consultant

R

etailers are developing a love-hate relationship with social-networking and consumer-oriented Web sites. From connecting with customers in new ways on Facebook and Twitter to monitoring negative reviews on sites such as Yelp.com, merchants, restaurateurs and small business owners are navigating an evolving Internet jungle with no tested compass.

The implications for real-world real estate are only emerging. Anecdotes from several Bay Area entrepreneurs suggest that thoughtful use of the Web can drive business and is especially helpful in the first months of operation. It is also clear that established businesses are beginning to see social media as a novel channel to build customer loyalty.

Given that property values flow from square-foot revenues, Web sites or online practices with a proven record of driving dollars could easily become of greater interest to retail landlords, too. What’s more, several Web sites are building online real estate empires of their own. In time, those empires may give them unsurpassed influence over retail success.

Deciding how to approach the Web and its various facets remains no easy task, especially for large chains that need practical policies across many locations and employees.

“Nobody yet has been able to generate an ROI for all of this stuff, for social networking; there have been no ROI studies done,” said James Dion, a retail trainer and consultant who has worked with San Francisco-based WilliamsSonoma Inc., Pleasanton’s Safeway Inc., Macy’s and others.

For small businesses, a valid return on investment seems somewhat easier to track. Isaac Mogannam, owner of Phat Philly, a restaurant in San Francisco’s Mission district, credits Yelp and Facebook for helping fuel his business’s successful launch. “I would say it has definitely [helped].

We’re in an extremely tech-savvy neighborhood,” Mogannam said. After only a year and a half in business, Mogannam notes that his restaurant has received 400 reviews and 500 Facebook followers, many more than businesses established much longer.

Mogannam uses Google Local Business, too. That allows him to post information on Google Maps and create

printable coupons. It also gives him analytics such as where people who asked for directions were coming from and what they were searching when they found his business.

Mogannam was surprised to learn that Phat Philly was in more search results for chicken than for cheese steaks, its specialty.

Ike’s Place, a sandwich shop in the Castro district, has collected more than 2,000 Yelp reviews and 3,000 Facebook fans. The company has also used MySpace and the photosharing site Flickr, which Sunnyvale-based Yahoo bought in 2005.

“It’s one of the reasons why the business was able to catapult itself,” said Ike’s owner, Ike Shehadeh, of the attention on Facebook. “We’ll tell one of our followers something and then they’ll start telling their followers, so it’s definitely an opportunity.”

A5A Steak Lounge in San Francisco’s financial district has generated more than 330 reviews on Yelp, 1,700 followers on Twitter and 487 followers on Facebook. Steve Chen, co-owner, called it an economical way to promote the business. Like other business owners, the restaurant also has found ways to gauge results directly, for instance by offering specials on Twitter that are given when customers say, “I saw it on Twitter.”

Review sites such as Yelp pose a scarier prospect for merchants. Yelp has become a powerhouse. The company boasts 10 million reviews and 31 million visitors a month.

In January it announced a Series E investment of up to $100 million from Elevation Partners, on top of $31 million invested in the San Francisco company in four previous rounds since its 2004 founding. Previous investors include Palo Alto’s DAG Ventures, Bessemer Ventures and Benchmark Capital, which have offices in Menlo Park.

Yelp has also become the most controversial of review sites, facing loud criticism from small businesses and three lawsuits. Small-business owners have accused the site of unsavory business practices, saying it removes negative reviews or reinstates positive ones for advertisers. Yelp has denied that advertising has any influence on the reviews displayed and has made changes to the site’s review-filtering system, offering greater transparency. continued on page 23

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RETAILHOSPITALITY

Opportunity in a Crisis Retailers use design to reposition merchandise and brands.

P O P U P S TO R E CO N C E P T: C H E L E M C K E E I N CO N J U N C T I O N W I T H T H E 7 7 K I D S M A R K E T T E A M

T

ight times have made their mark on retail architecture and interior design, but not in wholly predictable ways. Instead of just slashing budgets, halting expansion and nixing risk, merchants have come out of the recent rough patch creating space for new ideas to flourish.

“So many things are cyclical in retail,” said David Schwing, a principal at San Francisco-based BAR Architects, which counts American Eagle Outfitters, Federal Realty Investment Trust and Polo Ralph Lauren Co. among its clients. “A lot of retailers—if their business is going well—aren’t motivated to make changes.”

But when the economy contracts, consumer spending falls and competition falls away, stronger retailers often see that they can move in for market share. Their attention then gravitates to design. “It’s countercyclical: When the economy turns down, store design gets a boost,” Schwing said.

Where they aren’t prepping a future flagship, stores are emphasizing smaller footprints. “Due to the economy, there’s this whole mindset of the shopper doing more with less, and that is reflected in the projects being undertaken,” said Barry Bourbon, a principal at Gensler.

Because shoppers have less to spend, they are also more apt to comparison shop online before going out to purchase something, Bourbon said. “I think we are on the cusp of that translating into the built environment. There will be an appreciation of the mobile device and that sort of information coming soon.”

For instance, a shopper might go to FootLocker after surfing the Web to narrow a search to a few pairs of shoes. At the store, retail staff might then dim the lights on a display wall to spotlight the few pairs of shoes a consumer prefers. “The whole trend toward personalization will be a big factor,” he said.

More cost-conscious consumers are also driving even highend retailers to dial down new stores’ opulence and drawing more big-box and discount retailers into urban environments, Bourbon said. “The good news is we’re seeing the light,” he said.

Slow growth has plagued San Francisco’s Union Square shopping district for years, for instance, with vacant spaces,

“It’s countercyclical: When the economy turns down, store design gets a boost.”

David Schwing, principal, BAR Architects

RETAILHOSPITALITY

By Michael Fitzhugh

short-term lease extensions and temporary stores becoming the norm, Bourbon says. Now there is growing activity with new retailers—especially international brands—viewing the city as a buyers’ market.

While some retailers are taking the long view, seizing the opportunity to buy desirable real estate while it is cheap with plans for flagship stores that will launch when the economy is brighter, others are far more focused on the here and now.

“Retailers are always trying to come up with new and big ideas,” said Susan McComb, another principal at BAR. Apparel and accessory sellers have been particularly creative, she said.

During the 1990s recession, they launched the outlet concept, with Ann Taylor creating its Loft brand and Gap launching Old Navy. Now they’re embracing a relatively fresh idea.

“Pop-up stores are kind of the outlets of this recession,” said McComb. Like hermit crabs moving into empty shells, retailers are seizing on vacant storefronts left by their less-successful peers, moving in with low-cost fixtures such as card tables with slip covers and temporary displays.

“In a lot of ways it is like set design,” said McComb of the often short-lived stores. “It’s kind of a one-liner that’s meant to get a product in front of consumers.”

Some BAR clients are also trying to convey a value message.

That can affect the choice of materials and level of finish the firm suggests. An exposed fluorescent fixture, for example, can subtly convey to customers that they are not paying for fancy store design and that they are getting more value for their dollar, McComb said.

Retailers have become more value-focused too and more strategic in their choice of where and in what style to launch new stores, said Chris Mitchell, a principal in the Los Angeles office of Studios Architecture. Last fall, for instance, the Gap opened a new concept pop-up store, the 1969 Jeans Shop, on Los Angeles’ Robertson Boulevard with a “very plain-Jane” sparse interior, Mitchell said. It included plywood tables and industrial shelving.

That approach allowed the company to covey a hip image while “dealing with what’s available,” he said.

For luxury brands, high-end projects are still coming online and retailers are still spending about the same amount of money, said Mitchell. But they are opening fewer locations than they might have in more flush times, and they insist on deep value for their money, with an emphasis on high-quality but understated materials and store layouts that accommodate as much product as possible. “Even if they are spending lots of money, they want to feel they’re getting real value for all 100 pennies,” he said. “The bling is still there, but with a small ‘b.’”

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The U.S. Green Building Council’s new guidelines for retail are expected by year’s end.

“There’s a recognition of the transient occupant, the customer, and how that impacts the energy efficiency, water-consumption, daylight and views.”

Kirsten Ritchie, director of sustainable design, Gensler

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F

By Michael Fitzhugh

rom energy to materials, location choice to indoor temperature control, retailers have different needs than office-based businesses. For years, they have been held to the same standards by the U.S. Green Building Council, the nation’s top environmentally friendly building association. By 2010’s end, that will change.

A new certification, called Leadership in Energy and Environmental Design for Retail, has reached the end of a three-year pilot. During that time, some of the nation’s biggest retailers have worked closely with the USGBC to shape the final specifications.

The retail certification offers a new green-scoring system that embraces the ways in which retail differs from offices in both energy consumption and use.

Deep-pocketed corporations have led the way in pilot certifications in the voluntary program. For project managers who have waited for the dust to settle before deciding whether to apply for the new badge of honor, the news in good: The new rules ease the way for retailers to do good by the environment by recognizing the realities of retail operations.

“LEED for retail came about because retail is very different than office,” said Kirsten Ritchie, a principal at global architectural firm Gensler and the firm’s director of sustainable design. “There’s a recognition of the transient occupant, the customer, and how that impacts the energy efficiency, water-consumption, daylight and views,” she said.

