Editorial Board 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.
Marc Cunningham President AllWest
Michael W. Field
Director, Commercial Real Estate The Sobrato Organization
Daniel Myers
Partner, Real Estate Practice Group Leader Wendel, Rosen, Black & Dean LLP
Tim Tosta
Partner Luce Forward
Bruce Dorfman
Principal Thompson | Dorfman Partners, LLC
Norman C. Hulberg, MAI
President Hulberg & Associates, Inc.
Jeanne Myerson
Erik W. Doyle
Co-Chair, Real Estate Group Hoge, Fenton, Jones & Appel, Inc.
Daniel Huntsman, LEED AP
Jesshill E. Love III
President & Founding Principal Huntsman Architectural Group
Anton Qiu
President & Chief Executive Officer The Swig Company
Principal TRI Commercial
Jeffrey A. Weidell
Phil Williams, P.E., LEED AP
Executive Vice President NorthMarq Capital
Vice President Webcor Builders
Media Partners The Registry would like to acknowledge its partnerships with the following organizations:
www.norcal-ai.org
2 theregistrysf.com
O C TO B E R 20 1 1
Geoffrey C. Etnire
Executive Managing Director Newmark Knight Frank Cornish & Carey Commercial
Partner Ropers, Majeski, Kohn & Bentley
Jody Quinton
Regional Manager DPR Construction, Inc.
Paul Zeger
Principal, President & CEO Pacific Marketing Associates
Contributors Mark A. Bellows Get While the Getting Is Good pg. 28 Mark A. Bellows is a certified public accountant and tax partner at Gallina LLP who specializes in real estate, construction and related industries. Gallina is a regional certified public accounting firm headquartered in Northern California.
Matthew Garratt Building Understanding pg. 17 Matthew Garratt is a vice president with Battery Ventures in Silicon Valley, a venture capital and private equity firm that focuses on technology and related sectors using a researchdriven methodology to identify large and emerging market opportunities. He is an expert on clean technology and advanced materials. Identifying technologies, in particular software, to better understand how buildings consume power and become lessenergy intensive is one of the key investment themes that Battery has pursued. Garratt is in frequent contact with building owners and managers to understand their needs and tolerance for innovation. His understanding of energy extends to the electric grid and the balance between energy supply and electricity demand.
Peter Ingersoll Give Me That Old-Time Religion pg. 26 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.
Rob La Eace Optimism, Optimism, Where Art Thou? pg. 30 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 every day. Today, these same skills are an asset to those who work with this San Francisco native in his career as a broker associate with Paragon Real Estate Group. 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 Working Without a Net Worth pg. 24 John McNellis is a Palo Alto-based retail developer and investor. Since its inception nearly 30 years ago, McNellis Partners has developed more than 50 projects in Northern California, primarily shopping centers ranging from 30,000 square feet to 200,000 square feet. McNellis serves on the national board of trustees for the Urban Land Institute and is a ULI governor. He is a member of the International Council of Shopping Centers and serves on the Policy Advisory Board for the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley. He also serves on the national board of directors for Outward Bound USA and the board of Rebuilding Together Peninsula, a volunteer partnership to rehabilitate homes and community facilities. He is a former board member of Lambda Alpha International (Golden Gate Chapter), an honorary society for the discussion of land-use and economics. On occasion, he lectures for the ULI, the ICSC and Stanford University’s schools of business and law. n
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
Heather Bosanac 415.738.6434 heather@theregistrysf.com
Editor-in-Chief
Sharon Simonson 408.334.2512 ssimonson@theregistrysf.com
Design
Jelena Krzanicki Janet Raugust
Photographer
Chad Ziemendorf
Writers
Brad Berton, Douglas Caldwell, Michele Chandler, Robert Celaschi, Janis Mara, Sharon Simonson, Sasha Vasilyuk
Contributors
Mark Bellows, Matthew Garratt, Peter Ingersoll, Rob La Eace, John McNellis
Advertising
Denise Franklin 408.366.1984 denise@theregistrysf.com
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. ©2011 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.
4 theregistrysf.com
O C TO B E R 20 1 1
Letter from the Publisher Dear reader, It is still the month of September as I pen this letter, and I am reminded of the television and radio ads touting “September to Remember” events for car sales, mattresses discounts and other such promotions. Unfortunately, the remembrance part this year will be mainly of bad things, but the year is almost over, and so we hope the gripping status quo of our economy. In a way, it all started in August, when the debt ceiling bill was signed by President Obama. The market told the president what it thought of it, and I’m sure the voters will soon, as well. Across the globe, almost immediately the responses were dire. Everyone was looking to the US to make a bold move and decidedly challenge the economic malaise. It was not to be. Soon thereafter the aftershock of that unimpressive exercise, which also led to the firstever downgrade of US debt by Standard & Poor’s, resulted in more economic contraction ultimately driving higher unemployment. And while everyone’s thoughts were on the double dip, September rolled around with a somber memory of 9/11, which for a moment did unite the nation, but only long enough to remind us why we were in Asia fighting wars. The negative momentum of the prolonged stagnation seems to be pervasive as even the Fed’s actions of late September spurred more negative reactions and selloffs. Unemployment keeps going up, corporate budgets are getting slashed; prognosis does not look very positive for the foreseeable future. We at The Registry try to focus on forward-looking news and give a positive perspective on what we are seeing in the market. While that is very difficult to do today, I have to say that there are a few glimmering lights out there that pose a very real opportunity for California (which today has the second highest unemployment rate among the 50 states) and especially for our region. The first thing that we are seeing is that two new classes of real estate product are emerging and are driven by the continued boom in personal and commercial technology applications. One is the advent of data centers and the other is the growing phenomenon of shared workspace. Data centers are especially
interesting. Not only because they form the backbone of our cloud-computing mega-connected tech world, but also because it represents a sector of the real estate industry that is not negatively affected by today’s economy. Technology is moving away from desktops and laptops and concentrating in large server farms forming the ubiquitous cloud. That makes the business of developing data centers extremely busy. The shared workspace is indirectly affected by this, as well. It has become exceedingly simple to start a company and to pay for a few services to make it exist. Server space is cheap, development tools and access to talented engineers is available. The internet has become a primary distribution channel for all sorts of services, and one does not need much more than a Web site to get going. These new start ups are not founded in parents’ garages anymore as much as they are behind desks of offices where hundreds of entrepreneurs gather and launch their companies. What is most interesting is the fact that this is occurring across the Bay Area. Entrepreneurs need a creative space in which they are surrounded by likeminded techies. And speed with which this space is consumed is indicative of the opportunity that these start ups bring. Ultimately, a few will be successful, and they will generate a demand for labor. Not a moment too soon. The second positive thing is technology that helps reduce energy consumption, which comes in the form of software and materials. The Bay Area stands to gain from this evolution the most, in my humble opinion. First, we are the epicenter of tech development, and there are no indications that Silicon Valley, or the Bay Area, are losing out to any other region in the world. Not, yet, at least. Second, there are a number of venture capital firms that have already made significant investments in the development of software and materials that could transform how energy within a home or commercial building is spent and how buildings are constructed. On top of that, our region leads the nation in the development of net-zero energy structures (e.g., NASA’s Ames Research Center, UC Davis’s West Village Community). This is important from an intellectual capital and application point of view—you can come to the Bay Area and see the projects in person, and you can interact with the very people who built them, and presumably hire them to do the same for you. I foresee a total disruption in the way homes and commercial buildings are constructed and managed, and we in the Bay Area will have a chance to lead that revolution. And that will create jobs! I’ve learned through my life experiences that self-reliance is a very important characteristic of successful people. I strongly feel that it will be the major factor of growth for the region, as well. Thank you for your continued interest. Regards, Vladimir Bosanac
News
Desk
Google’s New Headquarters Is All About Living The new Google Inc. headquarters in Mountain View and a neighboring campus at NASA’s Research Park will embrace a development standard known as the Living Building Challenge, which requires certified projects to produce all of their own energy using renewable resources and to operate pollution-free. John Igoe, the director of design and construction at the Mountain View company, said the campuses are expected to mirror the company’s core values such as integrating and advancing technological innovation and improving and changing the world. “We think LEED is great, but the Living Building Challenge is really exciting,” he said. Igoe spoke to the September meeting of the Northern California Chapter of CoreNet Global. CoreNet is a professional organization for corporate real estate and workplace executives. The campus developments are not intended to be a vehicle to project brand image, Igoe said. Rather they are intended to help attract and retain the best employees and to remake their neighborhood, now somewhat gritty, into a community.
headquarters projects underway in the Bay Area today, according to CoreNet. Besides Google’s, featured projects were a not-quite 700,000 square-foot campus for Adobe Systems Inc. being built in Utah and the Brocade Communications Systems Inc. campus in North San Jose. The Brocade campus’ first phase included two office buildings with not quite 450,000 square feet, a 125,000 square-foot data center and a nearly 1,900-stall parking garage.
Bay Area Multifamily Attracts Another Suitor The Los Angeles County Employees Retirement Association has approved an investment of up to $100 million into the CityView Bay Area Fund, a vehicle to develop new apartments targeting middle-income San Francisco Bay Area households. CityView was founded in 2000 by Henry Cisneros, the former mayor of San Antonio, Texas, and the secretary of the U.S. Department of Housing and Urban Development in the Clinton Administration. It is an institutional investment firm and fund manager that focuses on urban real estate, including housing and infrastructure. The fund hopes to create developments affordable to households earning between 50 percent and 200 percent of the Bay Area median income, or $32,520 to $130,000 a year.
The Living Building Challenge is a program of the International Living Building Institute, an affiliate of the Cascadia Green Building Council, one of the original three chapters of the U.S. Green Building Council. The chapter covers Oregon, Washington, British Columbia and Alaska. The Living Building Challenge was launched in 2006.
The Bay Area is expected to add 65,000 renters every year, according to the Association of Bay Area Governments. ABAG is a regional planning agency based in Oakland.
“We want not just to mitigate the impact [of the new campuses], we want to actually improve the environment,” Igoe said. One focus of that intention is the bayside wetlands that abut the 42-acre NASA site that Google has leased from the federal government, he said. “The Google mindset is if we enhance it, it can be an amenity for our employees. We want to bring the animals back in and to cohabitate with nature,” Igoe said.
San Mateo’s Junipero Serra High School has opened a $21 million academic and athletic project designed by Ratcliff, an Emeryville architecture, interiors and planning firm.
