The Registry November/December 2010 Issue

The Great Consolidation

Proposition 23

Food Fight

What about Jobs? pg. 22

Grocers Jockey to Secure Best Space, pg. 24

Architects, Engineers and Contractors Merge, pg. 12

THE

Final Offer with Kevin Powell Learning from the Largest U.S. Landlord, pg. 36

Registry

BAY AREA real estate JOURNAL

NOVEMber/december 2010

2010 COMMERCIAL REAL ESTATE FINANCE Feast and Famine pg. 14

Mopping Up the Debt Debris pg. 16

By The Numbers: Fundamental Improvement pg. 17

An Accurate Accounting pg. 21

699 Eighth Street, San Francisco.

Owned by TMG Partners.

№Бе

Contents NOVEMBER/DECEMBER 2010

FINANCE 2010 One Concord Centre, recently purchased by Swift Realty Partners and Flynn Properties.

FEATURE PACKAGE Capitalization pg. 14

the industry and people on the move

8 Design

Pain is Gain pg. 16

A Good Day at the Office pg. 17

Pain Lingers but Pressure on Bay Area Landlords Abates pg. 20

Proposed Accounting Rules May Promote a Credit Freeze pg. 21

6 News Desk A summary of recent news about

Selling in Situ

10 Commercial Market Report Let the Sun Shine In

12 Mergers & Acquisitions Joining Hands

14 Feature Package: Financial Market Update 22 Government The Influence of Prop 23

24 Retail Bay Area: Food Central 26 Retail Lords of the Pipeline 27 Real People The Registry’s Green Event 28 Rob’s REality Just Say No? 32 Calendar of Events 34 Commercial Lease and Commercial Sales Reports 36 Final Offer | Kevin Powell A Federal Case

Front cover Image and above IMAGE COURTESY OF chaD ziemendorf

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.

Publisher Vladimir Bosanac vb@theregistrysf.com

President

Contributors Peter Ingersoll Pain is Gain pg. 16 Peter Ingersoll is chief executive of East Bay investment advisory Safe Harbour Equity Inc. and a serial entrepreneur. He has an economics degree from the University of Pennsylvania Wharton School and several advanced degrees from the School of Hard Knocks earned while working in the construction, development, site acquisition, private banking & trust, investment banking, securities and, most recently, the Northern California commercial real estate industries. This article is based on research for his forthcoming book, “The Real Estate Tsunami Survivor’s Guide,” to be published in November. The book features interviews and remarks from industry leaders such as Dr. Sam Chandan, the global economist for Real Capital Analytics; Ethan Penner, president of CBRE Capital Partners; and Michael J. Panzner, author of “Financial Armageddon: Protecting Your Future from Four Impending Catastrophes” and “When Giants Fall: An Economic Roadmap for the End of the American Era.”

Heather Bosanac 415.738.6434 heather@theregistrysf.com

Rob La Eace Just Say No? pg. 28

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

Creative Director Jelena Krzanicki

Photographer Chad Ziemendorf

Writers Robert Celaschi, Doug Caldwell, Michael Fitzhugh, Sharon Simonson, Sasha Vasilyuk

Contributors Peter Ingersoll, Rob La Eace, John McNellis, Paul Petersen

Advertising 415.738.6434

News news@theregistrysf.com

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.

The Registry is a registered trademark of Mighty Dot Media, Inc. ©2010 Mighty Dot Media, Inc. All rights reserved.

This publication and/or its contents may not be copied, reproduced or republished in whole or in part without the written consent of Mighty Dot Media, Inc.

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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.

John McNellis Lords of the Pipeline pg. 26 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.

Paul Petersen Proposed Accounting Rules May Promote Credit Freeze pg. 21 Paul Peterson is a partner at Armanino McKenna LLP, the 37th largest accounting and business consulting firm in the nation. He has been a certified public accountant since 1992 and has a wide variety of audit experience including work for government, major publicly and privately-held corporations and not-for-profit entities. Peterson is a member of the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants. He earned his degree from the University of California, Berkeley in 1985.

Media Partners

Editorial Boards

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

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.

www.norcal-ai.org

NORTH

Stephen Austin, RPA

Regional Property Manager Boston Properties

Daniel Myers

Marc Cunningham President AllWest

Jeanne Myerson

Partner, Real Estate Practice President & Group Leader Chief Executive Officer Wendel, Rosen, The Swig Company Black & Dean LLP

Bruce Dorfman

Jesshill E. Love III

Daniel Huntsman,

Principal LEED AP Thompson | Dorfman President & Founding Principal Partners, LLC Huntsman Architectural Group

Anton Qiu

Principal TRI Commercial

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

Partner Ropers, Majeski, Kohn & Bentley

Paul Zeger

Principal, President & CEO Pacific Marketing Associates

SOUTH

Terry de la Cuesta,

Jennifer Dizon, CPA

Norman C. Hulberg, MAI

Robert Kraiss, CFM

Audit & IIDA, LEED AP Advisory Partner Director of Healthcare Hood & Strong, LLP Synergy 4 Health, a One Workplace Company

Director of Corporate Facilities & Real Estate President Adaptec, Inc. Hulberg & Associates, Inc.

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Erik W. Doyle

President Cornish & Carey Commercial

Jody Quinton

Regional Manager DPR Construction, Inc.

Geoffrey C. Etnire

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

Patricia Sausedo

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

Michael W. Field

Director, Commercial Real Estate The Sobrato Organization

Jeffrey A. Weidell

Executive Vice President NorthMarq Capital

Letter from the Publisher Dear Reader, In February 2007, my wife, Heather, and I jointly founded The Registry with a goal of creating a Bay Area real estate magazine that would provide relevant news and information to the industry. We focused on design and aesthetics as way to stand out and created an experience for the reader that featured the physical beauty of the built environment, while providing the best coverage of the industry. In the quality of content, we modeled ourselves on The Economist magazine and in design and look on the W Magazine. It was no small challenge, but we wanted to be like nothing else, and we wanted people to notice.

Heather and I, as some of you may know, did not have either a real estate or publishing background. We were two entrepreneurs driven by hard work and a penchant for doing things our way. We had enough money for two issues, and the third one had to break even or we would have had to close the business. Thanks to Heather’s tenacity it did, and because of it, you are now holding our 30th issue in your hands, a milestone for us as we enter our fourth year of operation.

Since 2007, we have been impacted by the goings on in the economy as much as anyone in the industry. By some measure, we founded the company at the worst possible time. We tackled publishing, a traditional and old-economy industry that was itself going through a severe transformation, and real estate, which as you all know has gone through hell. By our measure, things could not have worked out better. Amidst turmoil, there is opportunity; ask any real estate investor. What we have attempted was unconventional, probably even crazy, but we recognized opportunity in execution. We saw how we could do something different and in a better way, and we kept our discipline. We innovated and learned from our mistakes and calculated risks. We have tried above all else to be honest in our news delivery, not compromising ourselves or our work and never putting a price on our reputation.

In October 2008, a respected Bay Area real estate journalist joined our team. Sharon Simonson became our editor in chief and has helped transform our publication into an integrated media company. Today, we deliver news not only through the magazine, which continues to publish monthly, but also through our Web site, which since January of this year has seen its traffic double. We also have begun to organize events where top executives and thought leaders from the industry share their views across a broad set of topics in discussion-led gatherings.

Our goal is to provide a diverse outlook to the industry from the industry. We see ourselves as both a media company and an integral part of the real estate process, giving a holistic perspective of the market that includes architects, designers, developers, builders, investors, appraisers, attorneys, brokers, building owners and managers. Everyone’s voice is important, and The Registry’s differentiation is that it lets each one be heard so that others might benefit from insight and professional understanding those voices bring.

The last three years have been remarkable for all of us at The Registry and indeed within the industry as a whole. While revenues in the publishing and real estate industries have plummeted, our revenues have not declined and have begun to inch up this year. To achieve that during the Great Recession, we believe is a huge validation of our concept and labor. And this is why we are optimistic. We are optimistic about The Registry’s success and our future. We are optimistic about the future of the Bay Area and our industry. And unlike so much of what is said today, we have confidence in the ability of Americans to navigate our current troubles by turning again to our well-known work ethic and our perennial embrace of innovation and change. Indeed, we believe that we at The Registry are that innovation and change.

Last but in no way least, we extend a heartfelt thanks to all of those who have taken this journey with us. Many of our advertisers took a chance on us in the beginning and have remained with us throughout. We have partnership arrangements with no less than 15 regional industry organizations with which we work closely to promote our joint agendas. Finally, we give thanks to the hundreds of professionals who have taken time to speak to our reporters, to our editor and to us to help us understand their world and create editorial content that is compelling and insightful for the benefit of their industry’s peers. Without all of these groups, The Registry would not have a milestone, no reason for this simple celebration and no reason for the work that we do.

Thank you for your continued interest in The Registry. Your voice and opinion are the driving force behind our work. We encourage all to contact us with compliments and criticism so that we can be better, and the industry can benefit from it.

Best regards, Vladimir Bosanac

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theregistrysf.com 5

News

Desk

SENT to us San Francisco, Bay Area Lead State Recovery It will take five years for California to return to its pre-recession economic activity and employment levels, East Bay economist Jon Haveman said. But San Francisco should recover much faster because it largely escaped the sub-prime mortgage housing bubble and the employment and housing price crash that followed. “There is a pretty strong correlation between the size of the housing bubble and sub-prime lending and employment declines and the severity of the recession,” Haveman said.

In the Oakland, Fremont and Hayward metro area, where the populace relied on sub-prime lending the most, a third of homes with mortgages are worth less than their loan balance, he said, citing data from First American CoreLogic.

That is worse than the nation at large where one in four homes is under water.

In comparison, fewer than one in 10 homes in the San Francisco, San Mateo and Redwood City metro area is under water, and in San Jose, the ratio is around one in five.

“I am very sanguine about California and the Bay Area in particular in the long run,” said Haveman, founding principal of the East Bay’s Beacon Economics.

Areas with significant research and development spending “tend to grow much faster,” he said. California has captured a rising share of all venture capital investment in the United States since the mid-1990s, growing to more than 55 percent in the first quarter of 2010.

Haveman addressed the Northern California chapter of the Appraisal Institute at its 2010 annual meeting in San Francisco. It was the chapter’s 60th annual session and drew more than 350 real estate professionals.

BRE’s Moore to Receive City of Hope’s Spirit of Life Award City of Hope’s Real Estate Council will honor BRE Properties Inc. President and Chief Executive Constance B. Moore with its top philanthropic honor, The Spirit of Life Award. The award recognizes outstanding leadership and philanthropic contributions.

Moore joined San Francisco’s BRE Properties in 2002 and was named president and chief executive officer in 2005. She previously was co-chairman and chief operating officer of Archstone Communities Trust. She was also the 2009 chairman of the National Association of Real Estate Investment Trusts.

In its 25-year history, the Real Estate Council has raised more than $4 million for City of Hope research, treatment and education programs.

Swift Buys East Bay Industrial Condos San Francisco-based Swift Realty Partners has acquired the 11 unsold commercial condominium units at the Fremont Tech Center on Lakeview Boulevard and Bayview Drive in Fremont. The private real estate investment company paid nearly $2.9 million. The seller was Bank of America.

The project was completed by Opus West in 2008 and has 137,000 square feet total among 33 units.

Swift is the newly formed venture of former Equity Office Properties’ President and Chief Executive Christopher Peatross. “It is brand new product right on [Interstate] 880. We are going to try to lease it up and add some value,” he said.

REIT Buys Piece of San Francisco Los Angeles-based Hudson Pacific Properties paid $34.9 million for the 144,440-square-foot, two-building 222 Kearny Street office property in San Francisco’s North Financial District. The seller was an affiliate of Canyon Capital Realty Advisors.

“San Francisco is one of our company’s top targets for expansion. We will continue to grow our presence here through the acquisition of other well-located office properties,” Hudson Pacific President Howard S. Stern said in a prepared statement.

222 Kearny Street, on the northeast corner of Sutter and Kearny streets, is comprised of two buildings: a 10-story office tower built in 1986 and a five-story historic building built in 1915 with a 180 Sutter St. address. Hudson Pacific also 6 theregistrysf.com

owns 875 Howard St., a 286,000-square-foot office property south of Market Street across from the Moscone Convention Center.

Marcus & Millichap Sells Burlingame, Campbell Apartments Marcus & Millichap Real Estate Investment Services has sold 604 Peninsula Ave., a seven-unit Burlingame apartment property, for $1.21 million and 164 Michael Drive, a six-unit complex in Campbell, for $1.135 million.

Cory Waxman and Mitchell Zurich, investment specialists in the company’s Palo Alto office, represented the sellers in both transactions and the buyer in the Burlingame sale.

Pocket Buys San Francisco Housing Site San Francisco-based Pocket Development has acquired 401 Grove St. in the Hayes Valley area of San Francisco, paying $4.4 million in an all-cash deal. The company was represented in the transaction by Benjamin Friend and Kevin Chuck of San Francisco’s Vanguard Commercial.

The property is fully entitled, and development is expected to begin next year, Friend said. It is slated for 61 condominiums and 10,000 square feet of ground-floor retail. The site is now rented month-to-month as a parking lot.

The seller was Cathay Bank, which foreclosed on the site in 2008. “The lender wanted to get itself out of the property, and so it was only interested in all-cash buyers. There were multiple offers,” Friend said.

Law Firm Prepares to Defend Clients Against Suits From Housing Crisis Luce, Forward, Hamilton & Scripps LLP has formed a National Foreclosure Litigation and Investigation practice to provide one-stop service to institutions facing potential civil or criminal liability arising from the foreclosure morass.

The new practice will serve lenders, servicers and institutional investors facing civil litigation, proposed class actions and federal and state investigations. The practice is proposed to help clients limit or eliminate potential civil or criminal liability before the start of civil litigation or a civil or criminal investigation.

Sares Regis Sells Luxury Apartments to Essex Sares Regis Group and CIGNA Realty Investors have sold the Bella Villagio Apartments in San Jose to Palo Alto-based Essex Property Trust Inc. for $54 million.

Sares Regis acquired the 231-unit property in June 2009.

Sares Regis Group and Sares Regis Group of Northern California are investors, developers and managers of residential and commercial real estate in the Western United States. The company has headquarters in Irvine and San Mateo and employs more than 600 people. It has a combined portfolio of property and feebased management contracts valued at more than $4 billion, including 14,500 apartments and 15 million square feet of commercial and industrial space.

Essex has bought Bay Area apartments aggressively in the downturn. The company acquired 101 San Fernando in downtown San Jose and The Commons, a 264-unit complex in Campbell, this summer.

Online Retailer Expands Headquarters Lease Macys.com has expanded to two additional floors for an aggregate 100,000 square feet of office space at the historic Monadnock building at 685 Market St. in San Francisco.

A subsidiary of Macy’s Inc., the online department store leased an additional 37,737 square feet of the 10-story tower in downtown San Francisco.

According to Macy’s Inc., the combined online sales volume of Macys.com and Bloomingdales.com was up approximately 29 percent year-over-year as of September 2010.

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PEOPLE on the move Contractor Expanding Project Management, Engineering

project engineer.

San Francisco-based Skyline Construction hired Joshua Taxson (left) and Joe Culbertson (right) as project managers and Ryan Hawkins as

Taxson has nine years’ experience in commercial construction on both the contractor and client sides. His expertise is in technical projects including biotech, pharmaceutical and health care work. As senior project manager, Taxson will be responsible for preconstruction services, client and subcontractor coordination, project estimating, budget maintenance and management of the bid process and job-site issues.

Culbertson brings more than 26 years of construction and design-build experience to his new role as senior project manager in the Critical Facilities & Infrastructure Group. He will assist in business development as well as estimating, project planning, project management and development and mentoring of project personnel.

Before joining Skyline, Culbertson managed his own design-build firm, where key clients included: VMware Inc., Symantec Corp., The Charles Schwab Corp. and AT&T Inc. Hawkins has four years of construction experience and is LEED accredited.

His past projects include Agua Caliente Resort, Spa & Casino and Jack London Square. As project engineer, Hawkins will support the senior project manager for the duration of the project, ensuring a successful result. He specifically focuses on the bid process, budget maintenance, preconstruction services, job-site issues and project close-out.