Retail lighting offers one basic illustration. Lighting calculations built into the original LEED standards for offices didn’t account for the fact that retailers maintain variable hours. They employ energy-intensive spotlighting when the store is open, conducting normal course of

work, and lower-energy lights while it may be closed for business to conduct inventory. Taking such needs into account has required a shift in design ideas, said Ritchie.

“For a long time, retailers have been of the opinion that daylight is the enemy. But now there’s research showing that customers stay longer when there’s daylight; it makes them happier,” she said.

Retailers in malls and other multi-storefront locations face other hurdles, such as trying to manage heating and ventilation systems over which they often have little ultimate control or getting property managers to support their desire to install low-flow sinks and toilets in shared facilities.

To date, five Northern California projects, including Sacramento’s Hot Italian restaurant, have received LEED for Retail new-construction certification during the program’s pilot phase. Four other Northern California projects, including San Francisco’s Nau, an eco-clothier, and Sprint have earned LEED for Retail commercialinterior certification during the pilot.

Chris Bost, a senior project manager for Sprint Real Estate, found the new retail certification system a good fit. “They tried to right-size it to what you can have in a small footprint,” he said. Bost worked on one of the first San Francisco projects to pursue a pilot LEED for Retail certification under the new program, Sprint’s Mission Street store between 4th and 5th streets.

“You might put in bike racks to encourage alternatives for customers and employees to bike to work, but it’s hard to have access to showers and lockers in a small footprint store. They tried to make it reasonable,” he said.

To lighten the store’s environmental footprint, Sprint installed energy-efficient lighting, Energy Star equipment, green power and efficient plumbing fixtures, ramped up recycling and turned to a green housekeeping program to keep it looking good.

In March 2009, the San Francisco store became the first telecommunications retailer to gain a LEED for Retail portfolio-certified rating. This certification allows Sprint to use the template established in the San Francisco store in other locations to short the LEED process. Now, in Harker Heights, Texas, Sprint is building a second green store that’s employing daylightsensitive interior lighting, water-efficient plumbing, an in-store recycling program as well as paints and carpets

RETAILHOSPITALITY

P H O T O S B Y S T E FA N A R M I J O

Retail LEEDs

Sticky Web designed to emit fewer toxic gases than more common coverings do.

Bost says Sprint is seeking LEED certification under the USGBC’s original commercial interiors program because the company doesn’t want to wait for the retail standards to be formalized. Bost is mainly happy to see environmentally friendly construction becoming a little more mainstream. That change is driving costs down as building materials suppliers realize they can’t charge as great a premium as they once did for eco-friendly products.

The LEED for retail program also tries to recognize the unique split between employees, who are often in stores for eight to 10 hours and day, and customers, who are in and out in 20 minutes, said Nick Shaffer, the commercial real-estate sector manager at the USGBC. “We’re thinking about the way the two different groups use the space and really trying to accommodate them, so that they can get the most out of the space,” he said.

Parking spots reserved for hybrid or fuel-efficient vehicles, for example, had to be devoted entirely to visiting customers under traditional LEED guidelines. The retail guidelines suggest a more even split, with some spaces reserved for customers and others for employees. Energy-usage guidelines in the retail program have also been defined, in some cases for the first time, to meet retail needs, said Shaffer.

Restaurants in particular posed a challenge.

Many LEED energy points are awarded for reducing energy use from established baselines. But with no baseline for how much energy should go into a fryer per hour and what would be an acceptable baseline to start with, the USGBC worked with San Ramon’s Food Service Technology Center to establish standards. “For us to make a dent in that really helps us achieve our mission, which is market transformation,” said Shaffer.

Retailers such as Target, Starbucks and REI, which helped develop the new LEED for retail standards, are eager to attain the new settings in the years ahead.

Starbucks aims to reduce its energy consumption by 25 percent and to purchase renewable energy equivalent to 50 percent of the electricity used in company-owned stores by the end of 2010. The company also wants to achieve LEED certification for all of its new, companyowned stores globally beginning later this year.

RETAILHOSPITALITY

continued from page 20

Phat Philly’s Mogannam uses negative reviews as a way to identify problems and reach out to dissatisfied customers.

Even if they don’t respond, he said, that outreach is public so that everyone can see he tried. “Yelp is a way to deal with unhappy customers,” said A5A’s Steve Chen.

Dion calls Facebook the 800-pound-and-growing gorilla for retailers and businesses and an even bigger opportunity than Yelp. Several large chains have made major forays on Facebook, Twitter and other sites, he said, and some have made major mistakes. One is failing to understand the basic nature of Facebook, which was built for connecting individuals, not companies. Many companies set up Facebook pages filled with self-promotion, which does not fit. The more-successful companies offer information, start conversations, do polls and find other creative ways to engage customers. As a result they have been able to build sizable communities of fans on Facebook and followers on Twitter, building loyalty and offering opportunities for new types of promotions.

Other common mistakes include not assigning staff to monitor the sites on an hourly basis. Setting up a Facebook or other page largely guarantees negative and even crazy comments, Dion said. Among the more-successful retail chains using social media are Best Buy, whose Facebook page has 1.1 million fans, Victoria’s Secret, with 3.2 million fans, and Starbucks with just under 7 million fans.

Best Buy also uses Twitter in a novel way, turning the popular micro-blogging site into a customer-service forum. The electronics retailer has enlisted more than 2,100 Best Buy employee volunteers into what it calls its Twelpforce to spend parts of their shifts answering customer questions. Backed by a TV ad showing a stadium of Best Buy staff answering questions, the Twitter program has been a huge success, with questions numbering in the tens of thousands.

Best Buy has touted the program as way to brand the company as being on the cutting edge of technology as well as a way to prove its commitment to customer service by using social media to create a permanent record.

What most of these merchants agreed was that businesses should not be afraid of these new forces. Even negative reviews provide opportunities, and some still agree with the adage: There is no such thing as bad publicity.

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GREEN

Credit When Due Seize tax incentives now for green improvements to housing and commercial properties.

By Jackie Matsumura

W

e live in an environment where more and more people are conscious of how their decisions impact the quality of life. Purchasing recyclable and earth friendly products, driving hybrid vehicles and installing energy-efficient lighting are some actions we take to be green. Businesses are aware of the importance of meeting customer and employee expectations and simply want to do the right thing. Real-estate developers and landlords are faced with government, investor and tenant demands to cut energy use and waste and to be mindful of planetary health. The good news is that Washington policymakers are using the tax code to help homeowners and commercial-property owners become greener. As we all take a sigh of relief that the 2010 tax season is behind us, it is not too soon to start thinking about maximizing tax savings for the year ahead.

Tax credits and tax deductions are not the same. A tax credit reduces tax liability. If you owe $100,000 in income taxes, but you have a $10,000 credit, your net tax liability is $90,000. A tax deduction reduces your taxable income but not on a dollar-for-dollar basis.

Instead, you apply your tax rate to quantify the cut. So, if you have a $100,000 tax deduction and you are in the 35 percent tax bracket, your tax benefit is $35,000.

Generally, federal tax incentives aim at reducing energy consumption and encouraging renewable energy use. Under current code, businesses that purchase a so-called “energy property” to use in the course of commerce can claim a tax credit for up to 30 percent of the cost. An energy property is equipment that uses solar or wind to generate electricity or to heat, cool or light a building. Taxpayers can claim the credit whether they buy equipment or build it.

The federal code also allows a deduction of up to $1.80 a square foot for improvements to make commercial property more energyefficient. The upgrades must improve interior lighting systems, heating, cooling, ventilation and hot water systems, or the building envelope. If improvements don’t meet every code requirement, a partial deduction is allowed of $0.60 a square foot. The dollars can be substantial. A landlord with a 50,000 square-foot commercial building who upgrades lighting, building envelope and HVAC systems could achieve a $90,000 tax deduction (50,000 square feet x $1.80).

With limited exceptions, the energy-saving investments must be in service after Jan. 1, 2006, but before year-end 2013. Deductions are open to tenants that make energy-efficient improvements, too.

Building owners, whether they developed or bought a property, can seize the benefit as long as they are first to place it in service. The improvements must be certified by a qualified individual.

The government also has incentives to make public buildings like schools or universities more energy efficient. Because government pays no taxes, the person primarily responsible for designing the technology gets the deduction. Under the code, the designer is the person who creates the technical specifications for the installation

and can include an architect, engineer, contractor, environmental consultant or energy-service provider. If there is more than one involved, the owner can decide how to allocate the perk.

Energy Star labels and LEED certifications do not guarantee that federal requirements for this deduction are met. However, professionals in the field routinely complete complimentary analyses to evaluate if a new building or improvement qualifies. All that is needed to start are blueprints and project specifications.

The code also offers individual tax credits. Under the “residential energy-efficient property” credit, 30 percent of an expenditure for solar-electric equipment, solar water-heating equipment, fuel-cell equipment, small wind-energy equipment and geothermal heat pumps can be claimed. Some credits, but not all, are available only on principal residences. Home-based workers must be careful. The expenditure must be for a nonbusiness purpose; if less than 80 percent of the use of an item is for a nonbusiness (such as living in your house), only that portion of the expenditure qualifies.