The company hopes to eliminate all waste coming from the two sites, which together are expected to support 1.8 million square feet of new development. Google also hopes to transform the North Bayshore area of Mountain View, where it has acquired millions of square feet of existing offices and research and development buildings. When it is done, it seeks to have a true community with at least 1,500 units of new housing. Igoe was one of three speakers at the September CoreNet session, which was dedicated to a discussion of corporate headquarters. There are 12 new
Catholic High School Opens New Facility
The 24,000 square-foot Center for the Arts, Sciences and Aquatics includes an academic building conceived to create synergies between the arts, sciences and athletics at the Catholic high school for boys. The aquatics facility features a new pool, which is to accommodate competitive high school water polo and swimming. Ratcliff’s consultant for the pool was Aquatic Design Group of Carlsbad. In accordance with the City of San Mateo’s building code, the entire project has been built with design features equivalent to achieving a LEED Silver rating from the U.S. Green Building Council. The project team included contractor Hathaway Dinwiddie Construction Co. n
PEOPLE on the move Bay Area Contractor Appoints Member to Board of Directors Sudhir Aggarwal (left) has joined Skyline Construction’s Board of Directors. Aggarwal has been working as a consultant to Skyline since 2009 and is helping to guide the company’s strategic, financial and operational activities. Prior to Skyline, he was a managing director of Alvarez & Marsal Holdings LLC, a professional services firm that specializes in performance improvement. He is also a former chief executive of Ancora, a $110 million grossing presorting and mailing-services firm.
Regional Builder Promotes Senior Vice President Shelley Doran (left) has been named a senior vice president at Webcor Builders. Doran is a 30-year veteran of the building and development industry. She is responsible for Webcor’s business development and national, state and local governmental affairs. She was appointed to Webcor’s Executive Committee in February and has been with the company since 2000.
Commercial Brokerage, Services Company Adds to Property Management Division Jonel C. Porta has joined Cassidy Turley Property Management as vice president. She will oversee management of the portfolio of Four Corners Properties LLC and will assist in the management and business development of the South Bay region of Cassidy Turley’s management services operations. Porta was most recently with Grubb & Ellis Co. Prior to Grubb & Ellis, she served as a senior property manager with Equity Office and was responsible for a real estate portfolio of 1.2 million square feet, including The Pruneyard office towers and shopping center in Campbell and Skyport Plaza in San Jose. Porta also spent five years at Spieker Properties as a project manager where
6 theregistrysf.com
O C TO B E R 20 1 1
she oversaw property management and leasing of a 600,000 square-foot multi-tenant office park.
San Francisco Structural Engineer Selects Finance Chief Albert M. Cuisinot (left) has joined Degenkolb Engineers as its new chief financial officer. He replaces Bob Beggs, who is retiring early next year. Degenkolb has six West Coast offices, including one in San Francisco and one in Oakland. It specializes in earthquake engineering. Cuisinot was formerly chief of finance for Steinberg Architects, which has offices in San Francisco and San Jose. Prior to that role, he was CFO for the Parkinson’s Institute in Sunnyvale and spent 10 years in finance at Stanford University.
Bank to Focus on Diversity In Bay Area Magdalen “Maggie” Mui, who has spent more than 22 years at Wells Fargo & Co., most recently as senior vice president of the Community Bank for the San Francisco market, has been named to a newly created postion. She is expected to focus on growing the bank’s regional footprint with an emphasis on the Asian community. Mui sits on the board of directors for the San Francisco General Hospital Foundation, the Asian Business League of San Francisco and the Chinese Culture Foundation.
Bay Area Multifamily Developer Establishes SoCal Beachhead Stuart Gruendl (left) has joined Pacific Urban Residential as managing director of its Southern California development group. Gruendl is the founder and former chief executive of Emeryville’s BayRock Residential LLC, a multifamily developer. He has more than 25 years of experience in the industry focusing on California, Arizona and
Utah. From 1991 to 2000, he was chief development officer and executive vice president with SNK Realty Group, which has offices in Berkeley, Dallas and Phoenix, developing several thousand luxury apartments.
Broker Expands Silicon Valley Office Bruce Matesso (left) joins Kidder Mathews’ Silicon Valley office as a vice president where he will continue to represent high technology corporations with a focus on office and research and development property acquisitions and leasing. Matesso spent the previous six years with Colliers International in its San Jose office.
Investment Services Group Promotes in Palo Alto, Adds to Counsel Jeffrey J. Taughinbaugh (left) has been promoted to vice president of investments by the board of directors of Marcus & Millichap Real Estate Investment Services Inc. Taughinbaugh began his career with the company in July 2004, specializing in the sale of retail properties. Most recently, he held the position of senior associate. The commercial property investment sales company also has named Seth M. Mott (right) an assistant general counsel. He will be based in the firm’s Salt Lake City office. Most recently, Mott served as a member of the litigation section for national law firm Van Cott, Bagley, Cornwall & McCarthy, with a practice focused on general civil and commercial litigation.
Architect Elevates Four in San Francisco Studios Architecture has made Lisa Thomson (left) an associate principal. Thomson has been with the firm since 2006. In her role as director of marketing, she oversees relevant efforts for the firm’s San Francisco and Los Angeles offices and is part of the leadership team for firm-wide marketing initiatives. Brian Nee (left), Ian Orlins (middle) and Andrew Clemenza (right) have been made associates. Nee first joined Studios in 2003, and after a brief hiatus, rejoined in 2009. His work includes projects for higher-education clients such as the University of California, Berkeley and California State University, Bakersfield, as well as tenant improvements and building renovations for high-tech clients. Orlins joined Studios in 1998 and then rejoined the firm in 2009 after a threeyear departure. His work has focused largely on higher education with projects for the University of Cincinnati, the University of California, Los Angeles and the University of Texas at Dallas, as well as with private high-tech clients. Clemenza joined Studios in 2008. During his tenure, he has worked primarily on tenant improvements and building renovations for high-tech and biotechnology clients and developers.
Architect Names Leaders to Transport Practice HOK has added four to its global Aviation + Transportation Group. Steven Morris is the new director of global marketing for the group, based in the firm’s Los Angeles office. His 28 years of industry experience include leading major projects at the Lisbon International Airport, Abu Dhabi International Airport and the Panama City International Airport. Based in London, Richard Gammon is HOK’s new director of Aviation + Transportation in Europe, the Middle East, Africa and India. He will sit on the firm’s London board of directors. His 15 years of experience include several major projects at London’s Heathrow and Gatwick airports. Keith Hui has relocated from HOK’s Seattle office to Hong Kong, where he will serve as the firm’s director of Aviation + Transportation in the Asia-Pacific region with offices in Beijing, Shanghai, Singapore and Ho Chi Minh City. He joined HOK in 2008 and has 17 years of experience planning and designing aviation and transportation projects including terminal modernization programs at Salt Lake City International Airport, Honolulu International Airport and Kona International Airport. Dennis Gillespie is planning leader for HOK Aviation + Transportation. He works with teams across HOK and has 33 years of relevant experience. In the last decade, he has contributed to several major projects at HOK, including the New Doha International Airport, the Col. H. Weir Cook Terminal at Indianapolis International Airport and the Transbay Transit Center in San Francisco. HOK is a global architectural firm founded in 1955. Its expertise includes architecture, engineering, interiors, planning, sustainable consulting, lighting, graphics, facilities planning and assessment and construction services. n
RETAIL
Cyber Nation American consumers are buying more merchandise and a wider variety of merchandise online. By Brad Berton
A
re blue jeans destined to go the way of books and personal computers? More than 50 percent of PC and software sales today occur online, according to Forrester Research Inc. We all know what has happened to Borders, not to mention Blockbuster Video and Circuit City, too. So the question arises: As commodity merchandise sales continue migrating from terra firma to cyberspace, will consumers become more acclimated to buying items such as clothing and jewelry online? Forrester, a technology and market-research company, projects a 10 percent compound annual growth rate in domestic e-commerce spending through 2015. That would push annual online activity to nearly $280 billion—up from $176 billion last year, itself a 13 percent climb from 2009. Excluding groceries, Forrester calculates that e-commerce comprised about 11 percent of total retail sales last year. By 2014, it will be 15 percent, the company predicts. “Brick-and-mortar stores will continue to be challenged by web shoppers,” concludes Forrester analyst Sucharita Mulpuru in a forecast released earlier this year. “Physical stores are not only losing customers to the online channel but are faced with ever-savvy shoppers who have pre-planned trips or are browsing with mobile devices in hand ... .” Web shoppers who bought only commodity items online before are pushing into more high-touch categories like furniture and home appliances, Forrester says, and more new people buy online every year. Internet commerce clearly boasts substantial cost advantages over retail store networks. Even David Simon, chairman and chief executive of Simon Property Group Inc., an international mall company with ownership and interests in nearly 400 properties worldwide, is feeling the threat. Speaking on a second-quarter conference call with analysts earlier this year, Simon spoke strongly of the need to “level the playing field” by forcing online retailers to collect sales taxes on behalf of local jurisdictions where they do business. “The economy is helped by having a level playing field, allowing an open market to determine consumer behavior without government subsidies, which we believe is occurring for the online retailers,” he said, according to a Seeking Alpha transcript. “But do the retailers have a sense of how much business they lose?” analyst Alexander Goldfarb of Sandler O’Neill + Partners L.P., asked. “Well, they’re very focused on it, so they are feeling the loss,” Simon replied. “What we’re hearing is the number of customers go to their store, learn all about it and buy it online because it’s 10 percent (sales tax) savings, so it’s a real issue.”