Brokerage Beefs Up Financial Services Industry Advisory John F. Mix has joined Grubb & Ellis Co. as a senior vice president and Bay Area leader of the company’s Financial Services Asset Management group. Mix will oversee marketing and account management for financial institutions and special servicers looking to create value with their real-estate-owned portfolio.

Mix joins Grubb & Ellis from US Bank, where he spent three years as a market manager, responsible for opening the company’s San Francisco commercial real estate office. Prior to joining US Bank, he held the position of division head of the San Francisco office of LaSalle Bank Corp.

Colliers Adds to Commercial Mortgage Brokerage Robert Kincheloe, who has appraised landmarks such as Dallas’ ritziest hotel, The Mansion on Turtle Creek, San Francisco’s One California St. and 555 California St., has joined Colliers International as a commercial mortgage broker.

Kincheloe has placed more than $2 billion in debt and equity on commercial real estate since 1996. Before mortgage brokerage, Kincheloe spent six years as a commercial real estate appraiser in Dallas and San Francisco, including four years with Bank of America in San Francisco.

Doyle to Lead Institutional Sales in West Erik Doyle has been named executive managing director of the Newmark Knight Frank Cornish & Carey Commercial Capital Group. He will lead Western United States institutional investment sales, responsible for managing clients’ investment requirements and facilitating investment nationally and internationally. The Newmark Knight Frank Cornish & Carey Commercial Capital Group’s western region headquarters is in San Francisco.

Doyle joined Cornish & Carey Commercial as president in May 2008. Doyle is also one of the Silicon Valley’s top investment sales professionals and was recognized by the Association of Silicon Valley Brokers as “Institutional Broker of the Year” in 2006 and 2007. continued on page 31

DESIGN

Selling in Situ Furniture makers search for novel ways to get early access to startups and emerging small businesses.

By Michael Fitzhugh

Top: Turnstone, the 15-year-old value line of Steelcase.

Bottom: Newly launched Antenna line by Knoll.

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S

T o p I mage C o u r t esy o f S teelcase ; b o t t o m images c o u r t esy o f K N O L L

Industry-wide, U.S. office furniture sales dipped nearly 30 percent during 2009, to $9.2 billion, according to the Business and Institutional Furniture Manufacturers Association. Recovery could be slow this year and next.

elling big-ticket furniture to independent, cost-conscious entrepreneurs is tough. So furniture makers are trying to meet them where they live: at work. Steelcase Inc., Haworth Inc. and Knoll Inc. are all making new efforts to connect with independent workers in new environments, both physical and virtual. Among the most aggressive is Turnstone, the 15-year-old value line of global furniture maker Steelcase. The company is placing its tables, chairs, desks and lamps in hot new co-working business centers from San Francisco to Boston, moving in with a message of salesmanship and service that it hopes will capture new customers.

Turnstone, which has been known as a value brand for large companies, was “not developing solutions for small business as well as we could have been,” said Danielle Galmore, the company’s senior marketing and business evolution manager. Its new marketing approach seeks to resolve that. By steeply discounting its furnishings for the owners of co-working centers and by developing a program that both engages and supports the centers’ small business customers, Galmore hopes that buying new Turnstone furnishings will be an obvious choice when the budding entrepreneurs move on to their own office spaces.

Sandbox Suites, which rents on-demand shared office space in San Francisco and Berkeley, is one of the first partners the company is testing the concept with. Its new Union Square suite, at 567 Sutter St. between Powell and Mason streets, is outfitted with a set of sleek, modern Turnstone furniture, designed with global design consultancy IDEO. “One of the primary needs a small company has is to experience and ‘test drive’ product and hear from their peers what their impressions, likes and dislikes are,”

said Galmore. The opportunity to experience the furniture as part of a daily workspace is much more convenient for many small-business people than finding time to meet with a Turnstone dealer, she said. Partnering with co-working and incubator spaces, such as San Francisco’s I/O Ventures at 780 Valencia St., helps Turnstone by creating “a showroom of sorts,” Galmore said.

Turnstone isn’t alone in seeking novel ways to showcase and evaluate its products. In 2009, Michigan-based Haworth furnished a Newaygo, Mich., business center catering to telecommuters using moveable walls and office furniture from its modular furnishings lineup. The center, which was created based on surveys that showed a high percentage of Newaygo residents worked outside the county, was designed to help workers to telecommute by providing a high-quality business center with full amenities.

Haworth’s Ideation research group hoped to use the experience to better understand how the company’s potential customers utilize space.

Haworth opened its newest showroom in San Francisco last year, measuring 8,300 square feet on the 19th floor of 555 Mission St. No matter the approach, reaching startups can be tough. Peter Cracknell, regional manager for Knoll Inc., says many of his company’s initial contacts are still initiated the old-fashioned way, by reviewing the business news and picking up the phone to call promising leads. Startups tend to default to the cheapest Ikea furniture, Cracknell said. But they also want quality furnishings that support collaboration and don’t dominate the architecture of their carefully-selected office spaces. For that, Knoll launched its Antenna line in June. The company is trying new ways to promote Antenna, through videos on YouTube and its own Web site. Either way, the need is the same: meeting independent and small businesspeople on their terms.

No doubt the desire to tap new markets and the hope of touching the next great American company are behind the small-business outreach.

Publicly traded Steelcase, the world’s largest office furniture maker with $2.3 billion in revenue in fiscal 2009, has lost money in both of its last two fiscal years: $13.6 million in 2010 and $11.7 million in fiscal 2009.

Meanwhile, Knoll, which is also publicly traded, announced sales of $780 million last year, down 30.4 percent compared to 2008, and net income of $27.4 million, down nearly 68 percent. Haworth, which is privately held, reported net sales of $1.11 billion in 2009, down from $1.65 billion in 2008.

Industry-wide, U.S. office furniture sales dipped nearly 30 percent during 2009, to $9.2 billion, according to the Business and Institutional Furniture Manufacturers Association. Recovery could be slow this year and next, the association predicts.

At Sandbox Suites, Turnstone’s approach seem to be working. Roman Gelfer, Sandbox’s founder and chief executive, is pleased with what he says is a symbiotic relationship with Turnstone so far. People paying to rent access to Sandbox’s shared workspaces really notice the quality of the furnishings, he said. “I think having nice furniture conveys more professionalism,” not only to his customers but to his customers’ customers, Gelfer said.

Turnstone initiated the relationship, granting Gelfer a 75 percent discount on furnishings to fill out the common areas of Sandbox’s new Union Square location. For $12,000 he got about $48,000 worth of furniture that’s easily nicer than the already serviceable furnishings used in his other two locations, most of which were sourced from Staples, Ikea and Craigslist.

Setting up the furniture was easy too, he said. “It took us 10 percent of the time it would have taken us to assemble other furniture to put together the Turnstone stuff.”

Perhaps most important to Turnstone, Sandbox and the other realworld workspaces in which it is showcasing its furniture become a living lab, from which it can gather feedback from the earliest users of its newest furnishings. If they like it, Turnstone is offering discounts to entrepreneurs leaving the nest, as it were, striking out and furnishing their own new space. Emil Sheth, part of a duo working out of Sandbox on a stealth mobile software startup, already loves the comfort of the Turnstone desk he’s using every day. “We would look at the Turnstone desks when it comes to getting our own space one day,” said Sheth. And, in the end, at least for Turnstone, that’s what it is all about. n

COMMERCIAL MARKET REPORT

A new California law will require all commercial buildings in the state to have an Energy Star rating.

Let the Sun Shine In The growing ubiquity of solar power and energy efficiency are engendering lease-language change.

By Doug Caldwell

I

t’s only a ripple now, but there is a sea change coming to commercial leasing and property sales in the Bay Area and California, thanks to solar panels and the ever-greater pressure for commercial property to be energy efficient.

More and more, the sun is used to activate countless numbers of solar arrays that generate electricity for buildings of all sizes from giant manufacturing plants to small warehouses. But because these panels can slash electricity costs, they are also proving a strong impetus for commercial landlords to switch from traditional net and triple net leases, in which tenants pay for power, to “full-service” leases or variants where the landlord is the one who opens the PG&E bill.

With the ability to cut power costs through solar and other green technologies, landlords can pull energy savings directly to their bottom lines— not the tenants’. That lets the landlord increase net operating income, says Bryan Jackson, a partner with law firm Allen Matkins Leck Gamble Mallory & Natsis in its Los Angeles office.

Meanwhile, legislators in Sacramento have passed a law that will require all commercial buildings in the state to have an Energy Star rating. The

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goal is to allow property buyers, lenders and large tenants to compare a building’s energy use easily with other, similar structures. The law will drive change in how commercial properties in the state are bought, sold and leased, said Tracey Grose, a researcher with Collaborative Economics Inc. of San Mateo. Grose is an author of a July 2010 paper, “Untapped potential of commercial buildings: energy use and emissions,” published

by Next 10 of Palo Alto.

“On one hand, [the energy rating] is definitely an indicator for energy efficiency, which saves you money,” she said. “On the other, if you are the owner of a commercial building, what we’ve learned is that those highefficiency buildings turn over faster. People more quickly find new tenants.

If you are selling, you’ll move it more quickly if you can sell it as a highefficiency building.”

The key to allowing landlords to exploit investments in solar power and other energy-saving technologies is what is called a “model green lease,” or a modified gross lease, says Jackson, who is also an adjunct professor at the University of Southern California in green and sustainable construction. “Your cap rates are going to go up, the value of your building is going to go up, your investors are going to be very happy,” he said. “That is why there is a shift in the marketplace to go with a modified gross lease and have the landlord, who gets the biggest incentive out of greening a building … to now work hard to green his building.”

AB 1103, the new state law requiring the Energy Star rating, is effective Jan. 1. It specifically requires that commercial buildings have an energy rating upon sale, 100 percent lease or refinancing. The timing of the law’s actual implementation depends on regulations being drawn up by the California Energy Commission. A spokeswoman for the commission declines to speculate when that might be.

Getting an energy rating is relatively simple, said Cindy Pollard, media relations manager for San Francisco’s Pacific Gas & Electric Co. PG&E or whatever utility is used by the building can provide data on the amount of energy such as electricity and natural gas that the structure has used. The use is the basis for the ultimate rating. “And that is the score that would need to be disclosed to all of the parties in the real estate transaction,” Pollard says.

The energy rating will allow potential purchasers to see how well or poorly a structure performs in energy efficiency. It also will allow lessees to compare competing locations based on how much energy a building uses and thus get a better idea how a triple-net lease might impact their bottom lines in the case where they are writing the checks to the utility.

Grose says improving building energy efficiency in California would bring radical change. “Commercial buildings could be made 80 percent more efficient with new and existing technologies,” she said. “When you consider that commercial buildings in California represent about 37 percent of energy usage, that could make a huge impact.”

The new law and the still new concept of modified gross leases are just being felt in the Bay Area, attorney Jackson says. They are becoming more commonplace in Southern California. “In Southern California, we tend to have most of our leases already set up on a gross-lease basis,” he said. “It’s a natural arena for a lot of landlords to get the benefit of greening their buildings. In other areas of the country, it will take some educating to get the brokerage folks to rethink.”

The original developer of the “green lease” is Alan Whitson, chairman of a national task force that wrote the Model Green Lease just last year.

Whitson calls himself the “Green Building Guru Who Paints a ProfitMaking Picture” and has turned the concept of greening commercial buildings into a thriving business called the Corporate Realty, Design & Management Institute, based in Portland, Ore. Assembly Member Lori Saldaña, who authored AB 1103, says the commercial real estate industry will soon catch on to what she sees as a real benefit to the law—the ability to compare energy efficiency of buildings as easily as one can compare energy efficiencies of refrigerators in an appliance store. “It’s absolutely essential that the buildings where we spend most of our working daytime hours be as energy efficient as possible,” she says. “As the economy improves and people are buying and selling commercial real estate again, I look forward to them being able to see an Energy Star rating for properties.” n

Joining Hands Interest in mergers and acquisitions rises in the architecture, engineering and construction world.

By Robert Celaschi

o glimpse the future of architecture and engineering, look back to the consolidation of big advertising agencies in the 1970s and how accounting’s Big Eight became today’s Big Four, suggests Jenifer Altenhoff, a principal at Anshen + Allen Architects. Altenhoff ’s San Francisco firm has signed a deal to be acquired by Canadian architectural and engineering giant Stantec Inc. Stantec, which already had offices in San Francisco and employs hundreds in the region, has bought up more than 70 smaller firms since 1997. This past summer it also announced the acquisition of Philadelphia’s Burt Hill Inc., plus smaller engineering and design firms in Maine and Colorado. “I believe that this is the decade that architects, engineers and professional design services are going to consolidate at a more rapid pace,” Altenhoff says.

Other major players based in the Bay Area or with large offices here are on the same path. Los Angeles-based AECOM this summer bought large New York builder Tishman Construction Corp. plus international construction consultancy Davis Langdon. A year ago, AECOM acquired architecture, engineering and interiors firm Ellerbe Becket, a firm with a century’s history and 450 professionals in seven offices across the globe, including an office in San Francisco.

San Francisco-based URS Corp. nearly doubled its size in 2007 by buying Washington Group International of Boise, Idaho. URS, now with close to 50,000 people worldwide and annual revenue approaching $10 billion, has continued its acquisitions with firms of 60 to 200 people in Alaska, Colorado and Texas in the past few years. “If you want to be involved in very complex projects, and you want to be involved in it around the world, you have to have a platform, a big base of resources,” Altenhoff said.

It didn’t used to be that way. Until a half-century ago, a bright young architect typically would work at a small firm for three to five years, steal a client and open his own studio, said Jim Chappell, director of the Citizen Planning Institute at San Francisco Planning + Urban Research Association. Back then it was normal for firms to shut down when founders retired.

“Maybe as early as the middle ’60s, you started seeing articles in the magazines about succession planning,” Chappell said.

The industry got used to the idea that firms would outlast founders, and economics forced firms to look for business beyond the local market. “In every recession in my memory, San Francisco survived on overseas work,” Chappell said. “And, let’s face it, there’s a recession every so many years.”

Big conglomerates, almost by definition, don’t rise and fall with a particular region’s economy. And they can point to a full range of services: project management, engineering, graphics and more, when they need to broadcast heft to capture a job or a client. “The big corporate clients and the big government agencies understand this. These firms have the infrastructure, the lawyers, the accountants, the project managers, to run government contracts,” Chappell said.

Projects in the 21st century also are complex, requiring more interdisciplinary skills, said Alfonso Rodriguez, Stantec’s vice president for Northern California. Acquisitions allow the company to more quickly add specific talent to a geographic market. Anshen + Allen, for instance, is known for its health care and education work. A large firm like Stantec also can move its internal expertise around as needed, said Rodriguez.

The company has sent people from Northern California to work a rotation on Alaskan oil pipelines or New Orleans levees and can bring talent into California for jobs as needed.

The Bay Area is a nexus for the architectural, engineering and contracting industry. Besides URS, Bechtel Corp., the largest architectural and engineering company in the world, is headquartered in San Francisco. Bechtel’s 2009 revenues were more than $30 billion. Architectural powerhouse Gensler,

I mage C o u r t esy o f Dav i d Wakely

T

MERGERS & ACQUISITIONS

which reported sales of nearly $700 million last year, is also San Francisco-based. More than 40,000 people are employed in architectural, engineering or design jobs in the combined San Francisco, Silicon Valley and East Bay metropolitan areas, according to the state. Architects earn on average $80,000 a year; engineers average between $90,000 and $100,000.

Smaller traditional firms can survive in the current climate.

The biggest players wouldn’t have any interest in a $2 million custom home, but that’s a tremendous amount of work for a two-person architectural firm, Chappell said. Rather, it’s the firms in the middle that often feel the squeeze. “I do see the consolidation happening, and I can’t say I am not concerned,” said Bryan Shiles, one of the partners who broke away from Chong Partners in 2005 to form WRNS Studio in San Francisco.

The firm has grown to about 60 people, while Chong Partners was acquired by Stantec three years ago.

It is difficult for WRNS to compete with large players when it comes to raw resources, he said, but there are other ways to stand out. “With a midsize firm, our brand has to be very, very clear. So clear that the client needs to choose it. If we look ambiguous, and we go up against the big guys, why would you choose us? One of the advantages is that with our size and partnership structure, clients know they are going to get the attention of partners.”