For example, say Bob purchases a $6,000 solar panel for his home.

If he uses 30 percent of his house for business, his credit is limited to 70 percent of the panel’s purchase price. That would be $1,800, or $6,000 (the purchase price) multiplied by 30 percent. Conversely, if the business use of his home absorbs only 10 percent of its square footage, he would be eligible for the full credit.

Even individuals who are tenant-stockholders of a cooperativehousing development or members of a condominium-management association (a type of homeowners association) are treated as having made the individual’s proportionate share of any expenditure by the co-op or association. The credit is available through 2016.

The code limits the aggregate credit that can be claimed in any two years for energy-efficiency improvements and residential energy-property expenditures. Examples of qualified energy-efficiency improvements include insulation to reduce heat loss or gain and exterior doors and windows designed to reduce heat gain. Qualified energy property includes some natural gas, propane and oil furnaces, natural gas and propane-oil hot-water boilers and some water heaters and central air-conditioners. The total allowable credit for 2009 and 2010 is $1,500, and it expires at the end of this year.

The rules surrounding these incentives are confusing and intimidating, but the bother to heed them can lead to good rewards.

Credits and deductions don’t pay for up-front costs. But making improvements can give you legitimate green bragging rights. You also could end up with some green in your pocket—not an outcome often associated with income taxes.

Jackie Matsumura can be reached at 925.296.1040 or jmatsumura@bpmcpa.com.

The good news is that Washington policymakers are using the tax code to help homeowners and commercial-property owners be a little greener.

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Downforce

By Rob La Eace

A

few Sundays ago, we saw the 68th running of the Grand Prix de Monaco. With multi-million dollar yachts sterned into the harbor, and the grandstands and well-coiled streets of Monte Carlo packed with both the elite and hoi polloi fans of Formula One racing, it always promises a spectacle—and delivers. Keeping twenty-four, 800-horsepower race cars on this narrow street track requires skill, unfettered nerve and downforce; lots of downforce. Downforce is achieved by adding aerodynamic elements to the car that create downward thrust on the vehicle, marrying it to the road surface. As I pondered the form and function of the front and rear spoilers that help create this force, my often overly active imagination drew an analogy to our real estate market. This force that presses the car chassis down as it propels itself forward is a metaphor for our American consumer. As we struggle through month number 29 of the recession, and enter the real estate doldrums of summer, it remains evident that our consumer markets continue to produce the downforce on our economic race car as it struggles to keep on the road to recovery.

Let’s face it, we used to be a nation of producers.

We are now a nation of consumers. Cheaper labor and materials overseas has created an environment where really quite little is made in America. This is readily evidenced by our trade imbalance. In March of this year, we had a deficit of nearly $53 billion in trade of goods. There’s lots coming in and little shipping out. The average American is difficult to truly define. What is interesting to recognize, however, is how different we are as consumers than our peers from other industrialized nations.

We love to spend money on STUFF—money that we don’t have (for the most part). Just look at the iPad as an example. During the greatest economic downturn since the Great Depression, Apple sold 300,000 iPads in America on its release date. Remember, we’re talking about a product that really does nothing that your smart phone and laptop can’t do, and it requires an additional monthly cell phone subscription if you want to use it outside a WiFi zone. So we spend, and we spend.

Statistics can vary widely, but many sources peg our average American income at somewhere around $43,000 dollars annually. The Federal Reserve publishes a tri-annual Survey of Consumer Finances. The most recent (2009) survey shows that for families that carry debt for credit card, installment loans and lines of credit (not secured by property), the median holding was $19,800 in debt! This does not factor in mortgage or other types of debt either. Surely, one can appreciate that

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this is not a sustainable behavior. Quite frankly, something’s got to give. Both March and April Consumer Confidence numbers were moving in a positive direction. Should May numbers also bolster this trend, it will be an interesting sign.

Meanwhile, March retail numbers for year over year same store data were big, but keep in mind, they were partly big because they were compared to March of 2009— a time when crickets could be heard in store aisles. Also, economists point out that an early Easter this year may have also puffed up demand in March that normally would have occurred in April.

Let me draw you a picture, and I want you to tell me if it looks out of balance. We have an unemployment rate greater than 9.5 percent, we are not adding jobs at any significant rate, there is looming trouble in our commercial real estate and commercial mortgage markets, a large vintage of ARMs that will reset for residential homes in 2010 to 2011 with which we’ve yet to deal, and the housing market that heralded the melt down has not even completely stabilized its price drops in all regions. Add to this the monetary woes across the Atlantic that could affect us, and if you weren’t already worried, you should be now. It comes down to this: We simply can’t expect to be able to spend our way out of a recession. The American consumer has kept us in the game by doing what he/she does best. Spend. Without the creation of jobs, and the other aforementioned stabilizations taking place, this simply cannot continue. Nor can our government’s dysfunctional cash for clunkers, cash for houses (First Time Homebuyer Credit), and now Cash for Appliances, programs provide a meaningful and long lasting fix.

So let’s connect the dots. At some point these wallets and purses are going to run out of cheddar.

If this reduction in downforce occurs before we’ve had a chance to repair the other damaged components of our car, we may just find our real estate market skidding sideways, headed for a guardrail. A double dip scenario could become a real possibility. With continued high levels of unemployment, stringent lending standards keeping buyers out of the market (and preventing owners from refinancing), and both current and future foreclosure inventories factored in, there are plenty of reasons to be suspect. So keep an eye on the American consumer, my friends. When the wallets stop opening; start worrying.

Rob La Eace can be reached at 415.290.7228 or rob@roblaeace.com.

RESIDENTIAL | LEGAL

Revolving Doors Developers are buying broken condo deals to rent the units. Buyer beware.

By Lynn Borkenhagen and Sonia Ransom

A

fter a long period of stagnation when sellers and buyers could not come to a meeting of minds regarding values, developers (and lenders who have taken back property) now find that broken condominium projects have become a popular target for investors seeking to acquire distressed assets. In many cases, the investor intends to rent the condominiums rather than sell them.

The scenario is the opposite of the trend a few years ago when apartments were converted to condominiums at mind-boggling rates. At that time, developers’ concerns centered on numerous legal provisions regarding conversion and noticing as well as local conversion (or anti-conversion) ordinances. Now the situation is reversed. Many of the projects purchased are already entitled as condominiums, but the investor plans to rent them out, in some cases by undoing a prior conversion.

Sometimes the buyer is an investor who intends to rent the condominiums only until the housing market improves. In other cases, the buyer is an apartment operator who intends to rent for a longer period of time.

Some buyers simply want to rent the condominiums until the statute of limitations for construction defects expires.

Whatever the goal, thoughtful investors are taking note of the legal requirements for renting a condominium property.

Those who are not may face some unpleasant surprises when the time comes to sell their units.

The California Subdivision Map Act regulates the conversion of rental units into condominiums, which is a complicated and time-consuming process. When you have a property that is already mapped for condominiums, you do not have a conversion in the classic sense of the term; however, certain conversion-related provisions in the Map Act still apply. Those provisions mostly deal with the content of the lease. Whether our clients use an in-house lease form or an off-the-shelf rental agreement, we nearly always need to modify these documents to address these Map Act issues. Typical changes include certain required disclosures to be made to renters and, most importantly, a right of first-refusal on the part of the tenants when the owner ultimately sells the condominiums to the public.

Failure to comply with these regulations subjects the owner to a variety of payments to the renters.

In addition to the Map Act requirements, local jurisdictions are also permitted under the law to adopt their own conversion ordinances and zoning laws. These local ordinances vary widely in scope and focus. Many jurisdictions do not have any conversion laws; others have elaborate anti-conversion statutes. To add complexity, some local ordinances do not distinguish between properties that are apartments converted into condominiums and condominiums that are temporarily rented.

But the complexity does not stop there. In 1991, the California Supreme Court handed down a decision in City of West Hollywood v. Beverly Towers Inc. It states that while a condominium project is rented, any changes in local zoning and conversion laws will apply to the project, unless the project has received a Public Report from the California Department of Real Estate. Public Reports, which are approved by the DRE, provide disclosure information to homebuyers. In West Hollywood, the city was attempting to apply onerous conversion controls to a rental property on which the owner had previously obtained a Public Report. The court ruled that the local ordinance did not apply and that the receipt of a Public Report acts to grandfather a project into the local laws that were in place at the time the Public Report was issued.

Although the West Hollywood case is almost 20 years old, many developers are not aware of it. Recently, we met with a large apartment operator who is in the process of buying broken condominium projects. The developer assumed that because the projects were mapped for condominiums, they were vested regarding potential anticonversion ordinances. Based on the West Hollywood case, the developer is reviewing its portfolio to determine exposure and need to obtain Public Reports. „

The developer assumed that because the projects were mapped for condominiums, they were vested regarding potential anti-conversion ordinances.

Lynn Borkenhagen can be reached at 619.235.1553 or lborkenhagen@allenmatkins.com.