In the Bay Area, Simon owns the Stanford Shopping Center in Palo Alto, Santa Rosa’s Coddington Mall, Gilroy Premium Outlets and Petaluma Village Premium Outlets, according to its most recent annual report. At the same time, some retailers are prospering and expanding in the real world. “H&M and a few others can’t seem to open new stores fast enough, and their stores appear to be swamped,” said retail analyst George Whalin, president of Carlsbad-based Retail Management Consultants. Whalin is skeptical that online activity is really approaching 10 percent of overall apparel sales, as comScore Inc. calculates, given just how “massive” the universe of brick-andmortar clothing retailing has become. A recent Cushman & Wakefield assessment of the top-ten retail rents in the most glamorous American cities points to the tremendous value still inherent in certain real property. New York retains the four most expensive U.S. shopping streets with retailers willing to pony up $2,250 a square foot a year for a toehold on top-ranked Fifth Avenue. That is up more than 21 percent year over year. Two San Francisco districts, Union Square and Post Street, ranked eighth and ninth on the list. “Global retail brands have become ever more sophisticated utilizing both traditional and social-media marketing channels,” Gene Spiegelman, an executive vice president for Cushman in New York, said in a statement. “However, these brands still recognize the immense value created via strategically placed brick-and-mortar retailing, for which Fifth Avenue has been acknowledged as the leading global high street.” But that does not mean everyone will emerge unscathed. Martin Mahmuti, a Cushman researcher, says tertiary retail is likely to be eviscerated by online commerce over time. What constitutes tertiary retail is in some regards in the eye of the beholder, he said, but generally it is off-the-beaten path, of lesser physical quality or poorly maintained, and less desired by the public and therefore tenants. It generally is populated by local independent shops. “Retailers have been increasingly moving towards larger and more strategic sites, usually benefitting
U.S. e-Commerce Dollar Sales Growth $ billions 160 140
$123
120
8 theregistrysf.com
O C TO B E R 20 1 1
80 60 20
40 20 0
$142
$102
100
Excluding groceries, e-commerce comprised about 11 percent of total retail sales last year. By 2014, it will be 15 percent, Forrester Research predicts.
$130 $130
$42
$53 +26%
$67
+26%
$82
+24%
$75
+24%
+20%
+6%
0%
+10%
+13%
2002 2003 2004 2005 2006 2007 2008 2009 2010 Q1-Q2 2011
Source: comScore e-Commerce Measurement
TEN MOST EXPENSIVE SHOPPING STREETS IN THE AMERICAS 2011 Rank 2011
City
Street
1
New York
Fifth Avenue
Rent per square foot a year ($US)
% Change year over year
2,250
+21.6
2
New York
Times Square
1,350
n/a
3
New York
East 57th Street
1,200
+20.0
4
New York
Madison Avenue
847
+1.9
5
São Paulo
Iguatemi Shopping
531
+15.7
6
Los Angeles
Rodeo Drive
500
0.0 +12.5
7
Chicago
North Michigan Avenue
450
8
San Francisco
Union Square
425
+6.3
9
San Francisco
Post Street
350
+0.0
10
Toronto
Bloor Street
326
+0.6
prime locations, in order to maximize visibility,” he writes in a email response to a query. Goldfarb and Whalin stressed that traditional retailers continue finetuning their strategies to sell more goods online as well as in stores. Arthur Coppola, chairman and chief executive of The Macerich Co., a shopping center owner and operator, said on a recent conference call that many traditional mall tenants are segmenting operations into full-priced mall locations, outlet-mall operations and online sales. Many chains feature special brands developed specifically for their outlet-mall locations, Goldfarb noted. One of the Bay Area’s few sizable centers planned for construction near-term is the 543,000-square-foot outlet mall that developer Paragon Outlet Partners LLC has just under way in Livermore. Whalin also stressed that as the savviest retail chains become increasingly proficient with their online platforms, they’re helping today’s technologically equipped consumers buy from smart phones, tablet computers and other mobile communications devices. For the Bay Area, the shift to e-commerce is a double-edged sword. Seattlebased Amazon.com may have the largest online audience with 94.1 million unique visitors a month, according to comScore Inc. But some of the Bay Area’s most prosperous companies are benefitting greatly, too. Apple.com’s worldwide sites have 38.3 million unique visitors a month. Netflix.com has 28.6 million a month; Hewlett-Packard Co., 16.7 million; and Mountain View-based Intuit Inc., 11.8 million. EBay Inc., the online-auction, averaged 65.3 million unique visitors each month in the second quarter. Meanwhile local brokers say they continue to seek replacement tenants for spaces being vacated by the likes of Borders, Best Buy and Office Depot. Fortunately for them, the regional retail real estate market is in decent shape. While investment brokerage Marcus & Millichap reports that the typical U.S. retail property market is still flirting with double-digit vacancies, according to Terranomics Retail Services, Bay Area retail at mid-year was a bit under 7 percent vacant, down from 7.5 percent at mid-year 2010. Indeed a variety of retailers have demonstrated interest in the approximately 18 local spaces Best Buy is looking to sublease, said Jim Randolph, senior vice president with Cornish & Carey Commercial Newmark Knight Frank. In addition to several specialty grocers looking to enlarge Bay Area footprints, a few traditional supermarket chains and druggists are also aiming to take advantage of location upgrade opportunities. Arts-and-crafts retailers, beauty-supply specialists, party-goods merchants, discounters, health clubs and even select home-furnishing centers are also very much in the market seeking quality Bay Area locations, Randolph said. While retail rosters adjust to never-ending changes in consumer tastes, well-located shopping malls will always attract traffic—and in turn ambitious merchants, Goldfarb said. “It’s just a big part of Americana.” n
DESIGN
Yerba Buena, Camino Bueno The San Francisco pedestrian walkway connecting Mission and Market streets gains a capstone tenant.
The restaurant’s design is deeply connected to its menu.
10 theregistrysf.com
O C TO B E R 20 1 1
T
his summer, San Francisco’s Yerba Buena Lane celebrated an addition to its complex of restaurants with the long-awaited arrival of Bluestem Brasserie. The pedestrian walkway that connects Market and Mission streets had been slowly filling with restaurants and stores opposite the Contemporary Jewish Museum but was never able to secure a tenant for its prime Market Street corner at 1 Yerba Buena Lane. Once a blocked entrance to the Marriott Hotel, the corner space had to be completely reconfigured for a new tenant. With several mid-priced ethnic fine-dining options such as Amber India Restaurant and the Mexican Tropisueño in place, mixed-use luxury property developers Millennium Partners were looking for an American restaurant to complete the lineup. Millennium developed the neighboring Four Seasons Hotel. The idea for Bluestem came from restaurateur powerhouse Stacy and Adam Jed, who wanted to open an American brasserie in the bustling Market Street corridor. “What we love about this location is that it’s a crossroads of locals, tourists and visitors from other parts of the Bay Area,” said Stacy Jed. But the space itself needed major work. The team called on San Francisco-based Lundberg Design of The Slanted Door and The Moss Room fame, to help them visualize how to convert an unused hotel entrance with hotel rooms above and parking garage below into an inviting, modern restaurant.
“We were inspired by the distinctive raw space, which at almost 30 feet high is unusual for San Francisco—and the excellent location near Market Street to design a grand space that felt integrally connected to the city,” said principal Olle Lundberg. “Bluestem is a great space with a volume reminiscent of New York City, unexpected outdoor space and an attention to detail that matches the care and skill that characterize the food and cocktail programs.” Named after the indigenous North American grass favored by cattle ranchers, Bluestem focuses on sustainably produced grass-fed beef from California, Oregon and Uruguay and places an emphasis on whole-animal use with menu items like house-made charcuterie, handcrafted sausages and roasted marrow bones. The restaurant’s design is deeply connected to its menu. “Our inspiration was the open meadow, which is the source of where cattle eat and live,” said Jed. “We wanted to talk about the source of the meat, not the cut of the meat.” Featuring natural earth tones, including wheat, brown and grey, dark California walnut tables and floral arrangements made of wild grasses, the color palette works well with the restaurant’s striking floors. Made from reclaimed Indonesian beams that were sliced into individual tiles, the floor is a dizzying mosaic of brown wood slices that creates an original twist on the traditional hardwood look. “Restaurants are driven by the chef and the type of food, and
P hoto S b y C H A D Z I E M E N D O R F
By Sasha Vasilyuk
we try to draw relationships with that in our design,” said project architect David Battenfield. Following the idea of an open meadow, the Jeds wanted their restaurant to have an open layout in the style of a traditional brasserie, a bar and restaurant. But given the tall, narrow space they inherited, the small footprint of the ground floor would have kept the restaurant in the red. The architect solved both problems by using the ceiling height to maximize seating through adding a partial second floor with a transparent glass railing and a rooftop terrace bar overlooking Market Street. The 6,000 square-foot bilevel design allows for 190 inside seats plus 30 on the terrace, which allows patrons to “overlook Market without being part of the street theater,” said Lundberg. Creating the second floor and deck served an additional business purpose of catering to private events, an opportunity ripe for picking given the restaurant’s proximity to Moscone Center and several hotels. The two-floor layout allows the restaurateurs to keep the event upstairs without interrupting regular dinner service on the ground floor. After its $3 million renovation, Bluestem still features a dramatic open center space for the main dining area and bar, which transitions into a much lower, intimate lounge. Despite the dramatic height variation, the layout feels flowing and interconnected, providing several compelling vista points through the large windows facing Market Street, the second floor that overlooks the rest of the space and the curving staircase that connects the two levels. The tall ceiling is also broken down with large acoustical ceiling panels that add an architectural element while serving an important practical purpose of dampening noise. Building the second floor in a tight space created the additional challenge of deciding where to put the kitchen. The
space’s structure and plumbing connected to the restaurant on the other side of the wall dictated that the kitchen should go on the second floor. “Putting the kitchen on the second floor was a tough decision, and we took a little risk with it, so we needed to make the stairs easy to walk,” said Battenfield. “We made the staircase five foot wide with a gentle curve and textured tile that resists oil and water spills.” Although Jed noted that even if the kitchen were on the first floor, servers would still have to go up and down the stairs, the restaurateurs used other mitigating techniques including a hidden elevator for dirty dishes to be sent up to the kitchen and handheld electronic devices that help servers eliminate part of their daily stair workout. But sometimes a challenge is just an opportunity in disguise. Known for working with unique, crafted materials, Lundberg took this opportunity to a new height by making the staircase a central design feature connecting the loftlike space. In what he calls “stair negligee,” the architect created a thin metal netting that has been crumbled and then stretched to create a strong, but transparent railing that’s simply a design masterpiece. With its wholesome approach to both design and food, Bluestem Brasserie stands to be the finishing touch in the Yerba Buena Lane project. And given it has the only rooftop bar in mid-Market, it shouldn’t take them too long to recuperate the investment. n
DATA CENTER
Tech’s recovery has spawned an explosion of data center development in Santa Clara, but some are asking, ‘Is it too much?’ By Sharon Simonson
“There is more square footage planned and under construction in Santa Clara than there ever has been.” Sutton Roley, partner, Cassidy Turley/BT Commercial
22 theregistrysf.com
O C TO B E R 20 1 1
P
oor data centers—the ugly ducklings of the real estate world. With their bunker-like aspect and sterile interiors, data centers might be described as the world’s best exemplar of the anti-architect’s architecture. Yet their humble profile conceals an increasingly vital component of global life. With the Internet moving closer and closer to the center of human existence, the lowly data center is moving right along with it. For companies such as Google, Salesforce, Facebook, LinkedIn, Zynga—the list goes on—the data center is no longer simply important, it has become the epicenter of their existence. Its reliability and energy efficiency are critical metrics to their enterprises, impacting business considerations from customer experience to operating expense and profitability. Silicon Valley (in particular Santa Clara), by virtue of its technology-company concentration, has become one of the most important U.S. data-center markets. In the opening quarters of the year, Santa Clara and Chicago recorded the strongest wholesale data-center leasing in the nation, according to brokerage Grubb & Ellis Co. The duo beat other primary U.S. data-center markets from Northern Virginia, whose business is driven by government demand, to the New York-New Jersey metro area, where financial-services customers rule. So great has been demand for Silicon Valley data center space that only in the deepest economic depths of the last four years did construction of the technical and expensive space pause, said Mark Thompson, national leader of missioncritical work for Redwood City’s DPR Construction Inc. Now worries are rising that the Silicon Valley market may be getting overbuilt. South Bay brokers who specialize in the sector say rents are squishy and tenants wellpositioned to strike good deals. “There is more square footage planned and under construction in Santa Clara than there ever has been,” said Sutton Roley, a partner with Cassidy Turley/BT Commercial who specializes in data centers. Michael Foust, chief executive of San Francisco-based Digital Realty Trust Inc., told analysts on the company’s latest quarterly conference call that Digital was tracking demand in Silicon Valley that fell short of available supply. More South Bay data-center space has been absorbed in the first half of 2011 than in all of 2010, he said. Digital, which bills itself as the world’s largest wholesale datacenter provider, derives nearly a quarter of its annual rent from Silicon Valley and San Francisco properties, the majority of them data centers. continued on page 34
P hoto b y C H A D Z I E M E N D O R F
Data Center Deluge
retail
Working Without a Net Worth Cash flow is real estate’s real value. By John McNellis
Properly viewed, a financial statement is more daydream than fact.