When a midsize firm does need extra skills, it can assemble project-specific teams of consultants, said Duncan Ballash, principal of EHDD Architecture, a San Francisco firm with a staff of about 65. Its work has included the Monterey Bay Aquarium, the San Mateo and Mountain View public libraries and the One Hawthorne high-rise condominiums in San Francisco. But even in a collaborative approach, larger firms have an easier time forming and cultivating relationships, said Michael Strogoff, whose Strogoff Consulting in Mill Valley

handles mergers, acquisitions and negotiation services for architects, engineers and designers.

The consolidation wave also is a response to generational and economic changes in the industry, Strogoff said. For a lot of firms founded in the 1970s and ’80s, primary shareholders are nearing the end of their careers and are looking for exit strategies. “There is a real dearth in the next generation of qualified or interested owners. Add that to the economic climate, and that’s definitely leading to a lot more pressure,” he said. Strogoff gets calls every week from smaller firms looking to be acquired. But buyers can be picky. “Unless they are really different from the competitors, unless they have a unique value proposition and a backlog of work, it is a very difficult proposition,” Strogoff said.

In fact, the same qualities that make a strong firm attractive to a buyer are often the qualities that would give a firm the best chance of surviving on its own: strong client relationships, expertise in a specialty and a new generation of leadership ready to take over—especially if they are perceived as thought leaders, he said.

High-profile deals notwithstanding, merger and acquisition activity actually fell 25 percent in 2009, according to ZweigWhite, a Massachusetts consulting firm that does annual surveys of industry participants to measure M&A activity. One in five companies has acquired or merged with another in 2010, compared to one in three and nearly one in two in the middle of the decade. Multiples also are down, falling this year to 2.4 times pre-distribution earnings before interest, taxes, depreciation and amortization from 4 last year. But buyers are starting to re-emerge. The company’s survey found that 75 percent of respondents have mergers or acquisitions in their strategic plans for the next five years.

That is up from 71 percent last year, and more in line with the levels seen mid-decade. n

“I do see the consolidation happening, and I can’t say I am not concerned.”

Bryan Shiles, partner, WRNS Studio, San Francisco Opposite Page: Laguna Honda Hospital in San Francisco that was jointly designed by Anshen & Allen and Symantec prior to their merger.

U.S. Merger and Acquisition Activity There have been more than 1,000 M&A deals announced and/or closed in the U.S. construction and engineeering services industry during the past five years. M&A activity declined sharply in Q4 of 2008 and has recently begun to rebound with deal volume reaching a three-year high in Q2 of 2010.’

M&A Activity: Construction and Engineering Industry

number of transactions

80 71

70 58

60 50

60

57

60 53

34

62

61 54

45

40 30

55

43

39

49

45

54 47

39

26

20 10 0

Q3 Q4

Q1 Q2 Q3 Q4

Q1 Q2 Q3 Q4

Q1 Q2 Q3 Q4

Q1 Q2 Q3 Q4

Q1 Q2

2005

2006

2007

2008

2009

2010

Sources: Chartwell Capital Solutions, Capital IQ

N OV E M B E R / D E C E M B E R 201 0

theregistrysf.com 13

FINANCE 2010

$

The U.S. economy and American society at large are entering an ‘era of less.’ Demand for real estate across the board will be muted.

“2011 Emerging Trends in Real Estate,” Urban Land Institute, PricewaterhouseCoopers.

Recapitalizing Real Estate

Below: Belmont’s Embarcadero Capital Partners have pushed the fully leased 100 Hamilton Ave. building in Palo Alto to market.

Cheap debt and equity are available but only for top-flight projects and well-heeled borrowers in a handful of major U.S. markets.

By Sharon Simonson

14 theregistrysf.com

N OV E M B E R / D E C E M B E R 201 0

I mage C o u r t esy o f C H A D ZI E M E N D O R F

T

he insatiable demand for investment yield is re-opening commercial real estate capital markets. Banks, insurers and even the commercial mortgage-backed securities industry are pushing debt. Sales volume is rising. But relief is in no way uniform.

Lenders and equity interests remain conservative and risk-averse.

The distinctions among properties that blurred during the boom are back in sharp relief. Institutional buyers are tightly focused on the best borrowers, the best assets, the best locations and a handful of top U.S. markets; secondary and tertiary markets do not appear on most radar screens, says a 2011 real estate forecast from the Urban Land Institute and PricewaterhouseCoopers. Thankfully for local landlords, San Francisco and San Jose are among the favored metropolitan areas. Apartments, buoyed by financing from Fannie Mae and Freddie Mac, are enjoying the strongest investor demand, pushing prices in San Francisco to pre-bust levels.

But, says Stephen Duffy, real estate consultant and investment banker at Moss Adams Capital: “The rest of the market is still waiting for recovery.”

“The focal point of [lender and equity] desire is to have very, very high confidence in protection and return of capital,” Duffy says. “When that is present, investors on the equity side and lenders are available.

When you get situations where a borrower may be working out issues on assets or has some balance sheet troubles or the asset quality is not the best, appetite falls off.”

Bay Area property fundamentals are improving. The ever-vital information technology industry is driving recovery in San Francisco and down the Peninsula. Life sciences and clean-tech industry expansion of-

fer hope for recovery. San Francisco and San Jose rank among the best markets in the country for for-sale home building and apartment development and investment, according to surveys of 875 industry professionals completed by ULI and Pricewaterhouse.

But current conditions are not robust. Office property vacancy remains in the double digits with rare exception in super-submarkets such as Palo Alto. Speculative office, high-rise condominium and commercial condominium development during the boom are producing pockets of deeper stress in Sunnyvale, north San Jose and downtown San Jose.

More broadly, the U.S. economy and American society at large are entering an “era of less,” according to ULI and Pricewaterhouse. Demand for real estate across the board will be muted. Homes will grow smaller and the pull of dense urban centers stronger, assuming strapped local governments don’t allow inner-city service to decay. Suburban offices and subdivisions will continue to lose charm. Internet shopping will sap the appetite for retail square footage. Cost, global competition and ubiquitous technology will push companies to continue to ratchet down their office-space consumption.

“Among the significant factors slowing any [real estate] rebound: unemployment stays high, wages stagnate, the middle class gets further pinched, lenders and regulators restrict credit and the tax bite (including local property taxes) increases,” according to ULI and Pricewaterhouse.

“The United States may have reached an inflection point where Americans’ incomes and standard of living come under pressure in the face of intense global competition.”

William Faidi, founder of San Francisco-based real estate investment firm Tribeca Cos. LLC, says it is a mistake to see the nascent gains in trophy property values and sales as leading indicators of a broad-based commercial real estate recovery. “It does not mean you will see cap-rate compression in all U.S. markets,” he said.

Last year, Tribeca acquired a 10-building, 200-unit multifamily

portfolio in San Francisco after buying the debt from Swiss banker UBS, then foreclosing on the units. Tribeca seeks to invest in real estate across the Western United States.

Investors in search of greater yields will inevitably branch out from the secure handful of markets like New York, Washington, D.C. and the Bay Area, Faidi says. But he believes a flush of distressed assets from special servicers handling defaulted CMBS debt could wait on the horizon.

“We don’t know how that will turn out,” he says. “There could be a tremendous supply of assets that have a hard time garnering the attention of investors. That could further impact commercial real estate values.”

Nationwide, more than $62 billion in securitized commercial real estate debt is now delinquent, according to Realpoint LLC. That is twice the sum of a year ago and 8 percent of total CMBS debt outstanding.

In the Bay Area, less than a dozen locations were liquidated to satisfy outstanding debt from March through September, according to Realpoint. But 36 other loans secured by Bay Area properties with a balance of nearly $1.3 billion have been turned over to special servicers. Another 61 loans with a collective balance of more than $1 billion have been “watchlisted” by Realpoint.

Some also have begun to wave a red flag over the $4.9 billion in CMBS debt secured by the Equity Office Properties Inc. portfolio. Of the 103 buildings backing the loan, 55 are in the San Francisco Bay Area. Only one—the Ferry Building—is in downtown San Francisco. Most are on the Peninsula and in the South Bay, according to Realpoint.

The loan was transferred to a special servicer in late May because of refinance and cash-flow worries. Net cash flow fell to $713 million at the end of last year compared to $1.2 billion at issuance. The borrower, The Blackstone Group, is seeking to modify the loan terms, including a two-year extension to 2014 and the discounted payoff of an additional $2 billion in mezzanine debt. The loan remains current.

How much of this distress will ultimately lead to property liquidation is the big unknown. continued on page 33

Bay Area Property Liquidations for Unpaid CMBS Debt and percent loan-loss upon sale (March 2010 through September 2010) Name

Town

Loan Balance Before Loss (million)

Loss (percent)

Loss Date

1 Crow Canyon Center (office)

San Ramon

$4.8

27

Sept. 8, 2010

2 South Bay Tech Center (industrial)

Milpitas

$12.8

1

Sept. 2, 2010

3 Days Inn (hotel)

San Jose

$1.7

25

Aug. 2, 2010

4 Vacaville Ford (retail)

Vacaville

$6.3

100

July 6, 2010

5 Gold River Apartments (multifamily)

Sacramento

$2.5

50

July 9, 2010

6 Aqua Via Apartments (multifamily)

Oakland

$34.0

32

June 11, 2010

7 Embassy Suites (hotel)

South San Francisco

$22.2

1

May 4, 2010

8 1988 Tarob Court (office)

Milpitas

$5.6

99

April 13, 2010

9 Carmel Plaza (retail)

Carmel

$24.2

1

April 7, 2010

Oakland

$3.5

76

March 19, 2010

10 Swan Way Building (office)

Source: Realpoint LLC N OV E M B E R / D E C E M B E R 201 0

theregistrysf.com 15

Pain is Gain

By Peter Ingersoll

A

s horrible as the bubonic plague was for Europe in the 1300s—nearly a third of the population died—it set the stage for centuries of economic growth because all the land and productive capacity were now owned by fewer people, and wealth became more concentrated. But the plague itself was only partially responsible for the ultimate rebound. The invention of the printing press in the year 1440, shortly after the plague permanently subsided, paved the way for title to land, property and businesses to be passed to heirs and, more importantly, independent entrepreneurs, because it allowed recorded private ownership. The surviving two thirds of the population became the owners of the entire economic base and had a new, very powerful tool— the printed word—to boot. It is easy to imagine the first title insurance company coming into existence on the streets of London in the weeks after the first newspaper published.

prieve and brings hope, for the larger market, it really means unhealthy stagnation.

Right now, the combined actions of the Treasury, the FDIC and the Federal Reserve have created a low interest-rate environment that is keeping many infected properties alive. Removing the prophylactic of low interest rates would surely send the infected into a death spiral. Faith in a low-interest rate cure is quickly dispelled by contemplating how far values in the commercial real estate market would plummet if interest rates rose a modest 1 percent. As a whole, the legacy values from 2004 to 2008—on which the loans were based—are simply unsustainable. None of us really believe that the market will soon return to the frothy price levels and compressed cap rates of 2006. As a consequence, the life-support loans held on banks’ books must be put out of their misery and the losses embedded in banks’ balance sheets must be recognized. The only question is when.

As long as distressed properties remain on the books of the banks and special servicers, price adjustment cannot happen.

The Great Debt Implosion of 2008 is like the bubonic plague. More than a third of the 2007 value of commercial real estate has been wiped out, and the digital equivalent of the printing press— the Internet—is spreading like a kudzu plant into every aspect of society and business. Life is moving forward in spite of the dead. Whole new industries are in the making: We just don’t know which ones yet.

But instead of the debt plague concentrating wealth, it is destroying it—in many sectors and especially in commercial real estate. Its spread has been halted temporarily by artificially low interest rates; yet a low-grade infection haunts many property owners. Even the healthy are struggling to find new loans to refinance or acquire properties.

A renaissance in commercial real estate can only begin once the dead loans have been foreclosed and buried in mass graves. Most of the funeral expenses for this gruesome process will ultimately be borne by the U.S. Treasury (and U.S. taxpayers) because the Federal Deposit Insurance Corp. simply does not have the capital to deal with the scale of the problem. While for some this period of tentative renewal feels like a welcome re16 theregistrysf.com

N OV E M B E R / D E C E M B E R 201 0

Banks and special servicers have an opportunity now to aggressively write down loans on life support and to bring these assets to the market while interest rates are at historic lows. Banks depending on interest rates remaining low as the primary cure for their illness is the equivalent of pretending that none of us will age or again pay taxes. Once interest rates go up, the current window of opportunity will close. Market fundamentals will not grow sufficiently to offset increased losses caused by rising interest rates. Lenders and the FDIC failing to act aggressively will only prolong the plague.

As distressed properties re-trade at lower levels, the new owners will be able to attract new tenants with lower asking rents at the expense of competitors, triggering another round of loan defaults. Until all infected commercial loans have been foreclosed and re-priced, rents in the marketplace will remain soft. Many markets may see individual sectors or neighborhoods faring better, or perhaps even see micro-bursts of economic activity, but aggregate market price levels will be lucky to stay at current levels. Until the banks reprice and re-sell their distressed assets, not only will there be an anchor dragging lending towards

$

Lenders and the FDIC should move now to rid balance sheets of distress and sow the seeds of recovery.

the bottom, but future prices will be volatile—an analyst’s way of saying: What you buy today may devalue tomorrow when interest rates go up. Additional price and operating risks are posed by foreclosed properties establishing new price and rent comparables.

One’s view of the future—its risks and rewards, its injustice and opportunity—depends entirely on what stage an individual has entered in his or her life. A woman in her twenties with a decent job is not worried that Social Security may not pay a penny 40 years from now. A recent retiree is highly focused on this issue. A young entrepreneur having just invented a new widget for social media (the most diabolically clever targeted marketing platform ever invented), is probably quite optimistic about the future. Likewise, there will be pockets of the plague popping up for the next several years in different geographies and property sectors even as recovery comes to others. Overall, there is reason for hope and optimism because the United States can be the most dynamic engine of economic creativity on the planet. But none of that will save those distressed owners already infected.

It may feel impolite to revel in the prospects of technologies that promise vistas of economic prosperity when there are the terminally ill loans having difficulty breathing. But the market will move forward with us or without us. Current property owners are going to have a much different experience over the next three to five years than equity investors looking for opportunity.

Alas, the misery of the infected will take the fun out of any proposed festivity. Rising prices are not likely to ease the pain, so the problem will exist until asking prices for commercial real estate are low enough to give equity its required return for the significant risk of repositioning the property.

But as long as distressed properties remain on the books of the banks and special servicers, this price adjustment cannot happen.

Unless distressed assets are priced low enough to offer rents that support productive enterprise, elevated vacancy and defaults will be a part of the market landscape for many years—as well as foreclosures and sudden outbreaks of the song: “Ring Around the Rosie.” Let’s respect the dead and dying but get busy unwinding the busted deals left over from the Great Debt Extravaganza. The market needs to clear and start anew before interest rates spike and hit us like a virulent co-infection that pushes the healthy toward graves of their own. n Peter Ingersoll can be reached at peter@safeharbourequity.com.

A Good Day at the Office Bay Area property fundamentals are firming up. In the third quarter, the East Bay’s Interstate 680 corridor posted its first office-leasing gains in more than two years, according to brokerage CB Richard Ellis. Momentum sprang from a 288,000 square-foot lease signed by The Clorox Co. in Pleasanton and a nearly 100,000 square-foot renewal in Walnut Creek

by Travelers Insurance. The ongoing reset in property values, which should inevitably lead to broadly lower rents and rising tenant demand, is underway. In late September, San Francisco’s Swift Realty Partners acquired One Concord Center out of receivership. Swift paid $42.5 million for the 360,000 square-foot Class A office tower, $17 million less than the sale price in 2003. Other distressed East Bay office sales are on the horizon, including Emeryville’s Watergate office complex and Concord’s 2300 Clayton Road.