Sonia Ransom can be reached at 415.273.8413 or sransom@allenmatkins.com.

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06 Calendar

january february march april may june july august september october november december

2

CREW Silicon Valley will host a volunteer and networking event called CREW Cares with CCIM from 6 p.m. – 8 p.m. at Second Harvest Food Bank, San Jose Distribution Center, 750 Curtner Ave., San Jose.

Registration is limited and priority will be given to CREW members. Register online at www.crewsv.org.

ULI San Francisco will host an event called “Housing Trend Forecast- Generation Y, Will They Ever Grow Up?” from 4 p.m. – 5 p.m. at Hyatt Regency, 5 Embarcadero Center, San Francisco. Register online at www.ulisf.org.

3

ULI San Francisco will host a brownbag luncheon called San Francisco Development Stimulus Legislative Reform from 12 p.m. – 1:15 p.m. at CBRE Offices, 101 California St., 44th Floor, San Francisco. This event is free and for members only. Register online at www.ulisf.org.

BOMA Silicon Valley will host a membership luncheon.

Visit www.boma-sv.org for more information.

USGBC Northern California Chapter will host a LEED Green Associate Exam Prep class from 8:30 a.m. – 5 p.m. at Pajaro Valley Community Health Trust, Community Conference Rm., 85 Nielson St., Watsonville. For more information contact info@usgbc-ncc.org or register online at www.usgbc-ncc.org.

AIA East Bay will host the 2010 Exceptional Residential: Bay Area Regional Design Awards Reception and Presentation starting at 6 p.m. at AIA East Bay Chapter Office, 1405 Clay St., Oakland. Members $20 and non-members $30. Register online at www.aiaeb.org or call 510.464.3600 with questions.

3-4

IFMA Silicon Valley will host a CFM Exam Review Class from 8 a.m. – 5 p.m. at 3475 Deer Creek Road Bldg. 7, TNT Room, Palo Alto. Members $350 and nonmembers $500. Register online at www.ifmasv.org or email admin@ifmasv.org with questions.

7

CREW East Bay will host Power Up in 2010- Get Your Golf On starting at 2 p.m. at Sequoyah Country Club, 4550 Heafey Rd., Oakland. Members $59 and nonmembers $79. Register online at www.eastbaycrew.org.

BOMA Silicon Valley will host the Sherie Dunn Memorial Golf Tournament starting at 10:30 a.m. at Cinnabar Hills Golf Course, 23600 McKean Rd., San Jose. A 19th Hole reception and dinner will follow the tournament. The cost is $225 for individuals, $900 per foursome and $50 for dinner-only tickets. Register online at www.boma-sv.org.

ULI San Francisco will host an event called Staying in the Game with Andy Friedman from 5 p.m. – 7 p.m. at Sens Restaurant, Embarcadero 4, Promenade Level, San Francisco. Appetizers will be provided and no registration is required.

8

ULI San Francisco will host a breakfast tour of 555 Bartlett – A Mixed-Use Community Development from 8 a.m. – 9:30 a.m. For questions and registration, visit www.ulisf.org.

BOMA Silicon Valley will host a TOBY Award Workshop from 11:30 a.m. – 1 p.m. at LBA Realty, Conference Room 302, 2540 North First St., San Jose. Lunch will be served and this is a free workshop, but participants must register to attend. Register online at www.boma-sv.org.

CREW Silicon Valley will host an Annual Broker Panel called The Future of Brokerage starting at 11:30 a.m. at Larkspur Sainte Claire, 302 South Market St., San Jose.

Members $50 and non-members $80. Register online at www.crewsv.org.

USGBC Northern California Chapter will host a Three Sustainable Strategies: San Jose Airport Expansion from 5:30 p.m. – 8:15 p.m. at Mineta San Jose Int’l Airport, 2077 Airport Blvd., Terminal A, San Jose. Members $15 and non-members $30. Contact Judith Sayler at jasayler@sbcglobal.net with questions or register online at www.usgbc-ncc.org.

9

PCBC and ULI San Francisco will host 2010 Multifamily Trends Conference from 8:30 a.m. – 3 p.m. at Moscone Convention Center, San Francisco. Register online at www.ulisf.org.

28 theregistrysf.com

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IFMA Silicon Valley will host a roundtable luncheon called Lead Not Manage from 11:30 a.m. – 1 p.m.

Members $20 and non-members $30. Register online at www.ifmasv.org.

CREW San Francisco will host a lunch program starting at 11:30 a.m. at SF City Club. Visit www.crewsf.org for more information.

BOMA San Francisco will host a Building Business Resilience from the Ground Up event from 12 p.m. - 1 p.m. at The Ferry Building. This is a free members-only event.

Visit www.bomasf.org for more information.

IIDA Northern California Chapter will host an event called Fresno City Center: CEU Presentation, Demystifying Resins from 5:30 p.m. – 7 p.m. at Darden Architects, 6790 N. West Ave., San Francisco. Members $0 and nonmembers $5. Visit www.iida-nc.org for more information.

10

AIA San Francisco will host The Sustainable Sites Initiative: Metrics for a greener city with Allegra Bukojemsky and April Philips starting at 6:30 p.m. at AIA San Francisco, 130 Sutter St., Ste. 600, San Francisco.

This event is free for members and students with advanced registration. Tickets cost $10 at the door.

Contact admin@asla-ncc.org with questions.

USGBC Northern California Chapter will host an event called GreenerBuilder 2010 starting at 11 a.m. at South San Francisco Conference Center. Early bird tickets by May 27 cost $95 and regular tickets cost $125. Register online at www.usgbc-ncc.org.

AIA San Francisco will host Green to Codes: Integrating Building Analysis into BIM from 3 p.m. – 5 p.m. at AIA San Francisco, 130 Sutter St., Ste. 600, San Francisco.

This is a free event. Register online at www.aiasf.org.

BOMA Oakland\East Bay will host a luncheon called Violence in the Workplace. Visit www.bomaoeb.org for more information.

12

BOMA Silicon Valley will host an Emerging Leaders Wine Tour from 12 p.m. – 4 p.m. at Cinnabar Winery Tasting Room, 14612 Big Basin Way, Saratoga. Meet at 12 p.m. at 1050 North 5th St., San Jose to catch a private bus to the tasting room. The cost is $20 per person. This event is open to those with 7 years of experience or less. Register online at www.boma-sv.org.

13

CREW San Francisco will host a Membership Madness event. Contact Amber Brumfiel at amber.rye@sdma.com or 415.781.7900 with questions.

14

NAIOP San Francisco Bay Area will host a golf tournament at Lake Merced Golf Club, 2300 Junipero Serra Blvd., Daly City. Register online at www.naiopsfba.org.

16

USGBC Northern California Chapter will host Berkeley YMCA-PG&E Teen Center Tour from 5:30 p.m. – 7:30 p.m. at Berkeley YMCA-PG&E Teen Center, 2111 Martin Luther King Jr. Way, Berkeley. Members $0, non-members $15, and student tickets $5. Contact Clancy Simon at csimon@pankow.com with questions or register online at www.usgbc-ncc.org.

BICB will host a luncheon. Visit www.bicb.us for more information or contact Dolores_Glass@ajg.com.

17

USGBC Northern California Chapter will host a UC Davis Viticulture and Enology Building Tour and Panel Presentation from 5:30 p.m. – 8 p.m. at UC Davis Viticulture and Enology Building, 637 Hilguard Ln., Davis.

Members $15, non-members $30, and students $20.

Contact Jessica Morrow at jessica_morrow@skwaia.com with questions or register online at www.usgbc-ncc.org.

USGBC Northern California Chapter will host an event called Commissioning, Energy & Atmosphere, Indoor Air Quality and YOU from 6 p.m. – 8 p.m. at AAA Northern California, 3055 Oak Rd., Walnut Creek. Members $15 and non-members $25. Contact Bridgit Koller at bridgit@bridgitkoller.com with questions or register online at www.usgbc-ncc.org.

CoreNet Northern California Chapter will host a chapter meeting from 3:30 p.m. - 7:30 p.m. Visit http://nocal.corenetglobal.org for more information.

CREW East Bay will host a CREW Cocktails and Networking Event with Marketing Author Elisa Southard from 5:30 p.m. - 7:30 p.m. at Colliers Int’l, Conference Room, 5050 Hopyard Rd., Ste. 180, Pleasanton. This is a members-only event. The cost is $20 for registered attendees and $35 for walk-ins. Contact eastbaycrew@crewnetwork.org with questions.

18

AIA Santa Clara Valley will host an annual golf tournament from 12 p.m. – 7 p.m. at Cinnabar Hills Golf Club, 23600 McKean Rd., San Jose. The 4-person scramble tournament begins with a 1:30 p.m. shotgun tee-off and ends with a fajita dinner and awards. Register online at www.aiascv.org.

22

SPUR will host an evening symposium called From Free Love to Folsom Street starting at 6 p.m. at 654 Mission St., San Francisco. Members $0 and non-members $5. Visit www.spur.org for more information.