24 theregistrysf.com
O C TO B E R 20 1 1
F
ranklin D. Roosevelt’s first vice president, John Nance “Cactus Jack” Garner, is remembered for having observed that the vice presidency isn’t worth a bucket of warm spit. Except he didn’t say spit. The difference between the vice presidency and a financial statement is that the latter is occasionally worth a bucket full. As a young developer, I could never convince my bankers of the grandeur of my financial statements. A standard financial statement was then—as it is today—little more than a compilation of one’s net worth. As 99.4 percent of my net worth consisted of the “equity” I held in our various limited partnerships, my bankers were not nearly as impressed as they might have been. Holding my statement at arm’s length (as one might a diamondback), my banker would patiently explain that while my 5 percent subordinate-to-everyone general-partnership interest may indeed be worth millions, her principal concern was debt repayment: Where would my loan payments come from and what was my cash flow? Because my cash flow at the time was permanently dammed somewhere far upstream, I thought this line of questioning rather impertinent. But maybe she had a point. Properly viewed, a financial statement is more daydream than fact. If someone claims he’s worth a wildly crazy amount—say a Silicon Valley fortune of $300 million—that’s a lovely reverie, but the chances of that guy actually coming up with $300 million in cash are slimmer than a bulimic ballerina. First, instead of the pipe-dream number he claims on his statement for the illiquid asset that constitutes the vast bulk of his empire, he has to mark that asset down to market, be it stock in a privately held company, timber, a coal mine, whatever. Then, he has to sell it, pay federal and state taxes, and—if he’s married—divide that sum by two. If he owns that $300 million in stock in a publicly traded company, that means he’s the chief executive and can’t sell because his holdings are in stock options or are contractually or de facto restricted. (The CEO can’t be seen dumping his company’s stock.) While financial statements are generally more exaggerated than circus-tent revivals, they are particularly worthless in real estate. Thanks to the miracle of the 1031 tax-deferred exchange, if a real estate entrepreneur has been around long enough to be truly successful, his current properties—say
they show $10 million in equity—will likely trace their taxbasis origins back over 30 years and involve a dozen 1031 exchanges. This invariably means his assets will have tremendous negative bases for tax purposes and likely carry a latent tax liability often surpassing the claimed equity. The only way for a real estate mogul to sell without triggering this tax—dying—has yet to be widely embraced. Putting real estate’s idiosyncrasies aside, financial statements are still problematic. Even if a financial statement were to accurately reflect the market value of assets and accurately deduct the inchoate taxes, issues likely linger. How would you prefer your own personal $10 million net worth—assets of $10 million and liabilities of $0, or assets of $3.01 billion and liabilities of $3 billion? An over-leveraged net worth can, back to Cactus Jack, evaporate like spit on a griddle. And even assuming you chose curtain No. 1—the $10 million free and clear—that doesn’t say jack about your cash flow, my nagging banker’s original concern. Ten million dollars parked with Wells Fargo & Co. or JP Morgan Chase & Co. may be safe, but nets you nearly nothing at today’s interest rates. Ten million dollars in gold or any growth stock is good for a nice round zero in annual income, while $10 million in Treasuries has a pulse somewhere between zero and 3 percent, depending on term. And quality corporate bonds? A tad higher than Treasuries. So this is where real estate finally pays off, where maybe we’re not so dumb after all for having chosen this profession. (When I was quizzing my editor about numbers to illustrate this column, I asked her how much money one needed to be really rich; she countered by asking whether we were talking Silicon Valley rich or just real estate rich; sighing, I dropped the question.) Anyway, an enviably solid real estate portfolio worth $10 million could easily net $500,000 to $700,000 a year in stable, recurring cash flow, far better than its obvious alternatives. My banker was right—it is all about cash flow. To paraphrase Mark Twain: When I was a young man of 30, my bankers were so ignorant I could hardly stand to have them around. But when I got to be 40, I was astonished by how much they had learned in ten years. n For more about John McNellis or McNellis Partners, please visit mcnellis.com.
FINANCE
Give Me That Old-Time Religion Self-reliance triumphs in an epoch when rating agencies still seek the light. By Peter Ingersoll
I
n the last 60-odd days Standard & Poor’s woke up and smelled the coffee not once, but thrice. First S&P yanked its seal of approval from the $1.5 billion commercialmortgage backed bond deal underwritten by Goldman Sachs & Co. and Citigroup Global Markets Inc. The so-called “GC4 transaction” was then scuttled in late July. This had the immediate impact of shrinking the availability of commercial loans and increasing the cost of money. Next S&P yanked the triple-A rating of the U.S. government in early August, which had the immediate impact of lowering financing costs for commercial real estate as the yield on 10-year Treasuries hit a new low. Part of me applauds S&P’s insistence on tight CMBS underwriting standards. (Don’t we all?) I also hope that the debt-service-coverage calculations that S&P insisted were at the heart of its decision to pull back from the GC4 deal can be clarified—the sooner, the better. That would allow new CMBS issues to come to market. But part of me wonders: why now? Not only was their timing a disaster for the GC4 offering, it put a shuddering chill over the reemergence of mortgage-securities debt. If S&P couldn’t analyze and figure out the details of debtservice-coverage ratios for the GC4 deal, why did it give preliminary approval to the deal? Either way, none of it is good news for Main Street commercial real estate, which desperately
needs access to competitive mortgages—particularly nonrecourse loans for smaller bread-and-butter deals. Industry estimates of annual CMBS volume before S&P pulled the plug were as high as $50 billion for 2011. This pales in comparison to the $234 billion in 2007, but it is not bad for a securitization engine regaining a rhythm. Many commercial brokers in the trenches were seeing glimmers of non-recourse origination offerings for smaller deals and at slightly higher loan-to-value. Revised estimates of deal volume for 2011 following the S&P pirouette now range from $30 billion to $35 billion. Twenty billion dollars of loan capacity is critical within the context of the $300 billion in commercial mortgages maturing this year, next year and in 2013, when every bit helps. The real blow was the loss of momentum and the nascent sense of normalcy. These events can be summed up with the phrase: “flight to quality.” Said a different way, they illustrate a strong aversion to unforeseen or undisclosed risk. But if S&P and other rating agencies are distancing themselves from the cozy relationship they have enjoyed with Wall Street, can we believe them? Or is this political theater to protect their highly profitable business model? Federal authorities are actively investigating S&P (both the SEC and the Justice Department) but have yet to report evidence to support a case. The third strike called by our illustrious S&P umpire underscores the newfound religion: Fannie and Freddie and other federally-backed agencies also lost their top ratings shortly after a $2 billion JP Morgan Chase/Wells Fargo Freddie Mac securitization was announced, but before it was closed. The market shrugged its shoulders and closed the deal anyway. Simultaneous to the downgrade, global financial markets sprinted towards U.S. Treasuries and drove residential mortgage rates to their lowest levels in 50 years. So much for S&P being on the cutting edge of prognostication. But let us step back for a moment. Doesn’t the notion that an independent third party (especially one with no liability) will diligently review the financial stability of an asset and give a reliable rating of credit quality seem like romantic nostalgia in light of the chicanery brought to light in the aftermath of the Great Debt Implosion?