Office Availability

Includes sublease space and space not yet vacant but available for lease 45%

San Francisco Office

40% 35% 30% 25% 20% 15% 10% 5% 0%

2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010

Net Rentable Area: 77 million square feet as of 3Q2010

45%

South of Market, San Francisco

40% 35% 30% 25% 20% 15% 10%

Across the bay, pockets of weakness in San Francisco’s North Financial District and Civic Center/Van Ness neighborhood were balanced with brisk activity in the South Financial District and Multimedia Gulch south of Interstate 80 and north of Mission Bay. Both areas showed strong occupancy gains, totaling nearly 600,000 square feet of positive net absorption between them in the third quarter. Zynga Game Network Inc.’s lease of 275,000 square feet South of Market was the city’s largest since 2005, CBRE says.

5% 0%

2Q2009

3Q2009

1Q2010

2Q2010

3Q2010

Net Rentable Area: 2.7 million square feet as of 3Q2010

45%

Interstate 680 Corridor

40% 35% 30% 25% 20% 15% 10% 5% 0%

2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010

Net Rentable Area: 41.5 million square feet

45%

Pleasanton

40% 35% 30% 25% 20% 15% 10% 5% 0%

2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010

Net Rentable Area: 11.2 million square feet

I mage C o u r t esy o f C H A D ZI E M E N D O R F

Walnut Creek Downtown 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

Above: Future home of online gaming network, Zynga.

2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010

Net Rentable Area: 4.9 million square feet as of 3Q2010 Source: CB Richard Ellis N OV E M B E R / D E C E M B E R 201 0

theregistrysf.com 17

SPECIAL SECTION

>>

Safe ContraCtorS >>Save ClientS Money W

We have all heard the phrase “safety pays,” but what impact does safety have on a client’s bottom line? Hiring safe contractors lowers overall project cost. When an accident occurs on a construction project, there are several hidden indirect costs. The customer ends up footing the bill for a contractor’s unsafe practices. Some of these costs can include legal fees, lost production, employee morale, employee time and lengthened project duration. Studies show that the real cost of a jobsite accident is 1.4 times greater than what the insurance company pays out.

Safe contractors also pay less for insurance than unsafe contractors.

This savings can be passed through to their clients in the form of lower prices. The insurance industry determines an Experience Modification Rate (known in the industry as “mod rate”) for every construction company. The rate is a 3-year rolling average and is used to determine a company’s workers compensation cost. The formula used to calculate a mod rate takes into account payroll and the cost of claims that occur on a company’s watch.

What else does a contractor’s mod rate reveal? A contractor’s safety record goes hand in hand with a company’s ability to perform and deliver a quality product, increased production and cost efficiency. How a contractor addresses safety gives clients an indication of how well a company controls its projects, the work of subcontractors and ultimately its risks. Examining a contractor’s safety record is an effective method of analyzing a company’s overall ability to protect a client’s interests and deliver a successful project.

Ronald G. Speno, Area President for Arthur J. Gallagher, insures many Bay Area construction firms and building owners. “I advise my clients to create and implement a comprehensive safety program,” said Speno. “It helps reduce the frequency and severity of losses, protects employees and the public, meets government regulatory compliance requirements and safeguards an organization’s assets.”

To lower your firm’s “mod rate,” Mr. Speno recommends taking the following actions: • Have your insurance broker provide a contract and subcontract review • Ask your insurance broker to take a more active role in claims management and post-loss control • Implement accountability systems, including safety committees • Provide your employees more intensive training programs • Update your Injury Illness Prevention Program (IIPP) to include the latest OSHA Compliance programs • Start at the top: Principals should spearhead the importance of safety

Following advice from Mr. Speno, NOVO developed a comprehensive, performance-based safety program that measures the performance and commitment of employees and subcontractors. The program is directed by full-time Safety Director Martin Rodriguez Sr., who joined NOVO in 2008. With 20 years experience, Rodriguez is a certified construction health and safety technologist, a certified occupational health and safety technologist and a qualified OSHA trainer.

“Ron provided us with incredibly valuable information about creating a safety-oriented culture,” said Williamson, Principal-in-Charge of Operations at NOVO. “We took it to heart and put in place a serious safety program that really works.” With one of the lowest mod rates of all Bay Area contractors, NOVO proves that being proactive about safety can indeed pay off.

NOVO’s safety PrOgram CheCklist:

3 Quarterly/Annual Safety Meetings with Principals, Project Executives and Superintendents

• Review of statistics, claims and any issues to be taken on.

RESulTS of An EffECTIvE SAfETy PRogRAM An example of mod rate savings:

3 Monthly Management Meetings

High mod rate =1.4

• Each month all superintendents receive mandated regulatory training.

which means a company pays $140,000 for $100,000 of Workers Compensation Insurance

• Review of project issues, incidents, root causes and corrective measures implemented to prevent reoccurrence.

Low mod rate = .6

3 Safety Training

which means a company pays $60,000 for $100,000 of Workers Compensation Insurance

• NOVO superintendents are OSHA 10-hour trained and qualified.

3 Project Safety Audits & Inspections

SAVINGS DUE TO LOW MOD RATE = $80,000

• Superintendents perform safety and quality inspections twice every day. They document and track findings.

3 Safety Reporting of Subcontractors • NOVO tracks subcontractors’ lagging indicators to identify trends such as types of injuries and types of work where accidents occur.

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> NOVO has one of the lowest mod rates in the Bay Area at .59.

3 Safety Surveys by Executive Management • Evaluate project status and schedule to anticipate actual and potential safety concerns.

• Create hazard analysis and pre-task plans that detail equipment, resources, hazards associated with work to be performed, hazard-control methods and safety precautions.

3 Hiring Experienced Superintendents • NOVO only hires superintendents with extensive safety training and experience.

>>

tipS for SeleCting >> Safe ContraCtorS

MOD RATES

3 Collaboration about Safety • Superintendents brainstorm and formulate strategies together. They share knowledge about resources to employ in situations of complexity.

80 70 60 50 40 30 20 10 0

83 73

408.973.9500 (Main)

68

65

64

59

2005 2006 2007 2008 2009 2010

NOVO has achieved lower and lower mod rates each year as a direct result of their safety practices.

• look up your contractor’s mod rate at:

novoconstruction.com/modrate • Verify your contractor has a mod rate of less than .8 • Ask your contractor about safety practices.

C

Ronald G. Speno 408.858.0900 (Cell) ron_speno@ajg.com

CASE STUDY: NOVO CONSTRUCTION

Mr. Speno was introduced to Jim Fowler, Robert Williamson and Arne Ericson, Principals of the Bay Area’s NOVO Construction, just before NOVO was founded in 2000. “They were hungry for knowledge and eagerly embraced safety as a strategic way to differentiate their company,” said Speno.

O

N

S

T

R

U

C

T

I

O

N

www.novoconstruction.com 415.576.1800 650.701.1500

FINANCE 2010

Office Availability

Includes sublease space and space not yet vacant but available for lease

Silicon Valley, though experiencing a tough third quarter, has seen occupancy increase by nearly a million square feet in the first nine months of the year. Palo Alto, ever the bellwether of better days for the South Bay and Peninsula, is again finding its legs and sprinting toward a strong 2010 finish. Downtown Palo Alto and its increasingly robust cousin, downtown Mountain View, are benefitting from proximity to Caltrain, said Rick Knauf, Colliers International’s managing partner on the Peninsula. Tellingly, both downtowns are “hot spots” in otherwise weaker submarkets, he says.

Silicon Valley 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010

Net Rentable Area: 62.8 million square feet as of 3Q2010

Palo Alto 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010

Net Rentable Area: 9.3 million square feet as of 3Q2010

40% 35% 30% 25% 20% 15% 10% 5% 0%

3Q2009

4Q2009

1Q2010

2Q2010

3Q2010

Net Rentable Area: 43.4 million square feet as of 3Q2010

Source: CB Richard Ellis

20 theregistrysf.com

While Silicon Valley is characterized by its research and development space and San Francisco by its offices, the Peninsula’s bread-andbutter is its 40 million square feet of industrial space. Occupancy is driven by a central Bay Area location and proximity to the San Francisco International Airport. The airport has weathered the recession well (better than both San Jose and Oakland), and public investment promises continuing good days ahead. SFO is pursuing $383 million in capital improvements at its existing Terminal 2, and airline industry newcomer Virgin America has made the terminal its new home base.

Over the last two years, Peninsula industrial vacancy has risen by about 5 percentage points. But it remains at 11.1 percent, high by historic standards, but “not bad,” all and all, Knauf said. Meanwhile, office vacancy in the Peninsula’s 33.5 million square-foot market fell to 17.7 percent last quarter from nearly 20 percent at its peak in July 2009, he said. That is especially impressive given the generally anemic employment growth and middling vigor of the U.S. economic expansion. Office vacancy might have fallen even faster but for some tenant caution before the November election, he said.

Knauf says the Peninsula still faces some reckoning: “There was a lot of buying and selling in 2006 and 2007, and people in hindsight paid too much. But there has not been a lot of foreclosure activity, as banks and lending institutions are holding off and looking for alternative solutions.”

Peninsula

45%

Pain Lingers But Pressure On Bay Area Landlords Abates

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Office vacancy nationally is just shy of 18 percent, according to Grubb & Ellis’ office market outlook for the third quarter. That is better than the Bay Area’s weakest submarkets up and down the East Bay but not nearly as good as many pockets in the City, in San Mateo County and in north Silicon Valley. Nationally, the vacancy rate has not moved appreciably this year, Grubb says.

$

The Financial Accounting Standards Board acknowledges that large banks with large numbers of financial assets at amortized cost, such as commercial real estate loans, would be greatlyimpacted, while non-bank entities would experience limited changes to their financial statements.

Proposed

Accounting Rules May Promote Credit Freeze Commercial real estate loans are in the crosshairs of change.

By Paul Petersen, CPA

T

he commercial real estate credit markets’ slow thaw may be frozen in place by proposed new accounting regulations.

New fair-value, or mark-to-market, rules seek to create more timely recognition of problems with financial instruments. But they may have the unintended consequence of making banks less inclined to extend the longer-term, fixed-rate loans that are the backbone of the commercial real estate market.

The Financial Accounting Standards Board proposed a new accounting standard in May and, as this article went to press, the public comment period was ending. Proponents argue that the new rules would result in more timely recognition of problems with financial instruments. Opponents doubt the relevance of fair-value accounting to commercial banking and say that it introduces complexity where it is unnecessary and undesirable. All entities with financial instruments would be affected by the proposed rule changes.

The recent economic crisis and slow recovery indicated to FASB that the threshold for a company to report credit impairments is too high. This results in delayed accounting recognition of losses to investors and regulators. According to FASB, the “objective of a final new accounting standard (for financial instruments) is to provide financial statement users a more timely, transparent and representative depiction of an entity’s exposure to risk... .”

The new rules would require the presentation of loans held for collection at amortized cost and at fair value, or what a loan would fetch in the open market. FASB acknowledges that large banks with large numbers of financial assets at amortized cost, such as commercial real estate loans, would be greatly impacted, while nonbank entities would experience limited changes to

their financial statements. Currently, these loans are carried at amortized cost and written down to fair-value only when it is “probable” that all amounts due will not be collected in accordance with contractual terms.

FASB anticipates multiple improvements would result from the new standards including a better presentation of asset and liability management at financial institutions, more timely release of what a given loan might command in the marketplace and more timely release of credit losses to financial statement users.

The American Bankers Association registered immediate displeasure and numerous problems with the proposed fair-value accounting model. Any long-term loan with a fixed interest rate would be subject to fair-value adjustments whenever market interest rates change. Thus, public companies would be required to make quarterly adjustments and private companies would be forced to make annual adjustments in their financial statements to reflect these changes.

Among the bankers’ multiple complaints about the proposed rules, chief among them is that fair-value accounting is not relevant to the commercial banking business model. Banks believe that amortized cost is the best methodology for accounting for loans that are not to be sold and instead are held for the collection of principal and interest payments until maturity. Logically, bankers and accountants are asking about the relevance of the numerous fair-value adjustments that would be required over the years because the majority of loan principal is paid in full at the end of the term.

Bankers also contend that fair-value accounting would undermine the reliability of bank capital levels as capital levels would fluctuate more with the accounting changes. Fair-value accounting also

would impose significant costs on banks with little benefit to recipients of the information, they say.

The Financial Reporting Executive Committee of the American Institute of Certified Public Accountants also has concerns regarding the proposed fair-value accounting model. FinREC “believes that the nature of a financial instrument, along with its established use in an entity’s business model, should impact the determination of whether that instrument should be measured and recorded on the balance sheet at fair value.”

Bankers are concerned that the proposed accounting would undermine the availability of credit. To understand, assume a bank lends $100 million at a fixed interest rate of 10 percent with interest payments due monthly but principal due in a lump sum at the end of five years. The loan is recorded at its amortized cost of $100 million.

If market interest rates increase, the bank would need to record a fair-value adjustment based on an estimate of what the loan could be sold for, even though the bank has no intention of selling.

Assume the bank estimates that the loan could only be sold for $95 million. The bank would need to record a fair-value decline of $5 million in its assets and a reduction to its equity and comprehensive income.

Each quarter, the bank would need to re-estimate the fair value of the loan and make adjustments to the asset and its equity and comprehensive income. Assuming the borrower continues to make interest payments and pays off the principal at the end of five years, the fair-value adjustment ultimately would be reduced to $0. All the fairvalue accounting adjustments would be reversed over the life of a performing loan, but the bank would incur the costs of making these estimates and increased volatility in its equity.

continued on page 33

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theregistrysf.com 21

GOVERNMENT

The Influence of Prop 23 Forget climate change. For commercial real estate, the most immediate concern is jobs.

By Doug Caldwell

A

t the end of the day, in real estate all that really matters are jobs. More jobs mean demand for housing, offices, retail goods and shop space. Fewer jobs mean falling home values, emptier office buildings and falling retail rents.

In November, California voters will have before them Proposition 23, which would suspend the state’s landmark Global Warming Solutions Act of 2006 until the unemployment rate drops to 5.5 percent for a year. Proponents of controlling carbondioxide and other so-called greenhouse-gas emissions, who oppose Prop. 23, frame the issue around Armageddon: In the balance is no less than the fate of the planet. But also at issue in the debate is something far more mundane: jobs. At a time when the state’s unemployment rate is in the double-digits and economic growth is weak, job creation and destruction are compelling indeed. While opinions and postures are plentiful, however, great clarity is not.

Proponents of the state’s Global Warming law say it would create millions of jobs in green and clean technology. Opponents of the Global Warming Solutions Act say it would kill a million California jobs as companies delay hiring to pay higher energy costs and buy new equipment to comply with the reduced emissions standards.

According to the California Legislative Analyst’s Office, which provides nonpartisan fiscal and policy advice to the state Legislature, in the near term the law is likely to kill jobs. But in the longer term, according to the LAO, its “net effect on jobs ... is unknown and will depend on a variety of factors.” Either way, given the size of the state’s economy and workforce, both the short-term and long-term effects on jobs is probably “modest,”

the LAO finds in a March 4 report. Conversely, the California Air Resources Board, which has prepared a plan to implement the emissions reductions outlined in AB 32, finds that California’s economy will grow at the same pace—2.4 percent a year from 2006 to 2020—with or without the law in place. But with AB 32, fuel costs decline nearly 5 percent and greenhouse-gas emissions fall 15 percent. The LAO and Air Resources Board do agree that there would be clear industrial winners and losers, with job losses among those dependent on fossil-fuels production and job gains of like magnitude in the clean energy sector.

Disagreement rules again, however, when it comes to how many green-tech jobs have already been created. The governor’s office asserts that green-tech jobs in California have grown 10 times faster than the statewide average since 2005. It says there are more than 10,000 clean energy companies in the state today, the most of any in the nation. But a study published in February by the Center for Labor Research and Education at the University of California, Berkeley, puts the number considerably lower: “The most comprehensive California-wide study estimates that there are currently about 3,000 green businesses in the state, accounting for about 44,000 jobs,” says the study by Carol Zabin and Andrea Buffa. Others say as many as 40 percent of all of clean-tech venture capital last year went to California, where there are perhaps 12,000 companies with more than 500,000 employees involved in some aspects of the green industry. By way of comparison, there are approximately 16 million jobs statewide today.