CREW San Francisco will host a Sponsorship Chapter and National Network event starting at 8:30 a.m. at CB Richard Ellis, 101 California, 44th floor, San Francisco. Contact Julie Germain at Julie.germain@cbre.com or 415.772.0210 with questions.

23

NAIOP San Francisco Bay Area will host a luncheon with Real Estate Insider Larry Souza from 11:45 a.m. – 1 p.m. at CBRE Offices, 101 California, 44th Floor, San Francisco.

This event is for members only and complimentary boxed lunches will be available. Visit www.naiopsfba.org to register online.

USGBC Northern California Chapter will host a LEED Green Associate Exam Prep class from 8:30 a.m. – 5 p.m. at PG&E Pacific Energy Center, 851 Howard St., San Francisco. For more information contact info@usgbc-ncc.org or register online at www.usgbc-ncc.org.

USGBC Northern California Chapter will host an event called Building a Net-Zero Home: Advantages, Misconceptions, and Challenges from 6:30 p.m. – 8:30 p.m. at Stopwaste.org, 1537 Webster St., Oakland. Members $15, non-members $25, and students $15. Contact Bridgit Koller at bridgit@bridgitkoller.com with questions or register online at www.usgbc-ncc.org.

IFMA Silicon Valley will host a monthly meeting called Who Is Next? Succession Planning from 5 p.m. – 8 p.m. Visit www.ifmasv.org for more information.

24

USGBC Northern California Chapter will host a course called The Competitive Edge, Part 3: Communicating the Value of Green Building Using the Principles of Real Estate Finance from 9 a.m. – 5 p.m. at Hanson Bridgett, LLP, 425 Market St., 26th Floor, San Francisco. For more information contact info@usgbc-ncc.org or register online at www.usgbc-ncc.org.

CREW San Francisco will host their 9th Annual Golf Tournament starting at 12 p.m. at Presidio Golf Course.

Tickets cost $215 with registration by June 1st; late registration tickets are $250. To register online, visit www.crewsf.org. Contact Samantha Low at lows@hdcco.com or 415.912.3263 with questions.

28

CoreNet Northern California Chapter will host a golf tournament from 10 a.m. – 3 p.m. at Sequoyah Golf Course, 4550 Heafy Rd., Oakland. Contact Therese Hazelroth at thazelroth@form4inc.com with questions or visit http://nocal.corenetglobal.org for more information.

30

AIA East Bay will host a monthly program starting at 5:30 p.m. at AIA East Bay Chapter Office, 1405 Clay St., Oakland.

Members $15.75 and non-members $21. Register online at www.aiaeb.org or call 510.464.3600 with questions.

AIA San Francisco will host a Lecture and Book Signing with Peter Bohlin, FAIA, 2010 AIA Gold Medalist from 5:30 p.m. – 8 p.m. at AIA San Francisco, 130 Sutter St., Ste. 600, San Francisco. Members $10 and general admission $15.

RSVP to rsvp@aiasf.org.

Left: Luncheon Speaker, Michael T. Burns (VTA General Manager) with his presentation: BART to San Jose/Silicon Valley

Real S C E N E

O F

T H E

S E E N

Below (l-r): Jaydee Rodriguez (LBA Realty), Ryan Ferrara (Valley Crest Landscaping Co), Katie Smith (LBA Realty)

BOMA SILICON VALLEY MONTHLY LUNCHEON MAY 6, 2010 Above (l-r): Robert “Bob” Jacobvitz (BOMA Silicon Valley Executive Vice President); Susan Crow, RPA (BOMA Silicon Valley 2009-2010 President); Rebecca Clevenger (Allied Barton Security Services) & Jerry Hurwitz (J&J Air Conditioning)

P H O T O S TA K E N B Y K E N T G O E T Z O F A I R M A Z E S E R V I C E S

Right (l-r): Nichole Marquesa, Stephanie Pierce and Judy Arthun, RPA (Wells Real Estate)

Right: Robert “Bob” Jacobvitz (BOMA Silicon Valley Executive Vice President) thanking Luncheon Speaker, Michael T. Burns (VTA General Manager) and presenting him with a Certificate of Appreciation.

BOMA Silicon Valley’s Membership luncheon featured Michael T. Burns (Santa Clara Transportation Authority (VTA) General Manager) who shared plans for the BART extension to Silicon Valley and San Jose.

In addition to Mr. Burns’ address, member company Wells Real Estate and its local staff, Judy Arthun, RPA, Stephanie Pierce and Nicole Marquesa were presented with the BOMA International Pacific Southwest Regional TOBY (The Outstanding building of The Year) Award in the category of Suburban Midrise for its University Circle, at 1900-1950-2000 University Avenue, East Palo Alto, CA. property.

Left: Michael Ybarra (Paul Davis & Associates) picking the lucky winners of the San Jose Sharks “Clean Sweep” sculpture, 2 tickets to the Oakland A’s & two bottles of wine.

Far right: Santa Clara Valley Transportation Authority (VTA) Citizens Advisory Committee Members (l-r): Ray Hashimoto (Committee member), Charlotte Powers (Chair and Former San Jose City Council Member) & Noel Tebo (Immediate Past Chair)

Right (l-r): Ryan Chow & Joyce Mitchell (George-Pacific)

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Real S C E N E

O F

T H E

Right : Young Professionals David Allen, Equity Office; Aaron Killen, CB Richard Ellis; and USF MBA candidate Dawn Luo listen to the group discussion.

Right: Over 115 people participated in the BOMA YP 2010 Leadership Luncheon at The City Club.

Left: Kimberly Taylor, Arborwell, and Preston Richards, Boston Properties, listen and take notes at their table.

S E E N

2010 BOMA YOUNG PROFESSIONALS LEADERSHIP LUNCHEON APRIL 27, 2010, THE CITY CLUB BOMA San Francisco hosted the 2010 BOMA Young Professionals Leadership Luncheon on Tuesday, April 27 at The City Club. The event brought together the younger members of BOMA, students from local colleges and universities, and industry professionals for an informal, facilitated discussion of leadership

Below: Leader Anne Stephens, The Paramount Group, makes a point while Zachary Brown, Equity Office, looks on.

and professional development in the commercial real estate industry.

Above Right: Leader Harout Hagopian, Equity Office, engages his table in discussion as Maian McClure, LBA Realty, listens intently.

Right: 2010 BOMA President Tom Kruggel, Hines, listens to feedback from Ben Maxon, Shorenstein Realty Services.

Far Left: 2010 BOMA Young Professionals Chair Michelle Funkhouser, Hines, welcomes the group.

Right: Leader Perry Schonfeld, LBA Realty, stresses a key point during his table discussion.

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Above (L-R): Harout Hagopian, Equity Office Lisa Vogel, RREEF Anne Stephens, Paramount Group Todd Robinette, Jones Lang LaSalle Tim Ballas, CB Richard Ellis Steve Colvin, Boston Properties Margot Crosman, Unico Mary Wiese, CAC Real Estate Mngmt. Co. Tom Kruggel, Hines Perry Schonfeld, LBA Realty Paul Grafft, Shorenstein Realty Services, and David Hayes, Skyline Construction.

PLANNING NEWS continued from page 6 Livermore

Discovery Drive near Isabel Avenue

45 Fremont Earns LEED Gold Certification

The Livermore Planning Commission approved the development of a 140,320-square-foot industrial building. Livermore Airway Associates LLC plans a four-building facility for the sales and service of tractors and other large vehicles on a 19-acre site. The location is within the scope of the Oaks Business Park Environmental Impact Report and no further environmental review is required.

Shorenstein Properties LLC ’s 45 Fremont, a 34-story Class A office building in downtown San Francisco, has been awarded LEED Gold certification under the U.S. Green Building Council’s program for existing buildings. Built in 1978, 45 Fremont totals more than 580,000 square feet of leasable office space and sits close to major rapid transit systems including BART and MUNI. In addition to certifying existing buildings, Shorenstein has a goal of meeting, at minimum, LEED Gold certification guidelines for all future construction projects.

1111 Broadway and 555 12th Street in Oakland’s City Center both received LEED Gold certification as existing buildings.

SENT to us

continued from page 6

South Bay Broker Completes Merger with Cassidy Turley BT Commercial

Zephyr Real Estate to Host Luxury Home Marketing Course

The former Santa Clara-based CPS CORFAC International has completed its merger with the recently formed national real estate company Cassidy Turley.

Under its new brand, CPS will operate as Cassidy Turley CPS. Todd Beatty, former CPS chief executive, is now executive vice president and managing partner of Cassidy Turley CPS. Both CPS and the Bay Area’s former NAI BT Commercial are among the founding firms of Cassidy Turley, the largest privately held commercial real estate firm in the country. In the Bay Area, the combined firm is now the largest commercial real estate firm in the Silicon Valley and Peninsula markets, based on total agent count.

Zephyr Real Estate hosts training for the Certified Luxury Home Marketing Specialist designation offered by the Institute for Luxury Home Marketing on June 10 and 11 in San Francisco. This marks only the second time the course has been offered in San Francisco since the National Association of Realtors approved the institute’s training for credit toward the certified residential specialist designation. The CLHMS training is open to REALTORS from all brokerages in or outside of California. Courses offer information on luxury residential trends, demographics of high-end buyers and sellers, special competencies to best serve the high-end market and exclusive research information on how to recognize and meet the needs of affluent consumers.