I don’t need or want a financial intermediary between me and my underwriting gospel. 26 theregistrysf.com
O C TO B E R 20 1 1
It seems to me that we ought to return to something that might be called old-time religion, where I underwrite the specific commercial real estate asset that I intend to own (or loan against) myself. I don’t need or want a financial intermediary between me and my underwriting gospel. “Commercial real estate is tangible and transparent: Investors actually see the number of tenants and calculate the amount of rent they expect to receive each month,” says Kenneth R. Riggs Jr., president and chief executive of Real Estate Research Corp. Amen! The current economic climate is, “ideally suited to commercial real estate, which remains a relatively stable investment, given our uncertain times and the volatility of financial markets,” Riggs says. Stable yes; liquid no. Interest-rate risk is still embedded in the fabric of the current market even though the Federal Reserve has pledged to hold rates low for two years. The Fed’s stance is reassuring in the near term, but the question remains: When is the U.S. government going to get its own religion about balancing its bloated budget? We can only suspend our belief for so long and accept that global bond investors will swallow the ultra-low yields of Treasuries against accelerating inflation. This cannot continue forever. In the meantime investors should get busy looking for commercial-property assets in a methodical manner—even
if interest rates on commercial loans are higher than they could be with a vibrant CMBS market. Those investors who have access to capital have a distinct advantage and should be acquiring Main Street commercial real estate. A delay in the rise of interest rates until 2013 or maybe even 2014 lengthens the runway for our economy to become airborne once again. Warren Buffett said recently in a Bloomberg interview that unemployment will fall quickly and the economy will be robust once the housing market comes back—and he’s right, but when will demand for new homes start to appear? In my opinion, not until a year has passed after all the foreclosures and glut of short sales have cleared the market, probably as late as 2015. For commercial real estate investors, that means the next couple of years will offer great opportunity to acquire assets at relatively low values—not as low perhaps as during the heyday of the Resolution Trust Corp., but solid value nonetheless. A discerning and patient buyer with the discipline to stick to an underwriting path without excessive optimism will benefit and prosper. Can I hear a hallelujah? n Peter Ingersoll can be reached at peter@safeharbourequity.com.
ACCOUNTING
Get While the Getting Is Good Take advantage of special real estate tax incentives set to expire at the end of this year. By Mark A. Bellows
I
f you have been thinking about making improvements to your commercial, office or retail space, or have been waiting for the right time, that time is now. If you make those improvements before year-end, you could see immediate tax savings through enhanced IRS expensing allowances. There are currently three available tax-reduction opportunities involving expensing, bonus depreciation and accelerated depreciation rules. These opportunities apply to “leasehold improvement property”—generally, any commercial building interior—restaurant property and retail buildings. These incentives were put in place by the federal government to spur development and growth in the real estate sector but were conceived as short-term measures to give the economy a much-needed boost. Internal Revenue Code 179 allows an immediate expensing of the cost of an asset when it is placed into service. The rule has been around for years, but it didn’t apply to real estate improvements until recently. That said, the real estate applicability expires at the end of 2011. Under the 179 rules, a taxpayer can expense up to $250,000 of the cost of qualified real estate improvements in a single year. This applies whether the improvements are new construction or were acquired through the purchase of a building. There are limits on 179 expensing. The maximum allowable expense is $500,000, which includes a combination of non-real estate improvements such as machinery or equipment and a maximum of $250,000 of qualified real estate improvements. There are also limits once you exceed $2 million of eligible property. So if you put into service $1.9 million of real estate and non-real estate improvements in a $25 million building, you can deduct up to $500,000 of those investments. Once you exceed the $2 million maximum, the 179 deduction is reduced dollar-for-dollar by the amount in excess of the $2 million threshold, fully phasing out at $2.5 million of eligible property. The 179 expense can be taken only to the extent that it reduces taxable income to zero. To the extent the expense exceeds taxable income, the expense is not allowed and instead is carried over to future years. A special rule comes into play at the end of 2011: disallowed 179 deductions that arise from qualified real estate improvements in 2011 are converted to depreciable property and depreciated over a 15-year life. The 179 deduction is elective, and those taxpayers who need taxable income, say to offset expiring net operating losses, may choose not to take it. The second enhanced-expensing provision allows the full amount of the cost of the asset to be expensed in 2011. In 2012, this expensing provision is reduced to half the cost of the asset. This bonus depreciation can be taken against taxable income, even if it results in an overall loss for the year. This is different from the 179 deduction, which can only reduce taxable income to zero and cannot produce a loss. The bonus depreciation rules apply only to qualified leasehold improvements—building interiors—and unfortunately do not apply to restaurant or retail improvement property.
28 theregistrysf.com
O C TO B E R 20 1 1
Why give Uncle Sam money that you can keep yourself?! To take bonus depreciation, the leasehold improvements must be new—initially placed in service in 2011—and not acquired through the purchase of an existing building. They also must have been made pursuant to a lease, and the building itself must have been placed into service no later than 2008. Unlike 179 expensing, there are no maximums or income limits for the bonus-depreciation deduction. Also unlike 179, bonus depreciation generally is required, but taxpayers who need taxable income in 2011, such as to offset expiring net-operating losses, may chose not to take it. The third enhanced-expensing opportunity is one that has been around since late 2004: accelerated depreciation for qualified real estate improvements. For depreciation purposes, qualified real estate improvements are depreciated over a shorter period than other real estate, typically 15 years as opposed to 39. While these accelerated depreciation rules are not expected to go away after 2011, they can be taken advantage of during the last part of this year, and when combined with the other opportunities outlined here can provide real cost savings to taxpayers. A great example of using these opportunities can be found with a developer client of our firm. The developer was rehabbing a shopping center in the Sacramento area and one of the new tenants was a restaurant. We worked with the developer to create a cost-segregation study that allocated costs to more favorable asset classes, such as those with shorter lives, and accelerated their depreciation. The developer was then able to take advantage of various allowable tax-reduction strategies for some of the leasehold improvements, to gain bonus depreciation-expense on some, and to use the accelerated depreciation rules on the rest of the qualified real estate improvements. The result was a tax savings of more than 10 percent in the current year. Another example of using these opportunities can be found with a client of our firm who builds shopping centers. This developer uses a combination of the 179 deduction and accelerated depreciation to reduce its current-year tax liability, though because the building is new, the developer is not able to use the bonus-depreciation provisions. I have seen these and many other examples of current year tax savings resulting from taking advantage of the enhanced expensing elections available for qualified real estate improvements. These enhanced expensing opportunities should be utilized before they are reduced or eliminated altogether starting in 2012. Why give Uncle Sam money that you can keep yourself?! n Mark Bellows can be reached at 916.784.7800 or mbellows@gallina.com.
Optimism, Optimism, Where Art Thou?
e R s ob’
r
AR
y t i al
e esid
l l Co ntia
um
n
Understanding the direction of small business sentiment is critical to forecasting both our national and local economic progress, and as a result, the direction of our real estate market. 30 theregistrysf.com
O C TO B E R 20 1 1
Without business confidence in the future, recovery can’t materialize. By Rob La Eace
F
or some, summer means baseball, for others a family vacation. One thing I love about summer is outdoor theater, and in this realm, my fair citizens, Shakespeare is king. Reposed upon the lawn during a recent viewing of “Romeo and Juliet,” my mind wandered as those memorable opening lines of the epilogue were delivered: “Two households, both alike in dignity, in fair Verona, where we lay our scene…” My mind swept me, not back in time to the cobbled streets of Italy, but forward to present day. The referenced noble families, the Capulets and the Montagues became symbols, oddly enough, for businesses, big and small. In January, I heard Brian Pretti, senior vice president of wealth management with Mechanics Bank, speak. I recall the point he drove home regarding our economy. He had alluded, not to Shakespeare, but rather to Dickens—using a “Tale of Two Economies” theme. He pointed to the divergent courses of big and small business in our country while, very accurately, forecasting our looming GDP slowdown. The presentation inspired me to track small business success and optimism as a key indicator for the economy as a whole. Wikipedia defines a small business as “one that is privately owned and operated, with a small number of employees and relatively low volume of sales.” Small businesses in America have generated 64 percent of all new jobs in the past 15 years and employ over half of all private-sector employees, according to the U.S. Small Business Administration. San Francisco has approximately 80,000 small businesses that employ the bulk of our city’s working population. Understanding the direction of smallbusiness sentiment is critical to forecasting both our national and local economic progress, and as a result, the direction of our real estate market. We’ve talked a bit in the past about confidence (see my article “The Demise of Confidence” from The Registry’s October 2010 issue). While consumer confidence is very important, tracking the confidence of both chief financial and chief executive officers can be very telling. A downward trend in the confidence of these corporate officers historically has heralded a downturn in GDP, and an uptick in confidence has conversely preceded GDP growth. The National Federation of Independent Businesses’
Small Business Optimism Survey has polled smallbusiness owners monthly since 1986. The survey queries owners about their confidence in economic improvement, plans to increase employment and plans to make capital outlays, among other things. This survey has been downwardly trending for the past five months straight and reveals that in August, 12 percent (seasonally adjusted) of small businesses added jobs, but 14 percent eliminated jobs. The remaining 74 percent had no net change in employment numbers. Drilling deeper into the report, one finds that 19 percent of small-business owners planned to raise their prices soon. At the same time a seasonally adjusted 6 percent planned to increase wages in coming months, down 1 percent from the previous month. Very interesting is the fact that only 4 percent of all small business owners surveyed reported financing as their primary problem, and a staggering 92 percent stated that their credit needs are satisfied and they were not interested in borrowing. This is huge. Although the notion that a lack of credit is what’s slowing economic growth, clearly in the small business sector, this is not the case. Meanwhile, looking at corporate sentiment in America and Europe, the quarterly CFO Outlook Survey produced by Financial Executives International and Baruch College shows a downward trend in CFO confidence that started in the second quarter of 2011. Before that, confidence had been on a strong upward trend since 2009. Asked what the top three concerns were for the corporation, 48 percent of CFOs ranked demand as one of their greatest concerns, 36 percent cited price pressures from competitors and 34 percent showed great concern for government policies. Interestingly, 21 percent ranked credit markets/interest rates as a major concern—significantly higher than small business owners had. Though corporate optimism is on the decline, and likely will continue falling with the clouds looming over the global economy, corporate optimism levels are still far higher than those of small business. Numbers for small business optimism are currently at levels seen in the early 1990s (think Gulf War era). Big business is still relatively bullish. Will that last? We shall see. continued on page 39