There is no doubt about who is being depicted as the evildoers in the debate: Texas oilmen. “Texas oil interests that have descended upon California to overturn a California environmental law and then—as soon as they’ve done their dirty work thanks to millions of dollars of scare-tactic advertising—they intend, in the words of their spokesman, ‘to fold up our tents and go home,’” Gov. Arnold Schwarzenegger said in remarks delivered in late September to the Commonwealth Club.

Prop 23 is funded in large part by Texas-based oil refiners and other oil industry companies. The two largest contributors are Valero Services Inc., a unit of Valero Energy Corp. of San Antonio, which operates a refinery in Benicia in the East Bay as well as one in Wilmington in Southern California, and Tesoro Cos., a unit of Tesoro Corp., which has refineries in Martinez and Wilmington. Valero has pumped more than $3 million into the campaign as of Sept. 2, according to the office of Secretary of State Debra Bowen. Tesoro has contributed $1.5 million.

But oil companies are not the only ones throwing big money at the election. Another writer of big checks is the Missouribased Adam Smith Foundation, which had given $498,000 as of Aug. 2 to support Prop. 23 and knock down the greenhouse-gas law. The foundation calls the law “irresponsible” and says, “Un-

Global Warming Solutions Act of 2006 is likely to kill jobs. But in the longer term, its net effect on jobs is unknown.

fortunately for the rest of the nation, these poorly-designed and heavy-handed regulations often work their way east and become the law of the land within a few short years.”

While there is one official campaign committee in favor of Prop 23, there are eleven against it. Most report individual contributions under $10,000. But there have been more than a few large contributions as well. Palo Alto philanthropist Wendy Schmidt has turned over $500,000; Robert J. Fisher of San Francisco, $500,000; Environment California, $100,000; the Alliance for Local Leaders for Education, Registration and Turnout in Los Angeles, $150,000; an organization called Scope State Alliance of Los Angeles, $300,000; Green Tech Action Fund, $500,000; a committee of the Natural Resources Defense Council, $900,000; and the California Teachers Association political action committee, $200,000.

There seems little doubt as to where much of Silicon Valley’s business leadership stands on the issue. “Far from being a burden, the 2006 global warming act is an opportunity to protect our environment while strengthening our economy and creating jobs,” Carl Guardino, president and chief executive officer of the Silicon Valley Leadership Group, wrote in a July op-ed in the San Francisco Chronicle. “These are ambitious goals—yet achievable with the right policies.”

Also weighing in on the debate is George P. Schultz, secretary of state under President Ronald Reagan and a distinguished fellow at Stanford’s Hoover Institution. “Make no mistake: Proposition 23 seeks to derail our future through a process of indefinite postponement of our state’s clean energy and clean air standards. A future for California based on clean-power technologies is both an economic and environmental necessity,” Schultz wrote in an op-ed piece published in the Sacramento Bee. “Those who wish to repeal our state’s clean energy laws through postponement to some fictitious future are running up the white flag of surrender

to a polluted environment. We do not need this defeatist initiative with its sense of pessimism and its can’t-do attitude.”

The governor says for entrepreneurs, November’s vote could well direct where they will try to grow their businesses. California companies hold 40 percent of the nation’s new patents in solar and wind technology but, citing Silicon Valley venture capitalist Vinod Khosla, the governor says Prop 23 would kill their markets.

The vote’s outcome, of course, does have implications above and beyond jobs. It will send a clear signal to the rest of the nation and the world about how a typically activist public perceives the issue of global climate change. Dan Geiger, executive director of the Northern California Chapter of the U.S. Green Building Council, says Prop. 23, if passed, is tantamount to repeal of the state’s climate-change law and would rob the state of its “leadership role in the development of clean- and green-tech innovation, technology and green building.”

The Air Resources Board sounds a similar theme. While noting that California alone can’t change the course of climate change, it says, “[Our] leadership has played and continues to play a critical role in moving federal and international climate policy forward.”

If California loses that leading position now, it would undermine the entire country’s ability to compete in the renewable energy space over the long-term, says Barry Hooper, head of the San Francisco Department of the Environment’s Private Sector Green Building Program. And that, ultimately, links back to jobs, he believes. “In the long term, we will go to renewable energy one way or the other,” Hooper says. “Do we plan for it and make that transition positive and capture those benefits for economic growth in California and in the United State, or do we wait for Japan and China and Germany to figure it out for us and to sell us back the tools to develop our own renewable resources?” n

Bay Area: Food Central Grocers are pushing into the region in startling numbers, drawn by cheap rents and available big spaces.

By Sasha Vasilyuk

T

he Bay Area is well-known as foodie central, but its expensive real estate has kept low-margin grocers from expanding as much as they would like. Now, plummeting rents, rising vacancy and grocers’ financial health are combining to allow them to penetrate the chow-obsessed regional market further.

Conditions are tempting both newcomers and regional stalwarts, including Safeway Inc., Trader Joe’s Market and even Target Corp., which is pushing into groceries as never before. Ethnic stores like Mi Pueblo Food Center and 99 Ranch Market have been moving on the opportunity for at least a year. Now, the trend is spreading to other food sellers including several that have tried for years to get in. “The Bay Area has historically been such a high-priced real estate market that it has kept bargain-oriented merchants out,” said Bob Reynolds, principal analyst with Moraga-based retail consultant Reynolds Economics. “But now operators are thinking this is their chance to gain a foothold in this attractive market.”

Target will include groceries when it takes over former Gottschalks space in Capitola, according to city officials. A new Target store in Dublin is expected to include a grocery component, while an existing Dublin Target has recently been upgraded to include grocery offerings. In February, Target secured a building permit to remodel 7,000 square feet at its San Mateo store on Mariners Island Boulevard for groceries and an optical area.

Arizona-based Sprouts Farmers Market opened its first Northern California store in Sunnyvale this summer in a former Circuit City location and has committed to take 32,000 square feet at a former Circuit City in Dublin. Southern California-based Henry’s Farmers Market is opening a store in Walnut Creek, after opening its first Northern California outlet in February outside of Sacramento.

Both Sprouts and Henry’s have been considering the Bay Area for five years, said Andrew Reeder, a principal at San Francisco retail brokerage Trade Commercial Group.

Pleasanton-based Safeway Inc., already one of the country’s largest grocery sellers, is building new stores in Sunnyvale and Pleasanton. The company also is reconstructing an existing store in downtown Burlingame, seeking approval for another reconstruction and expansion in downtown Los Altos and is renovating older stores throughout the region. Last year, the company opened

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a small format concept store in downtown San Jose to cater to busy professionals. It features an extensive selection of prepared foods.

Meanwhile, regional powerhouse Trader Joe’s Market opened a San Mateo store in late 2009 at the Hillsdale Shopping Center.

It also recently built a store in downtown Berkeley and is opening a new store in San Francisco’s Castro district in the next several months. Whole Foods is opening a 26,000 square-foot store on Ocean Avenue in San Francisco and starting work on a store in Lafayette. Fresh & Easy Neighborhood Market, a unit of U.K.-based Tesco PLC, recently announced that it plans to open 11 stores stretching from Napa to San Jose next year.

At the same time, according to several brokers, Wal-Mart Stores, already the largest food retailer in the country, has issued a requirement for as many as 15 locations in Northern California for standalone grocery stores of about 40,000 square feet each.

Wal-Mart declined comment but the store size is consistent with the company’s relatively new concept stores called Neighborhood Markets, which average 42,000 square feet and offer a fullline supermarket with limited other merchandise. The store size is dwarfed by the company’s “discount store” and “supercenter” formats, both of which typically exceed 100,000 square feet. (Supercenters approach an average of 200,000 square feet, according to the company.)

“It is one of the only sectors in retail that still has profitability,” said Jon Stansbury, a partner with Terranomics, the retail division of Cassidy Turley/BT Commercial in the Bay Area. “The only other competitors for these same, second-generation spaces are the Big Lots, the 99c Only Stores, the Dollar Trees.”

In the last 18 months, rents for big-box space have fallen as much as 30 percent from their peaks, he said. Some deals he has seen mirror prices achieved more than 20 years ago with lease rates at a $1 a square foot a month or less. Rents are stabilizing, even though some spaces are still trickling to market, he said. A full-line grocery store performing reasonably well, in comparison, yields weekly sales of $10 a square foot to $17, Reynolds said.

“[Grocers are] one of the only sectors in retail that still has profitability,” said Jon Stansbury, a partner with Terranomics, the retail division of Cassidy Turley/ BT Commercial in the Bay Area.

I mages : Ta r ge t C o u r t esy o f target ; T r a d e r J o e ’ s C o u r t esy o f Heat h er B osanac ; F r esh n ’ E asy C o u r t esy o f F res h & E as y N e i g h bor h ood M arket

RETAIL

Even as American retailers overall have struggled to increase sales, food expenditures both in grocery stores and away from home have continued to rise. According to the U.S. Department of Agriculture, in 2009, Americans spent more than $605 billion at grocery stores and other retail outlets on food to eat at home. That was up nearly $10 billion from 2008. Indeed, at-home food expenditures have fallen only rarely since the USDA began tracking the data in 1929 when they totaled $16.9 billion.

With its generally prosperous households (the U.S.D.A. says people with higher incomes spend more money on food) and dense population, the Bay Area clearly represents a rich target.

Based on a rough rule of thumb that American households spend about $100 a week on groceries and an estimated 566,000 households in Santa Clara County alone, grocery sales annually approach $3 billion in that Bay Area county.

For Target, selling groceries is a mechanism to increase the sale of other non-grocery items and to generate more traffic overall, Reynolds said. “If they build a cadre of shoppers who come to Target for groceries, they will rarely leave without buying something outside the grocery aisles. So you stimulate sales of kids’ socks when someone comes in for a can of tomatoes.” In addition, he said, profit for retailers is not just a function of margins, it is a function of merchandise turnover. Target has probably determined it is more profitable to sell groceries, which typically turn many times, than it is to sell other kinds of merchandise that may have higher margins but turn less.

Target did not respond to requests for information by press time.

Two years ago, Fresh & Easy made a big splash about opening several stores, only to quietly put plans on hold for the duration of the recession. Now, it is the recession itself that is creating unique opportunities to expand. In addition to empty box stores, consumers’ focus on price is driving competition and welcoming pricefocused retailers, says Reynolds. Shopping center owners are also eager to cooperate as supermarkets are a desirable tenant that can significantly increase foot traffic for all the tenants in the center.

“This economy is showing which retailers can survive in a recession,” said Reeder. “Grocers as a whole are doing well, and it

Left page to right: Hillsdale Trader Joe’s that recently opened.

Target’s newly expanded grocery section.

Interior shot of Fresh & Easy market.

gives confidence to investors. They can sleep at night knowing that the likelihood of that grocer not being able to pay rent is unlikely.”

One of the survival strategies is opening stores with a smaller square footage. Existing boxes left empty by the likes of Albertsons and Circuit City can be twice the size of what new smaller grocery chains look for. Fresh & Easy will split the old Albertsons with CVS in San Francisco’s Richmond, while in Danville they will share space with Walgreens. The Dublin Circuit City is being shared by Sprouts and JoAnn Fabrics.

“We’ve been aggressively expanding in Southern California and Phoenix, so this is the next natural step for us,” said Fresh & Easy spokesperson Brendan Wonnacott. “And we’re continuing to look for new sites in the Bay Area and Northern California.”

While it’s still unclear how much is too much in the quickly growing grocery market, residents of many a city are welcoming convenient new places to take their shopping lists. In north Sunnyvale, an area that has been converted from industrial to residential, the new housing developments were left without any shopping opportunities. “Groceries have been a real priority for us in North Sunnyvale for some time now—we’ve identified that as a real need,” said city spokesperson John Pilger.

As for the rest of the Bay Area, one thing is clear—food-obsessed shoppers are in for a wide and new medley of options. “I haven’t seen this much new store activity in a long long time,” Reynolds said. n

retail

Lords of the Pipeline The worst is over and recovery begins.

By John McNellis

Shifting to the view from 30,000 feet, this ICSC left one concluding that the bad news—at least for Northern California necessity retail— is over. The industry is solidly floored.

26 theregistrysf.com

A

t last. September’s ICSC Western States Conference in San Diego was more upbeat than beat-up; it had more site plans than job seekers. In fact, your correspondent—in yet another unreliable, anecdotal survey—encountered only two truly unemployed.

What he did see again and again was the shadow of a distant retail overlord trembling with fear, an allseeing Sauron who has at last turned his penetrating gaze inward into his personal Mordor and glared down his new-deal pipeline and seen nothing. Nothing but the abyss. Nothing but his own demise at the hands of an angry board of directors. Suddenly remembering his own career depends on new stores, the aerie-dwelling chief executive has bellowed with rage at his deal Orcs (apologies to my dear friends among this group) to scrape the rust from the great pipeline-sealing valves and wrench them wide open.

Whether exactly that has occurred is not apparent, but it is certain that real estate managers are at last scurrying for product. “I know we passed on that site last year, but submit it again; things have loosened up.”

Or, “Between you and me, my bonus is based on getting stores open. I gotta find some deals.”

Particularly heated is California’s great race for supermarket locations in the hitherto scoffed-at 20,000 square-foot to 30,000 square-foot range. Long viewed as too small to go toe-to-toe with the great flagship markets of 60,000 feet plus (“We had a destroyer; they had an aircraft carrier. Of course we lost.”), this backto-the-future size is suddenly all the rage. In addition to the Whole Foods wannabes—Henry’s, Sunflower Markets, Sprout’s and now Fresh Market—jamming this particular food aisle, Wal-Mart is shopping hard with its new small-store concept.

This may bode well for developers, at least for those who can get their hands on a reasonably priced, second-generation box to renovate. Best to keep the champagne on ice though; these tenants all want single-digit annual rent deals. Yet as every developer knows: One tenant interested in a space equals breadline; two tenants competing for the same space equals second home at the lake.

With the truth-stretching hyperbole required for a good story, it might be said that this year the International Council of Shopping Centers was all about food—the welterweight markets and fast food. As to the latter, everyone in retail has finally figured out that

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the one thing The Endless Bummer didn’t do was cause any of us to lose weight—we’re eating more than ever and, as long as it’s cheap enough, we’re eating out. The QSR’s—quick-serve restaurants—are back, voraciously chasing deals up and down every freeway corridor in NorCal. As for retail investments, the ICSC confirmed what we already knew: It’s a tale of two shopping centers.

Trophy assets (the trophy, by the way, is for paying too much) are back to selling within 25 basis points of their all-time prices. If it went to market at all (a big if ), a well-located neighborhood center with a strong grocery anchor would have dozens of bidders and likely go in the low 6 percent cap range. Same, if not more true, for the larger properties. The guys running opportunity funds are finding more challenges than opportunities, and heavy competition is back in the $20 million and up range. The buyers are paying big. Money may never sleep, but money managers do.

The other tale is about ugly, hard-to-renovate, mostlyempty centers in towns your family has never heard of.

At least some of those are now priced where one can make a decent profit at today’s rents if (another big if ) one can renovate and successfully re-lease the property. Example: a center that’s 70 percent vacant yet priced to yield a 4 percent cash-on-cash return on existing income in a mid-sized, Greater Bay Area town. Given that one can borrow short-term at the same rate—or leave the money in the bank at .01 percent interest—the lease-up risk isn’t that daunting. The huge assumption, of course, is that the location warrants a renovation rather than a bulldozer.

Shifting to the view from 30,000 feet, this ICSC left one concluding that the bad news—at least for Northern California necessity retail—is over. The industry is solidly floored. The retailers who needed to go out of business have done so. The remaining tenants have adjusted to their lowered sales volumes and, if not thriving, are doing well enough, some so well as to be expanding, especially the merchants of food. For developers, the play will be in repositioning empty boxes, neither glamorous nor wildly profitable work, but it will keep the doors open.

One day however, perhaps two years from now, the boxes will all be stacked and put away and the great Saurons of retail will have no alternative but to pay real rent and new ground-up projects will at last return to NorCal, if not Middle Earth. n

Real S C E N E

O F

T H E

S E E N

Right: Geoff Etnire, Hoge Fenton; Elizabeth Quinn, Redwood Systems & Adam Stock, Allen Matkins

Left: Mike Durkee, Allen Matkins

registry’s green event

More than 50 commercial real estate professionals gathered Sept. 21 at the Mandarin Oriental in San Francisco for The Registry’s fall event, “Reining Green.”