Land8 Lounge Reaches 8,000 Members

Foundry Square wins 2010 ULI Award for Excellence

Land8 Lounge (www.land8.net), an online social network for landscape architects, has reached more than 8,000 users in over 150 countries and territories. Members engage in an array of socially-focused features to casually connect with others in the landscape architecture industry. Profiles can be personalized, and members can join groups, seek insider information about industry specific events and browse forums on topics ranging from flood irrigation for green roofs to plant information databases to the best digital image banks for rendering. Landscape architecture firms also can market their work, post job openings and gain access to top talent on a global scale.

Individuals, both professionals and students, can log in to post resumes, allow subscribing firms to search for their work and research the international directory of landscape architecture firms.

San Francisco’s Arterra Sells Out Arterra, San Francisco’s first LEED Silver certified residential high rise, has sold its last unit. Arterra was developed by Intracorp San Francisco. Among several green components, Arterra features sod-covered living rooftops to help reduce heating and cooling costs, Low-E insulated windows and renewable and recycled materials in the development’s public spaces. The 16-story Arterra, designed by noted Bay-area architect Kwan Henmi, includes 269 homes ranging from junior one-bedrooms, one- and two-bedrooms with dens and threebedroom layouts.

Blach Receives Award for Maintenance Tools Blach Construction has received a Celebration of Engineering & Technology Innovation Award for its development of model-based maintenance and operations software tools, also referred to as “BIM FM.” The CETI Awards serve to promote pioneering and cutting-edge technologies that benefit the capital projects industry. Blach received its CETI award for its Building Information Modeling Facilities Maintenance & Operations program created for the Alum Rock Union Elementary School District as part of an ongoing modernization program. The BIM FM program, developed in conjunction with construction software industry leader Tekla, will be used as a cost and time-saving tool to facilitate management of the district’s construction documents archive and maintenance and operations activities for its 26 existing sites and new schools.

Foundry Square, developed by San Francisco’s Wilson Meany Sullivan, has been honored with a 2010 Urban Land Institute Award for Excellence.

Foundry Square is a four-building, 1.6-million-square-foot commercial development in San Francisco’s Transbay District. ULI selects award recipients based on a project’s full development process: construction, economic viability, marketing, management and design. The competition is part of the institute’s Awards for Excellence program, established in 1979.

Two Major Housing Complexes Go Forward in North and South California Two housing complexes designed by prominent Irvine-based architecture and planning firm MVE & Partners are slated for construction. In Northern California, MVE & Partners is designing the San Jose community of Crescent Village, a mixed-use neighborhood with 1,750 residential units, developed by long-time MVE & Partners client The Irvine Company Apartment Communities.

The four-story apartments sit on nearly 40 acres and feature five residential podium buildings that create their own architecturally defined neighborhoods.

In Southern California, the Westside Apartments at Civita will feature 306 residences designed by MVE & Partners on 10.6 acres for the Sudberry Properties, Inc. The San Diego development will be part of a larger masterplanned district comprising a variety of apartment and mixed-use architectural typologies that will create dynamic urban qualities. Both Civita and Crescent Village are near mass transit and will feature abundant village-enhancing amenities, such as common areas and green spaces, and housing and retail fronts that engage the sidewalk and street to promote pedestrian activity. Civita is slated to start construction late 2010, and Crescent Village in 2011. MVE & Partners has an important portfolio of mixed-use urban apartment communities in California, including the 1,550-unit mixed-use Village at Irvine Spectrum Center and 1,450-unit residential Park at Irvine Spectrum Center, both also for The Irvine Company Apartment Communities; the 550-unit Pleasant Hill BART Transit Village; the 695-unit mixed-use Seabridge Marina in Oxnard for D.R. Horton; and the 665-unit mixed-use LEED-Silver Uptown Apartments in Oakland for Forest City Residential Development.

Jones Lang LaSalle Reports First-Quarter 2010 Net Income

PEOPLE on the move

Global commercial real estate services firm Jones Lang LaSalle Inc. reported net income of $0.2 million on a U.S. GAAP basis, or $0.01 per share, for the quarter ended March 31, compared with a net loss of $61 million on a U.S. GAAP basis, or $1.78 per share, for the quarter ended March 31, 2009. Adjusting for restructuring and certain non-cash co-investment charges in the first quarter of 2010, net income would have been $6 million, or $0.14 per share, compared with an adjusted net loss of $22 million, or $0.65 per share in 2009. Net income in the first quarter benefited from continued momentum from the fourth quarter of 2009 and the transition to a more variable compensation structure in a number of the firm’s transactional businesses. Revenue for the first quarter of 2010 was $581 million, an increase of 18 percent in U.S. dollars, 12 percent in local currency, compared with the first quarter of 2009. The firm’s solid start to 2010 resulted in part from improved revenue from transactional businesses and ongoing expense management.

experience to the firm, with the last three spent at RREEF Real Estate where he focused on office and industrial real estate markets. Abigail San Juan, senior vice president and group manager, has recently transferred to the Silicon Valley office to expand the property management capability in the market. Prior to transferring to Palo Alto, San Juan served as general manager for 201 Mission St. and 580 California St. in San Francisco where she held complete operational, as well as financial responsibility for both assets. Julie Steffen, an assistant manager in Jones Lang LaSalle’s China Transaction Management division, has transferred to the Silicon Valley office’s international desk where she will coordinate the firm’s relationships with corporations between Silicon Valley and Jones Lang LaSalle’s more than 200 global offices. Meanwhile, Andy Koenig has been promoted to vice president in the Silicon Valley Corporate Markets team, and Chris Crow has been promoted to leasing associate on the Silicon Valley brokerage team.

continued from page 7

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BY THE

Numbers

Rooms to Spare After seeing the latest hotel tax-revenue data, Tom Egan, chief economist for the city and county of San Francisco, summed up the situation this way: “I think we’re talking about a slow recovery.” The hospitality industry is one of the city’s most important. From 2004 through 2008, the sector enjoyed nearly unbroken growth. According to data compiled by industry watcher Smith Travel Research Inc., hoteliers in San Francisco and San Mateo counties collectively took in revenue exceeding $1.5 billion during 2004. In 2008, the market’s cyclical peak, that same revenue stream had grown to $2.2 billion, nearly 50 percent more. In 2009, of course, everything changed. Revenue fell back to 2006 levels, to about $1.8 billion. The news improved slightly with this year’s first quarter, when revenue rose slightly (less than 3 percent) on a year-over-year basis.

Occupancy (%) 2004

2005

2006

2007

2008

2009

2010

2004

2005

2006

2007

2008

2009

2010

51.23

56.00

59.01

58.72

62.25

56.75

58.90

Jan

57.81

66.27

76.53

82.53

91.16

78.97

75.31

65.19

Feb

68.17

75.67

82.92

96.31

107.15

73.33

81.93

Mar

82.88

80.68

98.30

99.44

112.77

86.69

89.89

Apr

75.53

85.98

100.87

102.73

111.81

91.50

May

89.44

91.44

97.63

118.17

117.60

91.32

Jun

92.21

97.71

107.95

112.34

136.38

97.29

Jul

88.44

99.46

110.23

122.66

133.02

105.71

Aug

87.69

102.66

109.57

25.75

135.74

108.14

Sep

91.04

113.35

122.57

133.41

142.13

118.55

Oct

97.71

109.50

132.60

142.46

134.62

133.52

Nov

67.91

84.86

93.85

116.54

92.43

85.87

Dec

63.53

68.74

75.36

82.48

89.32

69.61

Average

80.20

89.69

100.70

111.24

117.01

95.04

Jan Feb

59.60

62.64

64.35

67.70

69.41

57.32

Mar

67.26

68.17

70.67

71.07

73.66

65.55

Apr

65.87

68.06

74.22

72.87

74.04

70.40

May

72.15

Jun

71.82

76.35

Jul

78.28

76.35

81.22

71.70 78.07 80.57

78.02

76.55

79.63

83.43

82.99

85.40

76.74 82.13

75.97

82.82

80.84

84.52

87.56

84.65

Sep

75.72

83.47

83.01

83.79

82.54

82.55

76.64

Nov

59.98

Dec

56.28

79.31 67.43 58.06

82.64 68.03 60.02

83.83

79.47

73.53

63.25

62.30

62.96

71.01

70.39

Aug

Oct

Average Room Supply

RevPAR ($)

83.51 66.20 59.48

1,590,000

$120.00

1,580,000

$110.00

1,570,000

$100.00

1,560,000

$90.00

1,550,000

$80.00

1,540,000

$70.00

2004

2005

2006

Top 25 Occupancy Rank (%)

2007

2008

2009

2010

Mar-10 Mar-09

New York, NY Miami-Hialeah, FL Phoenix, AZ Oahu Island, HI Tampa-St Petersburg, FL Orlando, FL Anaheim-Santa Ana, CA Washington, DC-MD-VA New Orleans, LA