Real S C E N E
O F
T H E
S E E N
THE REGISTRY’S GREEN EVENT: APPROACHING NET ZERO Movers and shakers from across the real estate industry gathered Sept. 21 at the Sofitel San Francisco Bay in Redwood City to learn the latest progress on zero net-energy construction, an approach whereby a building produces as much energy as its occupants consume. Featured speakers included Steven Zornetzer of NASA Ames Research Center and the driving force behind its Sustainability Base, a new office building so energy efficient it returns electricity to the grid; Scott Shell, principal and director of sustainability for EHDD Architecture in San Francisco; and Nolan Zail, a senior vice president for San Francisco’s Carmel Partners and a lead manager of its UC Davis West Village project, a net-zero-energy community. Sponsors for the event were Clark Pacific, nicholsbooth Architects, ValleyCrest Landscape Maintenance, Chase Communications, and DPR Construction. Below middle (l-r): Scott Shell, EHDD Architecture and Dave Gray, Valleycrest Landscape Maintenance
Above: Daniel Luis and Virginie Manichon, nicholsbooth Architects
Above: Mike Humphrey, DPR Construction & Jim Inglis, Stanford University Real Estate
Above (l-r): Don Clark, Clark Pacific, Thomas Ketron, Clark Pacific & Gary Pike, Pike & Company Right (l-r): Vladimir Bosanac, The Registry, Steve Zornetzer, NASA Ames; Nolan Zail, Carmel Partners & Scott Shell, EHDD Architecture
32 theregistrysf.com
O C TO B E R 20 1 1
P hotos b y chad zi e m e ndorf
Below: Dan Hoffman & Jim Inglis
Data Center Deluge “Barring a worsening economy, the demand picture makes me give the current state the benefit of the doubt,” said Lukas Hartwich, an analyst who follows data-center companies for Southern California-based Green Street Advisors, an independent research and consulting firm that focuses on real estate securities. “But it is not something that I like to see, and it is a little worrying.” For all their outward simplicity, data centers are complicated and evolving quickly, raising questions about how well older generation space will compete going forward. Like hospitals, they are considered “mission critical” for their owners and lessees, intended to operate 24/7 without fail. A fundamental lack of basic market knowledge aggravates the technical complexity. No independent research firm tallies their inventory, age, occupancy and other metrics in the same way that office buildings and shopping centers are tracked, Hartwich said. Data-center technology also is evolving fast. “In the last five years, design on the cooling side has changed dramatically,” said DPR’s Thompson. Centers are now designed to last a decade and to accommodate “three refreshes” of the information technology equipment inside. Moreover, data centers have begun to compete on their “power usage effectiveness,” or PUE. Expressed as a ratio, PUE signifies what percentage of the electricity coming into a data center is used to run the computer infrastructure versus what is used to run the cooling system. Among the newest data centers, PUEs approaching 1 are now common. User demand is also fractured among big and small users and among companies for whom the Internet, and thus data centers, are an adjunct to their business versus those for whom the Internet is their business. Think Facebook versus an Internet startup; think Google versus a large, established law firm. Fast-growing Internet companies such as Facebook typically lease data centers in the initial stages of their growth, but as time passes, have tended to build their own. Conversely, a law firm or engineering company needs only a portion of a “colocation” data center to provide them enough computing capacity to operate a web site and manage email. Again, however, no one maintains statistics on which class of customer makes up what percent of overall demand, Hartwich said. With the market’s maturation, data center developers are trying to differentiate their products. That differentiation goes directly to the overbuilding issue, said Avner Papouchado, president of Server Farm Realty. “For the first time users have a choice,” Papouchado said. “Customers can get a solution that better suits their need. They can go to someone who does custom design like us” or go to a company whose products are more or less standardized across markets and geographies. Red Sea owns a 26,000 square-foot Santa Clara property with 13,600 square feet of data center space now for lease. He does not believe the Santa Clara market is overbuilt, Papouchado said. At the same time, he is watching conditions closely. He, too, notes that reliable data-center metrics are unavailable. “The data center market is very well-known for people to announce projects that never get built because it can be very hard to get financing, and it is a difficult market to penetrate,” he said. Dick Scott, the Silicon Valley managing director for Grubb and head of its National Technology Practice Group, said, “You are seeing the segmentation in the marketplace as the developers and owners go after different clients and their needs.”
34 theregistrysf.com
O C TO B E R 20 1 1
Perhaps no company symbolizes the market’s evolution as well as Vantage Data Centers. Launched last year by Jim Trout, a co-founder of Digital Realty, and funded by private-equity firm Silver Lake Partners, Vantage is building a $300 million data-center complex in Santa Clara. In September, the company announced that it had leased all but a fraction of the 85,000 square feet of pure data-center space in two buildings and was starting construction on a third building with 110,000 square feet of data center space—all more than two years ahead of plan. Vantage executives say their business approach is a “new disruptive model” to the industry. Rather than accept the established pattern whereby fast-growing Internet-centric companies have ultimately turned to building their own data centers, Vantage asserts that by collaborating with a company’s internal staff and building centers that tightly fit a company’s needs, it can persuade these big users to lease its space rather than build their own. “The traditional view of the wholesale data space has been one design fits all, and it has all been about cost and time to market,” said Greg Ness, a Vantage vice president. The notion is that for enterprises such as a Facebook or a Google, where the data center’s functionality and efficiency is at the core of their business, the more the data center is the hand to their glove, the better it serves their business interests, Ness said. The company also touts what it calls its “vertical scalability.” As companies demand more computing capacity, they can get it in place rather than having to build or lease more space. The data center shell itself is pre-built to be able to accommodate more computing capacity in place, disrupting a lessee’s business as little as possible and maintaining uniform efficiency throughout the growth process. In late September, Vantage was expected to announce that it had purchased 63 acres in Quincy, Wash., for the development of “enterprise class” data centers, and that it had 100 percent pre-leased a 133,000 square-foot data center to a Fortune 50 “leading manufacturing and technology company.” Ground breaking was set for this month. Whether Vantage is in fact “disrupting” the industry obviously remains to be seen, but its assertions are not without their skeptics. Digital’s Foust, while not speaking directly of Vantage on the recent conference call, made clear his belief. Asked by an analyst what percentage of demand was coming from users like “the Googles and Facebooks of the world,” Foust said that such tenants represented about 10 percent of Digital’s revenue. “I tend to call them Internet enterprise customers, your Microsofts, Googles, Facebooks. They always have and always will rely mostly on their own owned facilities,” he said, “and that is a trend that hasn’t changed in the seven years we’ve been public.” Green Street’s Hartwich also is dubious. When a company builds for its own account, it eliminates whatever percentage of its costs would have been represented by the data center provider’s profit, he said. Companies like Facebook initially lease because they find that they are growing so fast that they need data center capacity more quickly than they can get it built. Once those dynamics change, they own. And as far as the technology goes, “it is true that [a data center developer] can build up to the standards of a Microsoft or Apple, but Microsoft and Apple know just as much about data centers as any of these operators,” he said. n
P hoto b y C H A D Z I E M E N D O R F
continued from page 23
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)
1600 Whipple Rd
Union City
185,500
Rich’s Product Corporation/Mark Kol (CB Richard Ellis Oakland)
Young’s Market/Richard Keely (Colliers International Oakland)
New Lease
1085-1099 Whipple Rd
Hayward
84,400
Jaco Environmental/Cornish & Carey Commercial Newmark Knight Frank
PPF Industrial Whipple Properties, LLC/Greig Lagomarsino, SIOR (Colliers International Oakland)
Renewal; 12M
1085-1099 Whipple Rd
Hayward
84,400
Jaco Environmental/Shawn Klein (Cornish & Carey Commercial Newmark Knight Frank)
PPF Industrial Whipple Properties/Greig Lagomarsino & Casey Ricksen (Colliers International)
Lease Renewal
2250 - 2254 W Winton Ave
Hayward
40,000
Corsair Memory Inc/Sam Higgins (Cassidy Turley BT Commercial)
Purcell Murray Co, Inc/Bob Ferraro (CB Richard Ellis Oakland)
New Lease
2694 W Winton Ave
Hayward
30,300
Techtron Products/Cassidy Turley BT Commercial
UBS Realty Investors, LLC/Greig Lagomarsino, SIOR & Rick Keely (Colliers International - Oakland)
Renewal; 61M
2694 West Winton Ave
Hayward
30,300
Techtron Products/Tom Damaschino (Cassidy Turley BT Commercial)
UBS Realty Investors LLC/Greig Lagomarsino & Rick Keely ( Colliers International)
Lease Renewal
23411-23477 Cabot Blvd
Hayward
26,891
Western States Tool & Supply Corp./ Casey Ricksen (Colliers International Oakland)
St. Paul Properties/Casey Ricksen (Colliers International Oakland)
Renewal; 62M
25050 Industrial Blvd
Hayward
23,630
Zurn Plumbing Products/Joe Yamin (Colliers International Oakland)
Simon Cho/Grubb & Ellis
Renewal; 61M
1509 Zephyr Ave
Hayward
15,008
Galileo Learning, Inc/Townsend Commercial Real Estate
RREEF/Greig Lagomarsino, SIOR & Rick Keely (Colliers International Oakland)
New lease; 62M
1689 Atlantic Ct
Union City
11,113
AutoPartSource/Joe Yamin, Rick Keely & Greig Lagomarsino, SIOR (Colliers International Oakland)
Young’s Holdings, Inc/Joe Yamin, Rick Keely & Greig Lagomarsino, SIOR (Colliers International Oakland)
New lease; 39M
25821 Industrial Blvd
Hayward
10,825
The MI Group, Inc/Lee & Associates
Multi-Employer Property Trust/Dan Bergen (Colliers International Oakland)
New lease; 75M
3179 Diablo Ave
Hayward
10,320
Murray Heating/Cassidy Turley BT Commercial
RREEF/Mark Maguire (Colliers International Oakland) & Cassidy Turley BT
New lease; 26M
3476 Diablo Ave
Hayward
7,850
Delcon/Cornish & Carey Commercial Newmark Knight Frank
RREEF/Mark Maguire (Colliers International Oakland) & Cassidy Turley BT
Renewal; 62M
2040 Bancroft Wy
Berkeley
7,186
BTW Consultants/Aileen Dolby (Colliers International Oakland)
L.B. Lakireddy Estate/Aileen Dolby (Colliers International Oakland)
New lease; 72M
32960 Alvarado-Niles Rd
Union City
6,899
Southern Wine & Spirits/Cornish & Carey Commercial Newmark Knight Frank
Harsch Investment Group/Joe Yamin, Sean Sabarese & Greig Lagomarsino, SIOR (Colliers International Oakland)
New lease; 38M
32960 Alvarado Niles Rd, Ste 600
Union City
6,899
Southern Wine & Spirits/Todd Graves & Steve Kapp (Cornish & Carey Commercial Newmark Knight Frank)
Harsch Investment Group/Greig Lagomarsino, Joe Yamin & Sean Sabarese (Colliers International Oakland)
New Lease
47444 - 47460 Fremont Blvd
Fremont
6,000
Sanho Corporation/Vince Machado (CB Richard Ellis)
ProLogis/Andrew Stoddard (ProLogis)
New Lease
40515 - 40563 Encylopedia Cir
Fremont
5,028
Blue One Technology, LLC
San Francisco Property Management/Nick Whitsone (CB Richard Ellis)
New Lease
Concord
16,106
Axis Sourcing Group, Inc/John Salamida (CB Richard Ellis Walnut Creek)
Walton CWCA Concord North 24, LLC/Curt Scheve (Colliers International Walnut Creek)
New Lease
39 Larkspur St
San Rafael
7,088
J.E. Higgins Lumber/Jim Cushing (For Leasing Co.)