The Registry explored the implications for systemic change from the inside out, looking at how companies are adopting green ideals across operations. Sponsors for the event were law firm Allen Matkins Leck Gamble Mallory & Natsis LLP, general contractor DPR Construction Inc., lighting-control company Redwood Systems Inc. and NicholsBooth Architects.

I mages C o u r t esy o f C H A D ZI E M E N D O R F

Above: Panelists left to right: David Jaber, Shorenstein Realty Services; Barbara Russell, Virgin America; Dan Geiger, USGBC-Northern California Chapter; Kevin Powell, General Services Administration; Michael Hirahara, Brocade & Sharon Simonson, The Registry

Below: Jeff Leon, RBL Real Estate; Laurie Schmitt, Allen Matkins & Rick Mallory, Allen Matkins

Left: Cynthia Gee, Douglas Booth & Gary Nichols, NicholsBooth Architects

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theregistrysf.com 27

Just Say No?

By Rob La Eace

I

learned in a sales course I once took that if someone is telling you no, you simply aren’t asking the right question. I appreciated the positive sentiment in this bit of advice because for most folks saying no is much easier than saying yes (please no Paris Hilton jokes).

Election time is always a trusted reminder of this. Have you ever read a ballot initiative that you didn’t fully understand? If so, you probably voted against it, right? It’s how our brain works: Hmmmm, new information…I’m not familiar with this information…I need to make a decision…my answer is NO. The same just-say-no attitude is rampant in the industry today. Agents, buyers and sellers have become very aware of banks’ and other lenders’ rules that are one of the biggest reasons deals are not getting done. In my travels about town, I’ve heard story after sad story from colleagues with deals that have fallen apart—or never even had a chance—mainly because of lending issues. From owner -occupancy ratios to condo reserve fund balances, from delinquency percentages to the inability to document one’s income, loan underwriters are standing fast to some old guidelines and have come up with additional, stringent policies to bolster their conservative lending positions.

To view the battlefield from eye level, I stepped into the trenches with a couple of San Francisco mortgage professionals. Hoping for varying perspectives, I spoke with Revi Chohan, now in her fifth year in the industry with The Bell Group at Wells Fargo; and mortgage broker Rick Sanguinetti, a 24-year broker with Pacific Bay Financial. When I asked what her biggest challenge was, Chohan pointed to the securing of Condo Project Approval for developments that are not currently approved by Fannie Mae or the Federal Housing Administration. With the weighty number of new condominium projects completed over the past few years adding inventory to San Francisco’s older, established buildings that had never gone through the federal approval process before, there has been an industry-wide charge to get buildings approved in order to move units.

Sanguinetti, however, cited the squeaky tight underwriting guidelines and overly conservative appraisal practices as the root of his challenges. As for what’s changed the most since 2008, Sanguinetti told me that it’s the lack of a secondary market in jumbo lending— leading to limited jumbo-financing options—as well as the sparseness of limited documentation loans, which has made it painstakingly difficult for self-employed borrowers to qualify.

“Common sense has been taken out of the equation. The net result is that many qualified borrowers cannot get loans,” he said. As an example, Sanguinetti explained that right now there is no difference in the documentation requirements for a 20 percent loan-tovalue loan and a 95 percent LTV loan.

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Regarding what could be changed to make the process work better, interestingly, Chohan commented that, “More of a team concept between all parties involved would lead to greater success.” I, too, have personally seen lately that once the buyer and seller have agreed on a price, sellers seem to be putting a lot more energy into helping their buyers reach the goal line than they did in years past. Everyone realizes what’s at stake. Truly it takes a village to sell a home these days. I dare not ask what it takes to sell a village.

As my go-to escrow officer recently told me, it’s the refinance business that’s keeping her group going, I asked the two lenders to comment on their experience.

“I’ve always been a 50 percent refi-50 percent purchase guy,” commented Sanguinetti, “but with rates so low, almost anyone who qualifies would benefit from a new loan.” This being the case, about 75 percent of Sanguinetti’s business is refi at this time. Chohan still sees a more even balance between refi and new purchase applicants, and both loan mongers reported that roughly 90 percent of their refinances submitted for underwriting were getting approved. Of course part of why their refis have a high success rate is that these experienced loan agents recognize winning scenarios or conversely counsel the clients not to begin the journey. The reason home-purchase scenarios could have lower success rates is that the home itself may not pass underwriting guidelines even if the buyer does.

Finally, I asked about escrow timelines. Both lenders reported a typical purchase escrow time frame of 30 days, and Chohan is finding her FHA-loan deals are taking 40 days. Remember just a few years back when we were all making those 15-21 day closes happen?

Sigh. Sanguinetti explained that escrows of these time frames are difficult now for several reasons. “Reductions in lender staffing, cumbersome RESPA regulations and appraisal guidelines, and loan files that are much thicker than those of a few years back have all slowed the process.” (RESPA is the federal Real Estate Settlement Procedures Act, which requires certain disclosures to borrowers.)

The frustration with lending can be seen from all sides of the signing table. Sure, homes are still selling, but the system in place is dysfunctional and is hindering our market recovery. Buyers, sellers, lenders, and title and escrow agents are all affected by the policies of lending institutions. And for each “no” the lenders utter, another home may go unsold. Underwriting guidelines are mostly black and white; the buyer and the home either fit the criteria or they don’t. Most things in life aren’t black and white. It’s time to add a human touch and some common sense to lending. Yes. Yes. Yes! n Rob La Eace can be reached at 415.290.7228 or rob@roblaeace.com.

SENT to us

continued from page 6

Grubb & Ellis Co.’s Daniel Cressman, executive vice president, represented Macys.com. Scott Harper of Colliers International represented the property’s owner, Prudential Real Estate.

Special Servicer Names Brokerage to Market Roseville Portfolio Grubb & Ellis has been selected to market for sale a three-asset office and retail portfolio totaling 210,000 square feet in Roseville. The three properties, Stoneview Plaza, Eureka Ridge Plaza and Fairway Commons II, will be sold out of receivership on behalf of JER Special Servicing.

Stoneview Plaza is a three-story Class A office building with 108,000 square feet on 5.5 acres at 3001 Lava Ridge Court in downtown Roseville. The building is approximately 83 percent leased.

Eureka Ridge Plaza is an institutional quality, 37,000 square-foot retail strip center on 4.2 acres. Fairway Commons II is a community retail center with 65,000 square feet on 4.8 acres.

Bay Area Contractor, Partners Win Huge Data Center Project A joint venture that includes Redwood City-based DPR Construction Inc., national builder Balfour Beatty Construction and Big D Construction of Salt Lake City was selected by the U.S. Army Corps of Engineers to provide design-build services for the Utah Data Center at Camp Williams, Utah.

The $1.2 billion project includes 100,000 square feet of data center and 900,000 square feet of technical support and administrative space.

High-Speed Rail Authority to Select First Segment for Construction The Federal Railway Administration has set a January deadline to finalize agreement with the California High Speed Rail Authority on which project segment will receive the initial capital funding of up to $4.7 billion in federal and state construction dollars.

California’s high speed train project was the nation’s largest recipient of federal stimulus funding, $2.25 billion from the $8 billion set aside in the American Recovery and Reinvestment Act. The four sections eligible for the stimulus funding are: Los Angeles to Anaheim, San Francisco to San Jose, Merced to Fresno and Fresno to Bakersfield.

Proposed selection criteria reflect both legal requirements and steps to maximize public benefits while minimizing risks. The legal requirements include meeting a federal deadline of fall 2017 for completing construction and “operational independence”—meaning quantifiable benefits such as improved travel reliability, reduced travel time or more frequent intercity rail service, even if the overall high speed rail system is not completed.

Silicon Valley Airport Earns LEED for New Concourse The Terminal B Concourse at Mineta San Jose International Airport has achieved LEED Silver certification from the U.S. Green Building Council. The 380,000 square-foot, $342 million concourse is part of the airport’s $1.3 billion modernization program, which is now substantially complete.

The construction used nearly 10 percent of total building content manufactured from recycled materials. Approximately 80 percent of the structural steel has recycled content, carpets have 35 percent and ceramic tile 45 percent. Nearly 27,000 tons of construction debris, representing more than 98 percent of job-site waste, was diverted from the landfill through recycling or reuse.

Non-Profit Addresses Foreclosures One House at a Time Habitat for Humanity says it has received commitments of $3 million from local governments, banks, businesses and other non-profits to support its Neighborhood Revitalization Program.

Habitat Greater San Francisco began the program 18 months ago to buy and rehabilitate bank-owned homes. So far 18 homes have been completed, are under renovation or in planning.

Target Buys In Dublin, Pushing Into Groceries; Wal-Mart Too Target Corp. has acquired 10 acres in the new Fallon Gateway mixed-use project in Dublin, the latest Bay Area expansion for the discount store operator.

The effort includes a strong push into grocery sales.

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N OV E M B E R / D E C E M B E R 201 0

The purchase follows Target’s acquisition of 10 acres for a new 138,000 squarefoot San Jose store at North First Street and state Highway 237 earlier this year.

That store is open. It also follows Target’s acquisition of the leasehold interest of the former 118,000 square-foot Expo Design Center building in Oakland from Home Depot. That property is located at 1555 40th St., near San Pablo Avenue.

Target and Wal-Mart Stores Inc. both are pushing hard to open new locations in the Bay Area, leaning toward smaller footprints to accommodate urban settings and including groceries. Helen Bulwik, president of Oakland’s New Market Solutions, a retail consultant, told the Northern California chapter of the Appraisal Institute Oct. 20 that Wal-Mart plans 20 of its smaller groceryconcept stores in the Bay Area, including five in San Francisco and four in Oakland.

All five of Target’s San Jose locations have groceries.

JLL Secures Five-Year Energy-Services Contract Global real estate services firm Jones Lang LaSalle has been awarded a five-year contract to provide energy services to the federal government by the U.S. General Services Administration.

The contract includes energy management planning and strategies, energy program support services, energy audit services and resource efficiency management.

JLL has a long track record of serving the needs of government entities and is a leader in energy advisory. In 2009, Jones Lang documented $100 million in client energy savings, reduced greenhouse gas emissions by 465,000 metric tons and saved 836 million kilowatt hours of electricity.

Town Center Receives Energy Efficiency Recognition The new Yountville Town Center, designed by Siegel & Strain Architects, has received an Award of Honor in the 2010 Savings

By Design Energy Efficiency Integration Awards. The facility was the only project to win the Award of Honor, the highest award in this year’s program. Co-sponsored by the American Institute of Architects, California Council, the annual awards program recognizes professionals whose designs support resource efficiency, environmental responsibility, human productivity and quality of life.

Targeted to achieve a LEED Platinum rating from the U.S. Green Building Council and to achieve energy savings of 44 percent over California’s Title 24, the design integrates a range of green features.

Pleasanton Offices Sold for $91 a Square Foot Lincoln Financial Group has sold Las Positas Office Plaza, a two-building complex with 105,000 square feet in Pleasanton. The property was sold out of foreclosure to Embarcadero Capital Partners for $9.6 million. Grubb & Ellis Co. represented Lincoln.

Built in 1986, Las Positas is located within the master-planned Hacienda Business Park. Amenities include open parks, patios and walkways, 24-hour security, child-care facilities and shuttle service. The office plaza is located in the Interstate 680 corridor, close to BART and Interstate 580.

San Francisco High-Rise Earns LEED Certification One California St., a 32-story Class A office building in downtown San Francisco, has been awarded LEED Gold certification for an existing building by the U.S. Green Building Council.

Completed in 1969 and remodeled in 1995, One California is 484,000 square feet. It sits at the foot of California Street off of Market Street. The property is owned in a partnership between Shorenstein Properties LLC and The State Teachers Retirement System of Ohio.

This is the fourth Bay Area Shorenstein property to receive LEED certification.

The company is currently on track to have three more San Francisco properties LEED certified by the end of the year, including The Russ Building at 235 Montgomery St.

Furniture Maker First at One Kearny Herman Miller leased 9,500 square feet at One Kearny St. in San Francisco. The global furniture maker’s current San Francisco location is 1700 Montgomery St. Herman Miller’s lease marks the first tenant commitment to One Kearny, a 100,000 square foot boutique Class A redevelopment that fuses two historic, renovated and revitalized landmarks with a new 50,000 square-foot building.

Delivered in the first quarter of 2010, the project is the only new building that has been added to the San Francisco office market in the past six months.

Jim Sobel and Michael DeMaria of Colliers International in San Francisco represented One Kearny Street ownership. Scott Nykodym of CBRE represented Herman Miller.

WiredRE to Lease 274 Brannan The Wired Real Estate Group has been retained by The Swig Co. to market its flagship carrier hotel, Fiber Depot, at 274 Brannan St. in San Francisco, for lease and immediate occupancy. Fiber Depot, a roughly 105,000 square-foot property at 274 Brannan St. in the SOMA neighborhood of San Francisco, is a point of presence for numerous carriers including Level 3, Verizon, AT&T and Qwest.

Lighting Company Gets $15 Million in Venture Funding Fremont-based commercial lighting company Redwood Systems Inc. has secured $15 million in Series B venture capital to enhance its commercial-lighting technology, establish sales channels and expand into international markets.

Index Ventures, which has offices in Geneva and London, led the investment round, and existing funders Battery Ventures and U.S. Venture Partners reaffirmed their commitment to Redwood through their participation. Neil Rimer, co-founder and partner of Index Ventures, will join Redwood’s board of directors.

Boy Scouts Real Estate 100 Inaugural Mixer More than 100 executives from San Francisco’s top real estate firms turned out to support the new Northern California Boy Scouts Real Estate 100. More than 90 of the attendees at the networking event, held in the Poetry Garden at 199 Fremont St., agreed to become organization founders.

BSRE 100 works to send inner-city youth to camps in the country to learn leadership and nature skills.

The Registry is a founding member and media sponsor for the group. n

PEOPLE on the move continued from page 7 Contractor Hires Business Development Head Turner Construction Co.’s Silicon Valley office has retained Aimee Hallgrimson (left) to lead its business development efforts for its interiors and special-projects division.

Projects managed by Turner’s special-projects division typically range in value from $100,000 up to $10 million and include corporate interiors, data centers, clean rooms, law firms, banks, financial services, health care, seismic renovation, tenant improvements, public and civic work, green construction and higher education.

San Francisco Housing Broker Hires New CFO Pacific Union International named Michael Rogers its new chief financial officer. Rogers will be responsible for the company’s accounting, finance, treasury, taxation and human resource functions. He brings 28 years‘ experience as a chief financial officer and controller across a variety of service, industrial and manufacturing companies.

Cassidy Turley Welcomes New Partners; Promotes Two to Managing Vice President; Expands Research Sharon Carmichael, Rhonda Diaz Caldewey and Nahz Anvary have all been promoted to partner at Terranomics, the retail division of brokerage Cassidy Turley BT Commercial.

Marc Ward (far left) and Michael Raffetto (second from left) have respectively re-joined and joined the firm’s Oakland office as partners. Whitney Strotz (second from right), vice president and partner, based in the firm’s San Rafael office, and Jeff Negri (right), vice president, based in the firm’s Santa Rosa office, have expanded their roles within the firm to be managing vice presidents.

Garrick Brown has been named Northern California research director as well as retail research director with the firm’s retail division, Terranomics. His primary role will be to expand the focus of the firm’s overall research efforts in econometric forecasting and to enhance its retail research within Terranomics.

Nonprofit for Homeless Adds Real Estate Executive to Board Community Housing Partnership, a nonprofit organization that provides housing, support services and economic opportunities for the homeless, has appointed Steve Bowdry (left) to its board of directors. Bowdry is a leader with more than 20 years experience in commercial real estate. He previously served on the organization’s fundraising committee.

Bowdry’s professional work has focused on Class A properties, and his experience spans work from AMB Property Corp., Jones Lang LaSalle and Prometheus Real Estate Group. He currently offers financial management services for real estate through his company Bowdry Properties. n

11Calendar

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

1

ULI San Francisco will host an event called Staying in the Game with Michael A. Covarrubias. Visit www.ulisf.org for more information.

ULI San Francisco will host an event called A Barrier to Development? BAAQMD Guidelines and SB 375 from 4 p.m. – 5:30 p.m. at the Offices of the Bar Association of San Francisco, 301 Battery St., 3rd Floor, San Francisco. Visit www.ulisf.org for more information.