81.4 81.1 80.2 76.0 73.0 72.9 71.9 71.9 71.2

70.2 73.4 70.7 69.6 66.3 66.6 65.8 67.3 62.5

San Francisco/San Mateo, CA

71.0

65.5

San Diego, CA Los Angeles-Long Beach, CA Philadelphia, PA-NJ Seattle, WA Boston, MA Houston, TX Nashville, TN Atlanta, GA Minneapolis-St Paul, MN-WI Denver, CO St Louis, MO-IL Dallas, TX Chicago, IL Detroit, MI Norfolk-Virginia Beach, VA

69.1 68.0 64.2 62.5 62.3 61.0 60.4 59.8 58.3 57.2 56.9 55.6 55.3 50.2 46.8

61.5 63.6 59.2 58.5 52.8 64.1 55.0 55.2 53.3 53.6 55.1 53.6 51.3 44.6 48.9

82.38

Average Annual RevPAR ($)

2004

2005

2006

2007

2008

2009

2010

Top 25 RevPAR ($)

Mar-10

Mar-09

New York, NY Miami-Hialeah, FL Washington, DC-MD-VA Oahu Island, HI Phoenix, AZ New Orleans, LA

$158.37 146.60 109.15 108.94 99.78 91.40

$135.78 125.57 105.75 103.14 93.90 72.41

San Francisco/San Mateo, CA

89.89

86.69

San Diego, CA Tampa-St Petersburg, FL Los Angeles-Long Beach, CA Boston, MA Anaheim-Santa Ana, CA Orlando, FL Philadelphia, PA-NJ Seattle, WA Nashville, TN Houston, TX Chicago, IL Denver, CO Atlanta, GA Minneapolis-St Paul, MN-WI Dallas, TX St Louis, MO-IL Detroit, MI Norfolk-Virginia Beach, VA

79.69 79.28 77.93 77.80 77.75 72.69 69.40 65.77 55.36 55.21 54.57 52.33 52.22 51.76 46.38 45.99 37.22 33.97

76.03 75.98 74.04 69.30 74.44 70.46 66.93 64.86 50.70 62.74 55.17 50.72 48.35 48.92 48.26 45.38 34.95 36.69

SOURCE: Smith Travel Research Inc. (strglobal.com, str.com)

32 theregistrysf.com

J U N E 201 0

THE

Registry

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The only Bay Area publication with 100% focus on the real estate industry.

ϰϭϱ͘ϳϯϴ͘ϲϰϯϰ ͮ ǁǁǁ͘ƚŚĞƌĞŐŝƐƚƌLJƐĨ͘ĐŽŵ

ACTIVITY

Reports COMMERCIAL LEASES

City

Lease Sq. Ft.

Tenant/Rep/Brokerage

Landlord/Rep/Brokerage

Notes

3240 & 3200 Whipple Rd

Union City

126,363

Abaxis

Woodstock Bowers/Steve Kapp & Randy Scott (Cornish & Carey Commercial)

R&D

38505 Cherry St

Newark

76,334

Innovated Packaging/David Scarpinato & Michael Spiro (Cornish & Carey Commercial)

DCT Industrial Trust

Warehouse

3525 Arden Rd

Hayward

66,048

Mimeo, Inc/Joe Yamin (Colliers International, Oakland)

DCT Industrial/Greig Lagomarsino, SIOR & Joe Yamin (Colliers International, Oakland)

New Lease, 66M

30799 Wiegman Rd

Hayward

47,878

Zinus Inc/ Mike Carrigg & Andrew Zink (Colliers International, Pleasanton)

Sublessor was Art.com/Cassidy Turley/ BT Commercial

Sublease, Industrial

2305 Lincoln Ave

Hayward

36,000

Nakagawa Manufacturing (USA), Inc/Kevin Hatcher & Mark Maguire (Colliers International, Oakland)

ProLogis/ProLogis

Renewal, 64M

6200 Stoneridge Mall Rd Bldg A, Suite 500

Pleasanton

32,034

Callidus Software Inc/Cushman & Wakefield, San Jose

6200 Stoneridge Mall Road Investors LLC/Brian Lagomarsino (Colliers International, Pleasanton)

Class A Office

2852 W Winton Ave

Hayward

26,100

National Oak Distributors/CB Richard Ellis

UBS Realty Investors/Rick Keely & Greig Lagomarsino, SIOR (Colliers International, Oakland)

Renewal, 57M

30481 Whipple Rd

Union City

24,576

Iron Mountain/Jones Lang LaSalle

RREEF/Mark Maguire (Colliers International, Oakland)

New Lease, 64M

33483 Western Ave

Union City

23,948

Specialized Laundry Services, Inc

Lateiner Martial Deductions Trust/Paul Mueller (Cornish & Carey Commercial)

Industrial

965 Atlantic Ave

Alameda

23,911

Insite Vision, Inc

Legacy Partners/Bill Nork, Bill Banker & Daniel Pivnick (Cornish & Carey Commercial)

Office

33436 Western Ave

Union City

23,632

Cal Oak Furniture

Tulloch Construction, Inc/Casey Ricksen (Colliers International, Oakland) & Phil Garrett (Colliers International, Fairfield)

Expansion, 44M

2380 W Winton Ave

Hayward

21,000

Centimark/Kevin Hatcher & Mark Maguire (Colliers International, Oakland)

ProLogis/ProLogis

New Lease, 64M

960 Atlantic Avenue

Alameda

20,131

Berkeley Heartlab/Bill Nork, Bill Banker & Daniel Pivnick (Cornish & Carey Commercial)

Legacy Partners/Bill Nork, Bill Banker & Daniel Pivnick (Cornish & Carey Commercial)

Office

32920 Alvarado Niles Rd

Union City

16,299

Shuco USA

HARSCH Investment Properties LLC/Joe Yamin & Sean Sabarese (Colliers International, Oakland)

Expansion, 11M

32920 Alvarado Niles Rd, Suite 210

Union City

13,102

Pacific West Gymnastics/Dan Bergen (Colliers International, Pleasanton)

HARSCH Investment Properties LLC

Industrial

32920 Alvarado Niles Rd

Union City

13,102

Pacific West Gymnastics

HARSCH Investment Properties LLC

Renewal, 36M

25523 Seaboard Ln

Hayward

12,810

San Marble/David Henderson (Colliers International, Oakland)

Ed Kirschner/Cornish & Carey

New Lease, 61M

436-450 Main St

Pleasanton

8,941

Intertek Testing Services

James Tong/Ron Tong, CCIM (Colliers International, Pleasanton)

Class B Office

1699 Atlantic Ct

Union City

8,576

Jasper Engine Exchange, Inc/Rick Keely (Colliers International, Oakland)

Youngâ&#x20AC;&#x2122;s Holdings Inc/Rick Keely & Greig Lagomarsino, SIOR (Colliers International, Oakland)

Renewal, 36M

1963 Rutan Dr

Livermore

6,945

Computer Shopping Network

WCV Commercial Properties/Mike Carrigg (Colliers International, Pleasanton)

Expansion & Renewal, Industrial

320 Stealth Ct Lot 14

Livermore

6,511

Sanact Inc/George Wineinger (Colliers International, Pleasanton)

Stealth Street Partners/Michael Lloyd, SIOR (Colliers International, Pleasanton)

Industrial

3037 Independence Dr Bldg F, Suite A

Livermore

6,128

Uneka Concepts Inc/Cornish & Carey Commercial, Pleasanton

PJMB Commercial/Mike Carrigg (Colliers International, Pleasanton)

R&D/Flex

7068 Koll Center Pkwy Bldg 4, Suite 419-425

Pleasanton

5,986

Sanarus Technologies, LLC/CRESA Partners, San Jose

PJMB Commercial/Mike Carrigg (Colliers International, Pleasanton)

Office/Flex

6267 Southfront Rd Bldg B

Livermore

5,059

Healthcare Security Services, Inc/ Michael Donnelly (Colliers International, Pleasanton) & Lee & Associates

Southfront Investors LLC/Michael Donnelly (Colliers International, Pleasanton) & Lee & Associates

Industrial

Walnut Creek

43,683

Kaiser Foundation Health Plan, Inc

Greenlaw Partners LLC/Tom Fehr & Patrick Reilly (Cornish & Carey Commercial)

Office

475 Brannan St

San Francisco

24,554

Ustream/John Cashin, Matt Winters & Ben Stern (Cornish & Carey Commercial)

Prudential/SKS Investments

Office

1355 Sansome

San Francisco

16,000

Barry Bram (TRI Commercial)

Levi Plaza

Relocation for Intâ&#x20AC;&#x2122;l Advertising Company

38 Keyes Ave

San Francisco

15,350

Just Answer

Gordon & Betty Moore Foundation/Marc Trovato & Donnette Clarens (Cornish & Carey Commercial)

Office

394 Pacific Ave

San Francisco

8,875

AFAR/Tony Zucker (Jones Lang Lasalle)

PMI Companies/SOMA Team (Colliers International)

220 Portage Ave

Palo Alto

27,443

Box.Net/Ben Stern & Matt Winters (Cornish & Carey Commercial)

El Camino Center

R&D

1710 & 1712 Ringwood Ave

San Jose

20,130

Quantum Global Technologies/Jay Phillips & Armand Tiano (Cornish & Carey Commercial)

Doris Patterson

Industrial

Address Alameda County

Contra Costa County 2835 Mitchell Dr & 2880 Shadelands Dr

San Francisco County

Santa Clara County

34 theregistrysf.com

J U N E 201 0

COMMERCIAL LEASES

City

Lease Sq. Ft.