Universal Portfolio/Matt Wagner (Keegan & Coppin Co., Inc.)
Industrial Gross Lease
3950 Civic Center Dr
San Rafael
5,930
OnMobile USA, LLC/Theo Banks (Keegan & Coppin Co., Inc.)
Broadreach Capital Partners/Brian Foster (Cassidy Turley BT Commercial)
Office Full Service Lease
1 Market St
San Francisco
31,887
RPX Corporation/Jak Churton (CB Richard Ellis San Francisco)
Kevin Brennan (Jones Lang LaSalle San Francisco)
New Lease
33 New Montgomery St
San Francisco
9,519
Black Letter Discovery/Bill Hogland (CB Richard Ellis)
Glenborough New Montgomery (REIT)/ Andrew Thompson (Grubb & Ellis San Francisco)
New Lease
456 - 460 Montgomery St
San Francisco
7,229
Point Lobos Capital LLC/Scott Nykodym (CB Richard Ellis)
Montgomery Lands, Inc/James Sobel (Colliers International San Francisco)
New Lease
Address Alameda County
Contra Costa County 1915 Mark Ct
Marin County
San Francisco County
36 theregistrysf.com
O C TO B E R 20 1 1
commercial LEASES CONTINUED City
Lease Size Sq. Ft.
Name of Tenant/Rep (Brokerage)
Name of Landlord/Rep (Brokerage)
Notes (ie. Lease type and/or lease longevity)
101-199 Saginaw Dr
Redwood City
26,067
AP Pharma, Inc/Chris Jacobs (CB Richard Ellis)
Metropolitan Life Insurance Company/ Howard Dallmar (Cornish & Carey Commercial Newmark Knight Frank)
Renewal
800 - 830 Dubuque Ave
South San Francisco
5,614
Nike USA, Inc/Chris Jacobs (CB Richard Ellis)
LBA Realty
New Lease
1290 Tully Rd
San Jose
15,754
Rohi Alternative Community Outreach/ Gary Wimp (Saratoga Management)
RREEF/Paul Lyles & Rick Shaffer (CB Richard Ellis)
New Lease
691 S Milpitas Blvd
Milpitas
12,952
Sandforce, Inc/Steve Gibson (Colliers International)
Swift Realty/Scott Prosser (CB Richard Ellis)
Expansion
710 Parker St
Santa Clara
9,200
Joseph J Albanese, Inc/Justin Reilly (Cassidy Turley CPS)
Jim & Ken Taggart/Charles Strouss (CB Richard Ellis)
New Lease
1810 Old Oakland Rd
San Jose
5,940
Guardian Biosciences, Inc/Chris Rowe (GVA Kidder Matthews)
Oakland Road Business Centre/Scott Prosser (CB Richard Ellis)
New Lease
5621 Skylane Blvd
Santa Rosa
23,600
Humble Abode, Inc./Gil Saydah (Keegan & Coppin Co., Inc.)
Theodore Lowpensky/Kevin Doran (Keegan & Coppin Co., Inc.)
Industrial Gross Lease
170 Todd Rd
Santa Rosa
12,000
Fairweather & Assoc./Mike Flitner (Keegan & Coppin Co., Inc.)
Todd Associates LLC/Jim Sartain, Bill Faherty & Joel Jaman (Keegan & Coppin Co., Inc.)
Industrial Gross Lease
2975 Dutton Ave
Santa Rosa
9,750
Adaptability/Nick Egide (Meridian Commercial)
Guido & Theresa Farina/Chris Castellucci (Keegan & Coppin Co., Inc.)
Industrial Gross Lease
3025 Dutton Ave
Santa Rosa
6,100
Sonoma County Superior Court/ Denis Plehn (Cornish & Carey Commercial Newmark Knight Frank)
Canteen Services of Northern CA, Inc./Gil Saydah (Keegan & Coppin Co., Inc.)
Industrial Gross Lease
170 Railroad St
Santa Rosa
5,000
3CM Partners, Inc./Rosemarie Corrigan (Sothebys Intl Realty)
Hyatt Vineyard Creek/Rhonda Deringer & Kevin Doran (Keegan & Coppin Co., Inc.)
Office Full Service Lease
Address San Mateo County
Santa Clara County
Sonoma County
commercial SALES City
Property Size
Buyer
Seller
Sale Price
Price/ Sq. Ft.
Project Type
Brokers
2801-2809 Faber St
Union City
55,632
Union Property Group
Huntleigh Development
N/A
N/A
Warehouse/ Distribution
Buyer: Lee & Associates; Seller: Chet Barney (Colliers International Oakland) & Cassidy Turley BT Commercial
42996 Osgood Rd
Fremont
16,830
InnoDisk USA Corp
Fitronic Commincation Corp
$2,187,900
$130
Manufacturing
Buyer: Sherman Chan (CB Richard Ellis); Seller: Danny Yu (Cassidy Turley BT Commercial)
San Jose
31,900
Thomas Steuber
Lori Bluett
$2,600,000
$81.50
R&D/Flex
Buyer: Cornish & Carey Commercial Newmark Knight Frank; Seller: Mike Barry & Scott Prosser (CB Richard Ellis)
1820 & 1830 Meda Ave
Santa Rosa
4.64 Acres
Pitts Investment, LLC
Ceruleun Asset, LLC
$700,000
$3
Residential Development Land
Buyer: Chris Pellascini (Tombe Realty); Seller: Ken Bizzell & Joel Jaman (Keegan & Coppin Co., Inc.)
705 Stony Point Rd
Santa Rosa
18,800
Bedrosian Tile
Pierce Hardy, LP
$1,000,000
$53
Industrial
Buyer: Shawn Johnson (Keegan & Coppin Co., Inc.); Seller: Cheri Bomar (84 Lumber Co. Corp. Counsel)
939 Transport Wy
Petaluma
18,528
Steven Mahrt
Richard Bergmann
$1,375,000
$74
Industrial
Buyer: N/A; Seller: Chris Castellucci (Keegan & Coppin Co., Inc.)
3635 Standish Ave
Santa Rosa
13,500
WLU, LLC
Ken & Jill Davenport
$1,100,000
$81
Industrial
Buyer: Jeffrey Wilmore (Keegan & Coppin Co., Inc.); Seller: Shawn Johnson (Keegan & Coppin Co., Inc.)
Address Alameda County
Santa Clara County 2021 N Capitol Ave
Sonoma County
O C TO B E R 20 1 1
theregistrysf.com 37
10Calendar
january february march april may june july august september october november december
4
CREW Network and the Commercial Real Estate Community will host The Final Frontier: A Seminar on Women as Entrepreneurs in Commercial Real Estate from 1 p.m. – 7 p.m. at Omni San Francisco, 500 California St., San Francisco. Members $75 and non-members $95. Wine tasting only cost is $35. Contact llundin@lbgfunds.com for information. CREW Silicon Valley will host a luncheon and program called Get Noticed… Get Referrals starting at 11:30 a.m. at SV Capital Club, 50 W. San Fernando, Ste. 1700, San Jose. Members $30 and non-members $80. Visit www.crewsv.org for more information.
5
ULI San Francisco will host a Westbrook Plaza Tour from 7:30 a.m. – 9 a.m. at Westbrook Plaza, 277 7th St., San Francisco. Members $25 and nonmembers $85. Visit www.ulisf.org for more information.
USGBC Northern California Chapter will host an event called Visionary: Steven Ehrlich from 5:30 p.m. – 8 p.m. at UC Davis Conference Center, 550 Alumni Lane, Davis. Members $25 and non-members $35. Contact Marina Hill at info@aiacv.org or call 916.444.3658 for more information. BOMA Oakland/East Bay will host a Mandate Recycling Seminar from 8:30 a.m. – 10:30 a.m. at Five Star Center, 500 12th St., Oakland. Members $5 and non-members $25. Visit www.bomaoeb.org for more information.
5-7
2740 Zanker Rd., Ste. 100, San Jose. Visit www.iida-nc.org for more information.
Marquis, San Francisco. Visit www.norcal-ai.org for more information.
ULI San Francisco will host a Treasure Island and Yerba Buena Island Tour from 2 p.m. – 5 p.m. at Treasure Island Development Authority, 410 Ave of the Palms, San Francisco. Members $45 and non-members $75. Visit www.ulisf.org for more information.
IFMA Silicon Valley Chapter will host an event called Performance Based Sustainability from 5 p.m. – 8 p.m. Visit www.ifmasv.org for more information.
8
SPUR will host an event called Reclaim Market Street! Sidewalk Intervention starting at 12 p.m. This event is free and open to the public. Visit www.spur.org for more information.
10
ULI San Francisco will host Re-envisioning the Workplace at the Hub SOMA from 12 p.m. – 1:15 p.m. at The Hub, 901 Mission St., San Francisco. This is a free members-only event. Visit www.ulisf.org for more information.
12
ULI San Francisco will host an event called The Hot Bay Area Apartment Market: A Bubble or Long-Term Trend? from 4 p.m. – 5:30 p.m. at Scott’s Seafood Restaurant, 1333 North California Blvd., Walnut Creek. Members $35 and non-members $85. Visit www.ulisf.org for more information. CREW San Francisco will host an event called Show Me The Money...If You Can Find It! Today’s Lending Market Trends and the Outlook for Tomorrow from 11:30 a.m. – 1:30 p.m. at City Club of San Francisco, 1000 Sansome St., San Francisco. Members $65 and non-members $75. Visit www.crewsf.org for more information.
BOMA San Francisco will host a course called Design, Operation & Maintenance of Building Systems, Part 2 from 8 a.m. – 5 p.m. at Lower Level Conference Center, 44 Montgomery St., San Francisco. Members $1,010 and non-members $1,110. Visit www.bomasf.org for more information.
BOMA San Francisco will host a Member Benefit Review from 11:45 a.m. – 1 p.m. at BOMA Conference Room, 233 Sansome St., 8th Floor Conference Room, San Francisco This is a free event and open to everyone. Visit www.bomasf.org for more information.