1-5

CCIM Northern California Chapter will host a Financial Analysis course at Grosvenor Best Western, 380 So. Airport Blvd., So. San Francisco. Visit chapters.ccim.com/northerncalifornia for more information.

2

CREW Silicon Valley will host a monthly program and luncheon called Going for Broke – What To Do When Your Tenant or Landlord Files for Bankruptcy starting at 11:30 a.m. at The Silicon Valley Capital Club, Knight Ridder Building, 50 W. San Fernando, Ste. 1700, San Jose. Members $50 and non-members $80.

Strict dress code; no jeans please. Visit www.crewsv.org for more information.

3

BOMA San Francisco will host un-Oktoberfest from 5 p.m. – 8 p.m. at Schroeder’s Restaurant, 240 Front St., San Francisco. This is a members-only event and the cost is $45 per person. Visit www.bomasf.org for more information.

USGBC Northern California Chapter will host a class called LEED for Neighborhood Development: The Delaware Addition from 5:30 p.m. – 8 p.m. at Moss Landing Chamber of Commerce, 8071 Moss Landing Rd., Moss Landing. Members $10 and non-members $15.

For more information, contact Jenny Shelton at jenny@sheltondesign.com.

4

ULI Young Leaders Group will host Learn from the Best IX: Surviving and Thriving in Turbulent Times from 5:30 p.m. – 8 p.m. at 1 Market, Spear Tower, 42nd Floor, San Francisco.

Visit www.ulisf.org for more information.

USGBC Northern California Chapter will host a Sacramento Branch Town Hall and Meet the Candidates Night from 5:30 p.m. – 7:30 p.m. at Sacramento Public Library, North Natomas Branch, 4660 Via Ingoglia, Sacramento. This is a free event and a RSVP is required. For more information, contact Shelly Dildey at mcdildey@gmail.com.

IIDA Northern California Chapter will host a Sacramento City Center: Tour of Robbie Waters Pocket Greenhaven Library from 6 p.m. – 8 p.m. at Robbie Waters Pocket-Greenhaven Library, 7335 Gloria Dr., Sacramento. Members $10 and non-members $15. Visit www.iida-nc.org for more information.

5

IFMA Silicon Valley will host a FMP Class: Leadership and Management from 8 a.m. – 5 p.m. at SAP, 3475 Deer Creek Rd., Bldg.

7, Palo Alto. Members $300 and non-members $400. Visit www.ifmasv.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 Bently Reserve, 301 Battery St., San Francisco. For more information, contact info@usgbc-ncc.org.

Appraisal Institute Northern California Chapter will host a Vineyard Valuation Seminar at Bernardus Lodge and Winery, Carmel Valley.

Visit www.norcal-ai.org for more information.

6

Appraisal Institute Northern California Chapter will host an Easement Valuation Course at University of Phoenix, San Jose.

For more information, call 310.538.0233 ext. 138.

from 9 a.m. – 3 p.m. at PG&E, 851 Howard St., San Francisco. Registration is $75 per person. For more information, contact info@usgbc-ncc.org.

CREW East Bay will host a brown bag luncheon.

Visit www.eastbaycrew.org for more information.

13

IIDA Northern California Chapter will host Honolulu City Center: Rock ‘n’ Bowl 2010 starting at 5 p.m. at Strike Zone at Fort Shafter. The cost is $50 per bowler or $250 per lane. Visit www.iida-nc.org for more information.

16

BOMA Silicon Valley will host a Tapping into Sustainability Incentives workshop at BOMA SV Office, 63 Metro Dr., San Jose. Visit www.boma-sv.org for more information.

NAIOP San Francisco Bay Area Chapter will host the 2nd Annual Lunch with an Icon – Ned Spieker from 11:30 a.m. – 1:30 p.m. at Four Seasons, Palo Alto. Visit www.naiopsfba.org for more information.

17

CREW San Francisco will host a Membership Madness starting at 5:30 p.m. Contact Amber Brumfiel at amber@rye@sdma.com or 415.781.7900 with questions.

IIDA Northern California Chapter will host a 2010 Fall Student Portfolio Workshop from 10 a.m. – 2:30 p.m. at Huntsman Architectural Group, 50 California St., San Francisco. Members $0 and non-members $20. Visit www.iida-nc.org for more information.

BOMA San Francisco will host BOMA Gran Prix from 3:30 p.m. – 6:30 p.m. at GoKart Racer, 1541 Adrian Rd., Burlingame. Visit www.bomasf.org for more information.

9

BOMA San Francisco will host the Best of BEEP from 8:30 a.m. – 12:30 p.m. at PG&E, 851 Howard St., San Francisco. This is a free event and open to all. Visit www.bomasf.org for more information.

USGBC Northern California Chapter will host a Speed Networking and Green Business Mixer from 5:30 p.m. – 8 p.m. at LinkedIn, 2025 Stierlin Ct., 2nd floor, Mountain View. Members $15 and non-members $30. For more information, contact Judith Sayler at jsayler@gordonprill.com.

USGBC Northern California Chapter will host a Sac Emerging Professionals Happy Hour and Building Tour from 5 p.m. – 7 p.m. at The Citizen Hotel, Grange Restaurant, 926 J St., Sacramento.

Members $0 and non-members $5. For more information, contact Katy Koehler at katy@ersgreen.com.

10

USGBC Northern California Chapter will host the Monterey Green Building Expo from 2 p.m. – 7 p.m. at Monterey Conference Center, One Portola Plaza, Monterey.

For more information, contact Todd Norris at todd@buildingwize.net.

ULI San Francisco will host a brownbag luncheon called How to Enhance Your Career within your Organization from 12 p.m. – 1:15 p.m. at CB Richard Ellis, 101 California St., 44th Floor, San Francisco. Visit www.ulisf.org for more information.

Appraisal Institute Northern California Chapter will host an EBBC/IRWA Networking Lunch at Wendel Rosen Conference Center, 1111 Broadway in Oakland. Visit www.norcal-ai.org for more information.

18

Appraisal Institute Northern California Chapter will host a Workshop and Networking Social at Four Points by Sheraton, Pleasanton. Visit www.norcal-ai.org for more information.

BOMA Silicon Valley will host a Commercial Leasing Class from 9 a.m. – 11:30 a.m. at Crowne Plaza San Jose – Downtown, 282 Almaden Blvd., San Jose. Visit www.boma-sv.org for more information.

IFMA Silicon Valley will host a Safety in the Workplace class from 11:30 a.m. – 1 p.m. at NetApp, 1345 Crossman Dr., Bldg. 7, Sunnyvale.

Members $20 and non-members $30. Visit www.ifmasv.org for more information.

BOMA Silicon Valley will host a Membership Luncheon from 11:30 a.m. – 1:30 p.m. at Crowne Plaza San Jose – Downtown, 282 Almaden Blvd., San Jose. Visit www.boma-sv.org for more information.

BOMA San Francisco will host a Member Benefit Review from 11:45 a.m. – 1 p.m. at BOMA Conference Rm., 233 Sansome St., 8th Floor Conference Rm., San Francisco. This free event is open to everyone. Visit www.bomasf.org for more information.

BOMA San Francisco will host a Membership Luncheon from 11:30 a.m. – 1:30 p.m. at The City Club, Main Dining Room, 155 Sansome St., 11th Floor, San Francisco. Members $55 and non-members $70. Visit www.bomasf.org for more information.

BOMA San Francisco will host Networking Mixer on ICE from 5:30 p.m. – 8:30 p.m. at Holiday Ice Center at Embarcadero Center. This is a members-only event and the cost is $20. Visit www.bomasf.org for more information.

CREW San Francisco will host a New Member Luncheon starting at 12 p.m. Visit www.crewsf.org for more information.

BOMA San Francisco will host the Annual Building Codes Seminar – 2010 Codes Update and Overview from 8 a.m. – 12 p.m. at San Francisco State University Downtown Campus, 835 Market St., Room 673/674, San Francisco.

This is a members-only event and the cost is $85 per person. Visit www.bomasf.org for more information.

IFMA Silicon Valley will host a FMP Class: Leadership and Management from 8 a.m. – 5 p.m. at SAP, 3475 Deer Creek Rd., Bldg. 7, Palo Alto.

Members $300 and non-members $400. Visit www.ifmasv.org for more information.

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11 12

BOMA Oakland/East Bay will host the 2010 TOBY Awards. Visit www.bomaoeb.org for more information.

USGBC Northern California Chapter will host a class called Comprehensive Energy Retrofits on Existing Buildings

BICB will host a Year End Banquet starting at 5:30 p.m. at The Palace Hotel, 2 New Montgomery St., San Francisco. Visit www.bicb.us for more information.

CREW East Bay will host a brown bag luncheon on Finance - Capital Markets Receivership. Visit www.eastbaycrew.org for more information.

30

Appraisal Institute Northern California Chapter will host a Fresno-area appraisers event at Fort Washington Country Club, Fresno. Visit www.norcal-ai.org for more information.

Calendar 12

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

29–3

Appraisal Institute Northern California Chapter will host a Valuation of Conservation Easements course at Beach Resort, Monterey. For more information, contact adelfin@appraisalinstitute.org.

30–2

CCIM Northern California Chapter will host an Eight Steps to Syndication – Workshop by Gene Trowbridge from 8 a.m. – 5 p.m. at Hilton Oakland Airport Hotel, Oakland.

Visit chapters.ccim.com/northerncalifornia for more information.

2

BOMA San Francisco will host a class called Precertify Private Post-Earthquake Inspection of Your Building: The Building Occupancy Resumption Program from 12 p.m. – 1 p.m. at the Transamerica Building, San Francisco. This is a free members-only event. Visit www.bomasf.org for more information.

BOMA Silicon Valley will host the Share Your Holiday 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 Bishop Ranch Conference Center, 2623 Camino Ramon, Ste. 175, Sam Ramon. For more information, contact info@usgbc-ncc.org.

6

Appraisal Institute Northern California Chapter will host a Residential Appraisal Update: Staying Competent in the New Decade seminar. Visit www.norcal-ai.org for more information.

7

CREW Silicon Valley will host an Annual Holiday Celebration at The Silicon Valley Capital Club, Knight Ridder Building, 50 W. San Fernando, Ste. 1700, San Jose. Visit www.crewsv.org for more information.

8

CREW San Francisco will host an Annual Business Meeting and Holiday Party starting at 11 a.m. at the City Club, San Francisco.

Visit www.crewsf.org for more information.

BOMA San Francisco will host a Holiday Party from 5 p.m. – 9 p.m. at Julia Morgan Ballroom at The Merchants Exchange Building, 465 California St., San Francisco. Visit www.bomasf.org for more information.

9

BOMA Silicon Valley will host an Emerging Leader’s Committee End of Year Cocktail Party. Visit www.boma-sv.org for more information.

BOMA Oakland/East Bay will host a Holiday Luncheon. Visit www.bomaoeb.org for more information.

USGBC Northern California Chapter will host the Sacramento Branch Holiday Social from 6 p.m. – 9 p.m. at Gonul’s J Street Café, 3839 J St., Sacramento. Members $25 and non-members $40. For more information, contact Jessica Morrow at jessica_morrow@skwaia.com.

10

USGBC Northern California Chapter will host the LEED AP Existing Buildings: Operations and Maintenance Exam Prep workshop from 8:30 a.m. – 5 p.m. at StopWaste. org, 1537 Webster St., Oakland. For more information, contact info@usgbc-ncc.org.

16

CREW East Bay will host a holiday and charity auction luncheon. Visit www.eastbaycrew.org for more information.

Recapitalizing Real Estate

Proposed Accounting Rules May Promote Credit Freeze

Whatever the case, there is broad expectation that deal flow will increase next year, as historically low interest rates and lots of eager equity pique seller interest. Heading into the year’s final quarter, Belmont’s Embarcadero Capital Partners LLC pushed to market a 72,000 square-foot office building, fully leased in tony downtown Palo Alto. The real estate investment and operating company expects to capture as much as $900 a square foot in a sale. San Francisco’s Jay Paul Co. was not far behind, offering its 350,000 square-foot Mary Avenue Office complex in Sunnyvale.

“The availability of equity and debt means more product is being drawn to market,” Eastdill Secured LLC Managing Director Stephen Van Dusen told a packed house at the Seventh Annual Capital Markets forum sponsored by NAIOP San Francisco late in the third quarter. Eastdil is a real estate investment bank and brokerage. “In San Francisco, we are at the stabilization point with the fundamentals. In past cycles there has been healthy recovery from here. We feel pretty good about ourselves in San Francisco relative to other markets.”

Patricia Theophilos, a senior vice president and market manager in US Bank’s commercial real estate division, said lenders are motivated to get troubled assets and loans off of their books. To make money, banks must return to lending, but to return to lending, “We need clean balance sheets,” she said.

But strong banks and weak banks cannot behave the same. Strong banks have more flexibility to work with borrowers and are better positioned to cut their losses on non-performing loans and real estate owned.

Loss-sharing agreements such as the one that US Bank has with the Federal Deposit Insurance Corp. affect how banks can treat certain loans.

US Bank acquired assets from San Francisco-based Pacific National Bank after it was taken into receivership by the FDIC. “It is highly regulated, and you have to have enough substantiation when the FDIC comes in to do an audit, and they do regularly,” Theophilos told NAIOP San Francisco.

Competition for institutional customers among larger, stronger banks against high-quality assets is fierce, she said. “Too many banks are chasing too few deals,” she said. Even non-recourse loans are coming back into vogue. n

The bankers warn that many banks will decide that this accounting change makes it undesirable to issue long-term fixed rate loans. Variablerate loans would be much less susceptible to fair-value fluctuations. But many borrowers prefer the cash-flow certainty of fixed-rate loans. Under the new accounting rules, the borrowers might be forced into variable-rate loans and then need to enter into separate derivative contracts in an attempt to fix their cash flows. Banks would not want to make fixed-rate loans because of fluctuations in fair value (and therefore, fluctuations in capital).

Current changes at FASB make it difficult to predict the future direction of the fair-value accounting proposal. The proposal was championed by Chairman Robert H. Herz, who recently announced his surprise retirement effective Oct. 1. Current acting chair, Leslie Seidman, was a dissenting FASB board member who offered an alternative view to the May proposal. She may now use her current leadership role to move forward with her suggested changes and address some of the banking industry’s concerns.

Additionally, the International Accounting Standards Board is also deliberating financial-instrument accounting rules. These proposed rules are perceived to be less disruptive than the proposed FASB rules. FASB and IASB are committed to converging their accounting standards, so one may adopt the other’s proposed rules or they may compromise somewhere in the middle. What is certain is that current rules will change, and those in commercial real estate best stay tuned. n

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Paul Peterson can be reached at 925.790.2600 or Paul.Peterson@amllp.com.

N OV E M B E R / D E C E M B E R 201 0

theregistrysf.com 33

activity

Reports

commercial leaseS

City

Lease Size Sq. Ft.

Name of Tenant/Rep (Brokerage)

Name of Landlord/Rep (Brokerage)

Notes (ie. Lease type and/ or lease longevity)

48551 Warm Springs BlvdÂ

Fremont

125,550

S&M Moving Systems/Scott Borgia (Cassidy Turley/BT Commercial)

Intercontinental Real Estate Corp./Joe Kelly/ Rob Shannon/Brian Matteoni (CB Richard Ellis)

Warehouse/ Distribution, Renewal

6160 Stoneridge Mall Rd

Pleasanton

41,635

Ericsson Inc/Jones Lang LaSalle Walnut Creek

Awais Mughal, as receiver of Property; MultiLender/Marshall Snover, Loren Honda, CCIM & Ted Helgans (Colliers International Pleasanton)

Class A/Renewal & Expansion

39700 Eureka Dr

Newark

37,131

Socket Communications, Inc.

Cohen Asset Management/Steve Kapp & Michael Spiro (Cornish & Carey Commercial Newmark Knight Frank)

R&D

1345 Doolittle Dr

San Leandro

34,238

Sloat Brothers, Ltd./Cornish & Carey Commercial Newmark Knight Frank

AMB Property Corporation/Greig Lagomarsino & Casey Ricksen (Colliers International Oakland)

Expansion, 57M

Pacific Commons Automall at I-880

Fremont

33,869

Nordstrom Inc.