Tenant/Rep/Brokerage

Landlord/Rep/Brokerage

Notes

500 Martin Ave

Rohnert Park

5,500

Grindstone Bakery/Jeff Sacher (Santa Rosa Realty)

Cherokee Realty/Michael Flitner (Keegan & Coppin Co., Inc)

Triple Net Lease

1300 4th St

Santa Rosa

5,370

Golden West Designs, LLC/Kevin Doran (Keegan & Coppin Co., Inc)

Al Abramson/Kevin Doran & Dino Dâ&#x20AC;&#x2122;Argenzio (Keegan & Coppin Co., Inc)

Gross Lease

597 Santana Dr, Suites D & E

Cloverdale

5,184

Westside Grapes, LLC/James Manley (Keegan & Coppin Co., Inc)

A Miller, LLC/Russ Mayer (Keegan & Coppin Co., Inc)

Lease Extension; Gross Lease

Address Sonoma County

For-Sale Transaction Data Provided By:

COMMERCIAL SALES City

Property Size

Buyer

Seller

Price

Product Type

48603 Warms Springs Blvd

Fremont

140,980

Andrew Burke/Terreno Warm Springs I II LLC

Bill Neidig/Pen Associates

$7,300,000

Industrial

2085 Burroughs

San Leandro

62,000

Zhi Zong Sun/E Poly Star, Inc

Susan Lowenberg/ Lowenberg Associates, LP

$4,480,000

Industrial

2201 Dwight Way

Berkeley

20,396

Anthony Levandowsky

Barbara Sklar & Sue Weinstein Family Trusts

$2,900,000

Office

554 Bancroft Ave

San Leandro

18 units

Donald Frederick

John & Lia McKenzie

$2,400,000

Multi-Family

3250 Buskirk Ave

Pleasant Hill

70,830

ROIC Retail Oppurtunity Investment Corp

Dennis Wong/SPI P Hill Associates LP

$13,650,000 (Reported by LoopNet)

Retail

Court Appointed Receiver Sale

1180 Mt. Diablo Blvd

Walnut Creek

6,570

David Dicksen/ Decotech Systems

Jeffrey Woods/ W Group Holdings

$2,850,000 (Reported by CoStar)

Office

John Fennell (Cushman & Wakefield) & Mark McNally (Cassidy Turley/ BT Commercial)

153 Kearny St

San Francisco

60,455

MPC Kearny Capital LLC

KAP Kearny Prop Holdings LLC

Undisclosed

Office

501 Taraval St

San Francisco

17,600

Carol Lee

Jang B L Living Trust

$3,630,000

Retail

935-945 Folsom St

San Francisco

13,878

Richard Green/ New Florian LLC

TD Folsom LLC

$4,200,000

Industrial

1565 Washington St

San Francisco

15 units

Chan Family Trust

1565 Washington St LP

$3,530,000

Multi-Family

917 Cole St

San Francisco

12 units

Chung Sanh & HL Family Trust

Jang Trust

$4,180,000

Multi-Family

Stockton

15.5 acres

Metalsa Structural Products

Dana Structural Manufacturing

$5,700,000

Industrial

San Mateo

18 units

Stephen Paul/Verea LLC

Mehr Trust

$2,375,000

Multi-Family

3001 Stender Way

Santa Clara

61,824

Semiconductor Components Lands

Michael Dieoenbrock/ Stender 3001 Venture LLC

$9,970,000 (Reported by Biz Journal)

Industrial

All Cash

102 First St

Los Altos

13,350

110 First St LLC

Jerry Ivy

$6,030,000 (Reported by CoStar)

Office

Kalil Jenab & Greg Pickett (Cassidy Turley/ BT Commercial)

704 Town and Country

Sunnyvale

12,835

Katie Yao Capella Holdings LLC

Jason Kwok/ United Commercial Bank

Undisclosed

Development

Lender: Private Individual, $6,000,000

2550 Samaritan Dr

San Jose

8,860

Johnson Wang

Shirley Stanger

$4,600,000 (Reported by CoStar)

Office

Douglas Sharpe & Kim Nguyen (Grubb & Ellis Company)

475 W San Carlos St

San Jose

117 units

BRE Properties

Legacy Partners

Undisclosed

Multi-Family

Santa Rosa

11,980

Lee Wentz

Clement Carinalli

$1,550,000

Office

Address

Brokers

Alameda County

Aileen Dolby (Colliers International)

Contra Costa County

San Francisco County

San Joaquin County 1550 Industrial Dr

All Cash

San Mateo County 66 E 39th Ave

Santa Clara County

Sonoma County 444 10th St

J U N E 201 0

theregistrysf.com 35

FINAL OFFER

i JIM CHAPPELL

Eyes on the Skyline Since he arrived in San Francisco in 1977, Jim Chappell, an architect and urban planner by training, has dedicated his life to improving the public realm and advancing quality of life. He led SPUR, the San Francisco Planning + Urban Research Association, for 15 years. When he arrived, it consisted of two staff people, a $275,000 annual budget and 700 members. When he left, it had 17 staff people, more than 4,000 members and an annual budget of $2.5 million. It also had its new, $15 million Urban Center on San Francisco’s up-and-coming Mission Street. The public-policy think tank is a regional, state and national resource for serious information and debate on urban planning and affairs. As he moves forward in the next chapter of his life, which still centers on improving urban living, Chappell explains public fears of high-density and opines on San Francisco’s less progressive side.

What was it about San Francisco that attracted you?

JCi San Francisco has always been an architects’ mecca. You wouldn’t know it today, but San Francisco was a leader of the modern-design architectural movement in the 1940s and 1950s. As socially progressive as San Francisco is, it tends to be fairly conservative in terms of design. We have many talented architects, but they are doing their best work today in China and the Middle East. I think there has been a positive change in the past few years. The turning point was the de Young Museum [in Golden Gate Park]. It was going to be the end of the world, but people were so thrilled that when the new California Academy of Sciences was proposed, there was hardly a peep about it.

Why are people afraid of new building?

JCi There is a fear of density in San Francisco and American culture in general. People confuse density with overcrowding. The old East Coast city slums were not dense, as in a high number of dwelling-units per acre, but they were crowded, as in a high number of people per room, so it has been a fundamental misunderstanding. Another reason people have reacted against new buildings is that there was a time in the 1950s and 1960s when the streetscape was not well done. For so long San Francisco has focused on building height, and that is kind of irrelevant. Much more important is bulk. If you look at a buildings like One Rincon [Hill], which will someday be surrounded by other tall buildings, it is very slender. You are getting light and air around it. One of the things we worked on at SPUR for many years was building a coalition of smart-growth environmentalists.

There was an era in San Francisco when they said, ‘Don’t build it here,’ not caring for the effects of deflecting growth to the agricultural land in the outer region. Now most people understand it’s not the right answer.

You are doing work to expand the use of businessimprovement districts. Why do you favor them?

36 theregistrysf.com

J U N E 201 0

JCi More and more, this is how cities are going to be managed in the 21st century. In 1995, SPUR wrote a white paper calling for the management of San Francisco’s landmark retail district, the Union Square neighborhood. The Union Square Business Improvement District was the first one in the state. Today there are thousands of BIDs in the United States and Canada, and 10 in San Francisco alone. The Union Square BID has been renewed twice and last fall it was tripled in size. BIDs make an enormous difference in the quality of life, and it’s very democratic. The neighbors determine what will happen and agree how they are going to tax themselves.

What is your favorite place in San Francisco?

JCi My favorite new neighborhood is the Yerba Buena Gardens cultural district and the way Mission Street is redeveloping. Fifteen years go there was nothing. Now, up and down Mission there are new offices, condos and movie theaters. The life on the street and the architectural quality in that corridor is quite high. It has more foot traffic on it on the weekends than Market Street.

What do you think are some of the best undiscovered development sites in the city?

JCi The old Union Ironworks/Pier 70 area at 18th Street just east of 3rd Street. There is a collection of wonderful historic buildings, a working shipyard and a bunch of junk cars. It’s on the waterfront, sunny, flat, with dropdead views of downtown. It used to be a long way from downtown before Mission Bay and the Third Street light rail. Some of it is port property. The historic buildings will take a pile of money to do anything with, and there are toxic clean-up issues. It’s going to take public money as well as private money, but someday it will be a great new neighborhood. Another opportunity area is the Chronicle building at 5th and Mission [streets]. It’s a huge, underutilized site. There are also a number of parking lots across from the Embarcadero that should be redeveloped. Everyone likes to be near water, yet these sites are used in the lowest possible way.

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