6
13
BOMA Silicon Valley will host the Commercial Real Estate Awards Dinner starting at 5:30 p.m. at Convention Plaza Hotel, 282 Almaden Blvd., San Jose. The cost is $65 per person for both members and guests. Visit www.boma-sv.org for more information. BOMA San Francisco will host the 2011 Election Forecast and Legislative Forum from 8:30 a.m. – 11 a.m. Visit www.bomasf.org for more information.
7
IIDA Northern California Chapter will host the Second Annual Ice and Dice from 6 p.m. – 9 p.m. at Pivot Interiors,
38 theregistrysf.com
O C TO B E R 20 1 1
BOMA Oakland/East Bay will host a luncheon. Visit www.bomaoeb.org for more information.
BOMA San Francisco will host the Annual Membership Meeting and Member Recognition 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.
14
Appraisal Institute Northern California Chapter will host the 2011 Annual Fall Conference Real Estate and Appraisal Symposium at Marriott
19
20
CREW East Bay will host the ECHO Awards and Signature Sponsor event. Visit www.eastbaycrew.org for more information. CoreNet Northern California Chapter will host a chapter meeting called Implications of Pending FASB Changes from 3:30 p.m. – 7 p.m. at Symantec, 401 Ellis St., Mountain View. Contact aburke@hp-assoc.com or call 415.371.1734 for more information.
24
BOMA Oakland/East Bay will host a Golf Tournament starting at 9:30 a.m. at The Course at Wente Vineyards, 5050 Arroyo Rd., Livermore. Visit www.bomaoeb.org for more information. CCIM Northern California Chapter will host a CI 102 Market Analysis course in San Francisco starting at 7:30 a.m. at Carnelian By the Bay, One Ferry Plaza, San Francisco. Contact NCalCCIM@ccim.net or call 866.588.CCIM for more information.
25
Appraisal Institute in Fresno will host an event in which the Fresno area appraisers gather at Fort Washington Country Club, Fresno. Call 559.433.9257 for more information.
27
BOMA Silicon Valley will host a Fall Harvest Membership Mixer starting at 5:30 p.m. at the new offices of Orchard Commercial, 2055 Laurelwood Rd., Santa Clara. The cost is $20 per member. Visit www.boma-sv.org for more information. USGBC Northern California Chapter will host a LEED Green Associate Exam Prep workshop from 8:30 a.m. – 5 p.m. at Bishop Ranch Conference Center, 2623 Camino Ramon, Ste. 175, San Ramon. Members $295 and non-members $345. For more information, contact info@usgbc-ncc.org.
28
BOMA Silicon Valley will host a Ethics is Good Business Short Course from 8:30 a.m. – 4:30 p.m. at BOMA SV Offices, 63 Metro Dr., San Jose. Members $275 and nonmembers $325. Visit www.boma-sv.org for more information.
Optimism, Optimism, Where Art Thou? continued from page 30
In connecting the dots, what we know is a that a lack of business-owner optimism heralds slow or negative GDP growth and a cessation of hiring and, sometimes, even layoffs. It also leads to a halt in wage increases or, perhaps even wage declines. We see major concern among business owners and executives regarding lack of demand. Without demand, we cannot climb out of the economic hole in which we currently reside. Most demand spurts that we have seen in the past few years were created synthetically by costly government programs that had relatively short-lived effects (cash for cars, cash for houses, cash for appliances). Another great concern for CFOs was government policy and agendas. With an upcoming election year, uncertainty will rear its head. Corporate America and the stock markets do not like election years. This will likely hamper growth, as a normal reaction to uncertainty is to clamp down on the status quo rather than spring into action. Without small business and employment growth, there will be no new money in folks’ pockets to increase demand
for products and services. There will also be reduced motivation and ability for folks to purchase or upgrade their homes. Once again, San Francisco and the Bay Area in general will be insulated from the full brunt of these negative market forces as we are in fact adding jobs, but the attitudes captured in these surveys should still be of great concern. As stock markets worldwide are telling us, sentiment about the U.S. and global economies has been volatile, indeed. Hopefully as the year continues and 2012 begins, some currently unforeseen market forces will nudge our economy and housing market into a new and better orbit. In the meantime, as agents, it is our duty to work with the conditions on the ground and to give our clients their best options. Until those better times are upon us, I will imagine the star-crossed lover Romeo announcing, “It is the east, and the economy is the sun.� Adieu. n Rob La Eace can be reached at 415.290.7228 or rob@roblaeace.com.
FINAL OFFER
❯
MICHAEL PHILLIPS President of Jamestown Realty Co. Managing Director of Jamestown Properties
Big and Bold By Sharon Simonson Compared to many real estate companies, Jamestown Properties is a low-profile player in the Bay Area. The company owns San Francisco’s Pacific Place at Fourth and Market Streets, and it used to own 400 Post St., which it sold in 2007 for $103 million, a record price. It also bought the nearly 600,000 square-foot Alameda Towne Centre in January for $181 million from Harsch Investment Properties. It promptly changed the name back to Alameda South Shore Center, which the property had carried for close to 50 years, from the time it opened in 1958 until 2002. But don’t let its relatively light regional footprint mislead you. Jamestown’s ties to the Bay Area are stronger than they seem. Last year, it sold Google Inc. 2.9 million square feet of offices and data center space in a former Port Authority building in New York City. The deal, which had a $1.78 billion price tag, was the year’s largest single-asset sale globally, according to Real Capital Analytics. Michael Phillips, president of Jamestown Realty Co. and managing director of Jamestown Properties, also has personal links to the region. He was born at Stanford hospital, and both parents attended Stanford University and the University of California, Berkeley. His mother remains in Palo Alto. Jamestown’s investment at Pacific Place, 430,000 square feet at Fourth and Market streets with offices, a hotel and retail adjacent to the Westfield San Francisco Centre, and its plans in Alameda are mirrored in other markets where the company does business. Its formula taps into some of the common preoccupations of the day— sustainability, transportation, infill redevelopment and “place-making.” But Jamestown’s projects also have something more. Scale, for one, and history, which they use to tap into a community’s psyche. “It is a prerequisite that [property] has some intrinsic quality beyond bricks-and-mortar, some greater contextual value,” Phillips said. Whatever that “intrinsic quality,” it is leading Jamestown to undertake huge transformative endeavors. The New York property acquired by Google, for instance, is across from Jamestown’s Chelsea Market, a former biscuit-factory complex in the meatpacking district now remade into a million square-foot office and retail center. The market building itself is built around the High Line, a not-quite 1.5-mile elevated linear park, the second phase of which opened in June. The park is built on the foundation of a former freight-train track, which operated above the city streets for nearly 50 years until closing in 1980. Jamestown recently bought out its partners’ interests in Chelsea Market and plans to add 300,000 square feet. In July, Jamestown announced that it had undertaken another mammoth project, this time in its Atlanta hometown. It plans a remake of a 2.1 million square-foot property constructed in 1926 by Sears, Roebuck & Co. as a retail store, warehouse and catalogue-distribution center. It is the largest brick building in the southeastern United States, and the site was linked directly to freight and trolley lines. The building has been “famously vacant for 30 years,” Phillips said. The company plans to knock over an existing parking deck and to integrate parking into the structure itself. It also plans apartments, a hotel, restaurants, shops and offices. Atlanta’s BeltLine, a network of public parks, multi-use trails and transit along a 22-mile railroad corridor, is being built alongside. Jamestown paid the city of Atlanta $15.5 million at closing, or less than $7.50 a square foot. It owes another $11.5 million, once the development meets milestones. Overall, it estimates it will be a $180 million redevelopment. The Bay Area, New York City, Washington, D.C. and Boston are the company’s most important target investment markets, Phillips says.
40 theregistrysf.com
O C TO B E R 20 1 1
How does the Bay Area fit your investment criteria? MP ❯ San Francisco has a very clear sense of itself. The Bay Area as a whole has intact community cultures. It is a place that is fed by multiple macro trends. It is the gateway to Asia; Silicon Valley is a the gateway to tech and media. It is very much a center of the food culture in America. We think there is a macro trend in America for media and tech businesses to locate in these alternative buildings. You are seeing it in SoMa with Twitter [in the former San Francisco Mart building, which has 1.1 million square feet]. It is the evolution of the horizontal campus into its incarnation as a vertical campus, and these older, massive buildings provide that opportunity. As a company we are really focused on shifting that paradigm. Why two million square feet in Atlanta? MP ❯ This is a building that is loved by many people. We have a storied project where people share their stories about the building. Many people worked in the building when it was Sears. When it is finished it will be distilled down to about 1.1 million square feet of leasable space. A third will be retail that is dynamic and interesting, a third will be offices and a third will be residential with either a hotel or apartments. When you break each of those components down, it makes something that is overwhelming a lot less. You are not starting with a 60-acre site that is empty. We also are already the landlords of some of the best restaurants in America. We have significant interest in the offices and a waiting list of 500 interested people who want to live in apartments there. How does Alameda fit into these ideas? MP ❯ It started life as an independent bedroom community to Oakland and San Francisco, then became a Naval Air Station and became relevant to two generations of people in the 1940s, 1950s and 1960s. My mom flew out of the Alameda Air Station when she was 11. Alameda itself has a culture of a place of valuing Victorian architecture. The South Shore Center was one of the first large shopping centers in the Bay Area. It still draws from Oakland and Walnut Creek and other locales. It is a great example of where retail is headed in America, a large, double-anchored power center suitable for a family with kids, retired people, retired military personnel. It is not all one thing. It is a place where many constituencies overlap. It is also a 45-acre shopping center on the beach. We have waterfront restaurants, but our plan is definitely to find better ways to connect to the water and create amenities for people around that. Do you ever do commodity real estate? MP ❯ No. We think what we do is a better investment and a better way to spend your time. It’s more creative, rewarding and exponentially delivers more kinds of dividends in terms of benefitting the community or incubating great small business. As the workforce changes and people’s expectations of what is great and accretive to their lives changes—in the 1950s, the frozen TV dinner was heaven; today it’s an organic tomato—in the office or shopping environment, people are saying we want alternative work environments and the democratization of light and air. There is this intersection of history, art and quality of life and expression. People don’t want to work in traditional, homogenous offices. They want to feel their relationship to the street and outdoors and nature. n