Catellus/Sandy Berry, Danielle Bromstead, Lindy Spieker & Jim Randolph (Cornish & Carey Commercial Newmark Knight Frank)

Retail

5858 Horton St

Emeryville

25,811

Medeanalytics, Inc./Daniel Pivnick, Chip Wiser & Mark Sweeney (Cornish & Carey Commercial Newmark Knight Frank)

Emery Station LLC

Office

2100 Franklin St

Oakland

25,261

Continuing Education of the Bar/ Cassidy Turley BT Commercial

CIM/Oakland - Center 21/ Ken Meyersieck, Trent Holsman & Scott Greenwood (Colliers International Oakland)

New lease, 127M

2101 Webster St

Oakland

24,214

Kaiser Foundation Health/Jones Lang LaSalle

CIM/Oakland - Center 21 / Ken Meyersieck; Trent Holsman; & Scott Greenwood (Colliers International - Oakland)

New lease, 36M

8652 Thornton Ave

Newark

20,000

Austin Hughes Solutions, Inc./ Chip Sutherland (CB Richard Ellis)

ProLogis/Andrew Stoddard (ProLogis)

Warehouse/Distribution, New Lease

32980 Alvarado Niles Rd

Union City

19,436

Child Family and Community Services, Inc./ Dutra Enterprises, Inc.

Harsch Investment Group/Joe Yamin, Sean Sabarese & Greig Lagomarsino (Colliers International Oakland)

Expansion, 84M

600 Mc Cormick St

San Leandro

18,000

Carrier Corporation/Scott Soares (USI)

Java Properties/Mike Barry (CB Richard Ellis)

Manufacturing, New Lease

25841 Industrial Blvd

Hayward

16,941

Illumina Inc/Cushman & Wakefield Oakland & San Diego

Simeon for New Tower Trust Company/ Dan Bergen (Colliers International Pleasanton)

R&D/Flex. Expansion

3875 Hopyard Rd

Pleasanton

12,281

CROSSMARK Inc/Swearingen Realty Plano, TX

HARSCH Investments/Brian Lagomarsino, Ted Helgans & Gabe Arechaederra (Colliers International Pleasanton)

Class A

6780 Sierra Ct

Dublin

10,272

WHCI Plumbing Supply Company/ John Steinbuch, SIOR (Colliers International Pleasanton)

B&G Enterprises Inc/Lee & Associates Pleasanton

Light Industrial

1575 Treat Blvd

Walnut Creek

29,609

Law Offices of Kenneth R. Graham

Treat Plaza Office/Curtis Berrien & Alex Grell (Cornish & Carey Commercial Newmark Knight Frank)

Office

2633 Camino Ramon

San Ramon

18,000

New York Life/Sabrina Hughes (Cushman & Wakefield)

Sunset Development Company/Bishop Ranch

Office Lease

6111 Bollinger Canyon Rd

San Ramon

10,000

Clear Wireless, LLC/Jeff Weil (Colliers International-Walnut Creek)

Sunset Development Company/Bishop Ranch

Office Lease

123 Townsend/118 King St

San Francisco

21,568

Outcast Communications/Donnette Clarens, Liz Hart, Bill Benton & Mike Brown (Cornish & Carey Commercial Newmark Knight Frank)

Manchester Capital Management/ Donnette Clarens, Liz Hart, Bill Benton & Mike Brown (Cornish & Carey Commercial Newmark Knight Frank)

Office

1 Pier Ave

San Francisco

18,865

Adaptive Path/Luke Ogelsby (CB Richard Ellis)

AMB/Mark McGranahan (Cushman & Wakefield)

Class A Office, New Lease

650 California St

San Francisco

15,130

Recommind/Joe Giordani and Tim Kazul (CB Richard Ellis)

A-650 California Street/Steve Anderson (The CAC Group)

Class A Office, New Lease

665 Third St

San Francisco

8,566

Founders Den, LLC/Liz Hart (Cornish & Carey Commercial Newmark Knight Frank)

655 Third Street Associates

Office

1000 Bridge Pkwy

Redwood City

12,016

Contactual/Conor Deal (CB Richard Ellis)

Oracle America/Peter Carlston (Colliers International Redwood City)

Class A Office, New Lease

1475 Veterans Blvd

Redwood City

10,540

Checks in the Mail/Bob McSweeney (CB Richard Ellis)

Nicolini Trust/Bob McSweeney (CB Richard Ellis)

Warehouse/ Distribution, Renewal

1605 Mabury Rd

San Jose

25,200

Viko Technology/Jim Kovaleski (Cassidy Turley/BT Commercial)

Intercontinental Real Estate/Brian Matteoni/ Joe Kelly/Rob Shannon (CB Richard Ellis)

Class C Manufacturing, Renewal

170 Barnard Ave

San Jose

24,418

Brothers Home Improvements/Unknown (Cassidy Turley/BT Commercial)

Calstrs/Chip Sutherland and Frank Friedrich (CB Richard Ellis)

Warehouse/ Distribution, New Lease

2880 First St

San Jose

24,390

Chipmos USA/Jeff Houston (CB Richard Ellis)

BP North First LLC/Jeff Houston (CB Richard Ellis)

Class B R&D/ Flex, Renewal

Address Alameda County

Contra Costa County

San Francisco County

San Mateo County

Santa Clara County

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commercial Leases Continued Address

City

Lease Size Sq. Ft.

Name of Tenant/Rep (Brokerage)

Name of Landlord/Rep (Brokerage)

Notes (ie. Lease type and/ or lease longevity)

2953 Bunker Hill Ln, Ste 101 & 105

Santa Clara

16,613

Achronix Semiconductor/Eric Rafia (Cathay & Co.)

Bayland Corporation/ Dave Schmidt, Duffy D’Angelo & Liz Zerbini (Colliers International)

Ground Floor Office Lease, Tenant Expansion

3800 Lakeville Hwy

Petaluma

50,304

Hydro Farm, Inc.

Bill & Harry Friedman/Chris Castellucci (Keegan & Coppin Co., Inc.)

Industrial Gross Lease

5195 Redwood Dr

Rohnert Park

45,139

Escape Enterprises, LLC

Tiffany Manor, LP/Tom Laugero (Keegan & Coppin Co., Inc.)

Retail Gross Lease

1010 Shiloh Rd

Windsor

40,000

Alexander Valley Cellars, LLC/ Shawn Johnson (Keegan & Coppin Co., Inc.)

Constellation Wines US, Inc./Mike Flitner (Keegan & Coppin Co., Inc.)

Industrial Lease

1351 Redwood Wy

Petaluma

25,307

Broadcom

Savoy Corp./Chris Castellucci & Matt Storms (Keegan & Coppin Co., Inc.)

Office Gross Lease

1435 N. McDowell Blvd

Petaluma

22,479

DayMen/Lowepro/Danny Jones (Keegan & Coppin Co., Inc.)

Cornerstone Properties/Dave Peterson (Keegan & Coppin Co., Inc.)

Office Full Service Lease

2351 Circadian Wy

Santa Rosa

15,651

Immecor/Shawn Johnson (Keegan & Coppin Co., Inc.)

O’Donnell Management Co.

Industrial NNN Lease Renewal

475 Aviation Blvd

Santa Rosa

12,315

Brelje & Race, Consulting Engineers

Oak Valley, LP/Shawn Johnson & Danny Jones (Keegan & Coppin Co., Inc.)

Office Full Service Lease

Sonoma County

commercial SALES Address

City

Property Size

Buyer

Seller

Sale Price

Price/ Sq. Ft.

Project Type

Brokers

Fremont / Richmond

721,204

IIT Acquisitions, LLC

Fremont Bayside Industrial, LLC / Richmond Pinole Point Industrial, LLC

$60,000,000 total for portfolio

N/A

Warehouse/ Distribution

Greig Lagomarsino & Todd Severson (Colliers International Oakland)

Warehouse and Light Industrial

Buyer Rep – Eastdil Secured (Greg Cioth, Edmund Najera) & Joe Kelly & Rob Shannon (CB Richard Ellis); Seller Rep – Eastdil Secured (Greg Cioth, Edmund Najera) & Joe Kelly & Rob Shannon (CB Richard Ellis)

Alameda County 48350 Fremont Blvd / 2100-2900 Atlas Rd

7411 Central Ave

Newark

334,410

KTR Capital Partners

Wells Fargo

$17,500,000

$52.33

48350 Fremont Blvd

Fremont

246,450

Industrial Income Trust

Fremont Bayside Industrial, LLC

$20,524,356

$83.28

Warehouse/ Distribution

Buyer/Seller Rep: Joe Moriarty, Steve Hermann, Bob Gilley, Darla Longo, Barbara Emmons & Rebecca Perlmutter (CB Richard Ellis) Leasing member of the team - Greig Lagomarsino (Colliers International)

4695 Chabot Dr

Pleasanton

36,966

Shakti Ventures, LLC

Heritage Bank of Commere

5,175,000

$137.38

Class A Office

Buyer: Ian Thomas (Colliers International-Pleasanton); Seller: Kearny Captial Partners San Francisco

1751 Sabre St

Hayward

28,050

Lua’s Packaging

KBC Tools, Inc.

N/A

N/A

Light Industrial

Buyer: Lee & Associates; Seller: Joe Yamin & Chet Barney (Colliers International Oakland)

1335 Terra Bella

Mt. View

15,300

N/A

Keesee Trust et al

N/A

N/A

Vacant Property Sale

E. Fox & G. Davies (Cassidy Turley/CPS); Barry Bram (TRI CORFAC San Francisco)

1286-1288 Hammerwood Ave

Sunnyvale

14,960

Parimal K. Kadakia & Nikita P.

Undisclosed Lender

$1,500,000

$100.27

Manufacturing

Buyer: Unknown (Equus Associates) Seller: Nick Whitstone (CB Richard Ellis)

3753 Santa Rosa Ave

Santa Rosa

87,120 sf w/ 1,000 sf bldg

MM Motors

Marine Max, Inc.

$1,300,000

$14.92

Industrial Land Sale

Buyer/Seller: Dino D’Argenzio (Keegan & Coppin Co., Inc.)

Vallejo

13,000

Yoshika Alexander

Surinder Oberoi

$625,000

$48.08

Industrial Sale

Buyer/Seller: Theo Banks (Keegan & Coppin Co., Inc.)

Santa Clara

Solano County 709 Kentucky St

N OV E M B E R / D E C E M B E R 201 0

theregistrysf.com 35

FINAL OFFER A Federal Case

❯ ❯ KEVIN POWELL

By Sharon Simonson

Kevin Powell is research director for the U.S. General Services Administration’s Public Buildings Service. The GSA owns, operates and leases commercial property on behalf of the federal government and is the country’s largest commercial landlord with 8,666 buildings in 2,100 communities. Powell helps identify promising building technologies, management policies and other tools to enhance GSA’s real estate operating decisions and procedures. Powell manages a portfolio of more than two dozen active research projects in the areas of workplace design, energy efficiency, environmental performance, sustainability and building information modeling. The GSA recently launched the Green Proving Ground, one of his department’s key initiatives. He brings nearly two decades of experience in design research and policy analysis to his job.

What does the GSA do?

KP❯ We own, operate and lease real estate for the civilian federal government, and we are the largest commercial landlord in the country. The other half of GSA procures stuff for all of the federal government including the military. I run the applied research program, which looks at emerging and underutilized building technologies and programs and practices to improve the sustainability and workplace effectiveness of the federal government’s building portfolio. The intent is to find solutions for the federal government and to benefit society at large.

How long have you been at the GSA? KP❯ I have worked for the GSA heading on toward six years. In the first three or four years, we focused on workplace research aimed at having people be more productive. The original thrust was based on the notion that technology has radically shifted the way people work. One of the first things we did was look at occupancy patterns of our space and found that two thirds of the time people are simply not at their desks. About a third of the time they are off-site working; another third of the time they are in another space. The Blackberry, laptop and VOIP (voice over Internet protocol) have exploded the idea that you have to be at your desk to be working. We also talked to management and found that they were much more oriented toward having a workplace that supported collaboration versus headsdown work. And then we looked at the traditional way that most people interacted with GSA and found that we were functioning as an order taker.

We weren’t providing any expertise and assistance to our customers. So we decided to look at it as an engagement. The idea is, ‘Let’s be an expert advisor,’ and engage tenants about what they are trying to get done in the workplace and how their employees are doing it.

How is what the federal government does with its real estate different from what a private landlord might do?

KP❯ Any enterprise that works in office space has the same set of issues as we do: Making the workplace more productive and operating the buildings at the highest level of efficiency. But the federal government looks at the buildings we build as lasting 100 years, which is not the usual posture for the private sector. When we make decisions, it is based on a very longterm hold. Secondly, because we have all of these mandates and requirements set for us by law, we have a slightly different approach about what is cost effective. The third thing is that the scale of our operation, which lets us experiment and do research that would be a lot harder if you were not managing 350 million square feet, as we are. There are 1.1 million people working in these spaces, a reasonably sized city.

What is the federal government doing to address greenhouse gas emissions?

KP❯ Almost all federal agencies have to meet a 28 percent reduction in their carbon footprint and are required to demonstrate it by 2020. A very significant piece of that for most agencies is people’s commute, so the entire 100 percent way if you are a federal agency to go about meeting that 28 percent reduction is you need to cut the amount of space that you occupy and reduce how much commuting the employees are doing. If you took a very aggressive approach to mobility and made it the cornerstone of radically reducing your carbon footprint, you would say, ‘90 percent of my workforce is not working in the office. They are working at home or at a client’s office.’ And if you reduced your commute by two-thirds and your real estate footprint by a third, you end up with a nearly 40 percent reduction in your carbon footprint as an agency. This is a radical solution. I am the guy who is there to see what business as usual looks like, what a radical scenario looks like and then help them plot a line to get to that mandate.

What are the implications of such a flexible workplace?

KP❯ There is no question for most agencies and the private sector too, you can’t do management by walking around. You can’t think you work as you work today and be successful. You have to manage by goal setting and making sure you have the information technology and equipment. But it’s also not just carbon reduction; there are other benefits. A looser structure can be very resilient because people can work from just about anywhere, and many people in today’s world appreciate flexibility, so it can give a recruiting advantage. And you are simply paying for less office space.

Does the GSA have to achieve the same 28 percent reduction?

KP❯ Yes, and the only way to do this is to partner with our tenants. In the past, what people did in our space was not something we thought much about. But at this point, we are thinking about how we partner with tenants to influence their behavior and make them do things that they don’t have to do.

So how are you achieving this requirement?

KP❯ My feeling is there are three ways to start. People are competitive, so to the degree that you can show someone that their neighbor is doing something better, it makes them want to do better. Second, we are starting to have very smart buildings. Every light is monitored and so on.

You can aggregate this information and show people things about themselves. So, feedback mechanisms. And then the third thing we are exploring is how to make sure that incentives line up. We want people to actually pay for the real energy that they are using, which they don’t currently do.

What keeps you up at night?

How will you test your hypothesis?

KP❯ The idea of meeting [mandated federal] goals that require [the GSA] to be designing net-zero buildings by 2020 and the idea of reducing energy use 30 percent by 2015 based on a 2003 baseline. In response, we are launching the Green Proving Ground, which is a key initiative for the research program. The goal is to identify what works, what doesn’t work and what works where, because not all things work everywhere. Everyone right now is touting his or her product as the latest and greatest thing. We want to separate the wheat from the chaff. We have had a chief greening officer on board for a couple of months, and we are setting up a whole approach as to how vendors can submit products for us to consider evaluating.

KP❯ One way is we have put up a new video wall at the San Francisco Federal Building. We are going to have that video wall give people information. We are working with [design and consulting firm] IDEO to try to figure out at the building-scale level what would influence people’s behavior. Our measure of success will be if energy use goes down. For instance, we have elevators in the building that only stop at every third floor, so on floors one, three, six, nine and so on. The idea is that theoretically people use these elevators then walk up or down a flight of stairs. These elevators are much more efficient. There is also a smaller and less efficient elevator that stops at every floor. Right now the elevators that stop at every third floor are underused. So that is a problem that we can address with the video board. n

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P H OTO S B Y K E N T G O E T Z