The Q | Commercial & Residential Real Estate by The Registry

Q A publication by july | august | september | 2013

www.theregistrysf.com 3: 2013

private-sector construction

HEART STARTER | PG. 4 Transbay tower

MIXING IT UP | PG. 9 Van Ness & Market

UPGRADING | PG. 14 THE COMMERCIAL ISSUE 2013

Mission Bay

IT’S ALIVE | PG. 19 Redwood City

RISE AND SHINE | PG. 25 San Jose’s ‘urban centers’

GETTING HIP | PG. 31 North San Jose

GOING UP | PG. 36 Caltrain

ELECTRIFYING RESULT | PG. 42

Q THE

Commercial & Residential Real Estate

In the sweet Spot

one workplace

A GOOD PLACE | PG. 47 Atel headquarters

A WORK OF ART | PG. 52

volume 2, number 3

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Q RATIO =

Total Market Value of Firm Total Asset Value

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Q3:2013 | the commercial issue

inside 4 | Development

31 | Santana Row

build it because they are coming

Hipster alert

Billions of dollars of new construction defines commercial real estate for 2013.

9 | transbay transit center The Center of It All San Francisco’s Transbay Transit Center spurs private-sector development.

14 | van ness & Market Virtuous Cycle Mid-Market renewal spreads west.

19 | mission bay it’s alive Life-science hub Mission Bay reaches ‘critical mass.’

Santana Row and Valley Fair are becoming a South Bay center of gravity.

36 | North San Jose going up The sprawl of the South Bay is getting a multi-story makeover of offices and housing.

42 | transportation oncoming train Developers make tracks to Caltrain stations from San Francisco to Silicon Valley.

47 | one workplace a good place Urbanites sniff that Silicon Valley lacks place, but that is so yesterday.

rapid transit

52 | ATEL capital group

Sleepy downtown Redwood City wakes from its reverie.

Luxurious is an understatement.

25 | redwood city

super light

on the cover: The Transbay Transit Center emerges in San Francisco. Laura Kudritzki

online The Premier Provider of Bay Area Real Estate News. www.theregistrysf.com events | daily breaking news | market trends | design Let The Registry tell your story. Send your news releases to news@theregistrysf.com.

letter from

the PUBLISher

Dear Reader, As a seven-year Bay Area resident, I am proud to say that I have now lived through one full real estate cycle in the region. That may not mean much to many of you, but I think the significance is clear: How brief the peak-to-trough-to-peak ride has been. Even while preparing this magazine, we’ve found ourselves wondering how to adequately capture— at least in essence—all the activity; it is not easy. We undoubtedly live in one of the most exciting real estate markets in the country, maybe even the world. San Francisco is now an innovation and technology hub, a center of gravity in its own right. The traditional epicenter of Bay Area technological prowess, Silicon Valley—or, to be precise, the South Bay, because one can argue that Silicon Valley starts in San Francisco county—had lagged. But with new headquarters planned, under construction and nearly complete from a stunning array of companies including Nvidia, Samsung, LinkedIn, Apple, Synopsis, Juniper Networks and Google, the region has reasserted itself at the top of the tech pantheon. With technology’s penetration into every aspect of our lives, we are living today in an interconnected world that is acutely dependent on the products and services that our companies create. Almost every technology company in the Bay Area today is global, with clients on every continent in every industry, making them—and us—less susceptible to unexpected and isolated economic shifts. This globalization should ensure less volatility in their businesses, and by extension, a safer bet that their growth, and our regional importance in the world economy, is sustainable. At home, the phenomenon is expressing itself in the creation of thousands of new jobs and millions of square feet of new construction—housing, offices and even retail. As the second quarter drew to a close, Jones Lang LaSalle reported that the South Bay has more than 6 million square feet of office space under development or renovation with much of it pre-leased. Another 2.8 million square feet of offices are under development in San Francisco, nearly 1.5 million square feet already leased. Late in the quarter, Tishman Speyer broke ground on The Lumina, a two-tower condo development with 655 homes—the largest residential project ever built in San Francisco. It should surprise no one that National Football League owners in May voted to hold Super Bowl L in Santa Clara in 2016. The big question, of course, is where the regional recovery goes next. In San Mateo, where I live and work, a lot is happening. To me, it is one of the best locations in the region—equidistant from San Francisco and the South Bay; connected to the East Bay by the San Mateo Bridge; and minutes from the San Francisco airport, which connects us to nearly any place on earth. Others seem to share my sentiments. The Wilson Meany-Stockbridge re-development of Bay Meadows adjacent to Caltrain with offices, shops, homes and apartments is surging forward after years of planning and infrastructure development. Across the street, the Hillsdale Shopping Center with 1.3 million square feet is being reconfigured and repositioned to make it more pedestrian friendly and open to the street and the community. Inevitably, this will make traffic even more unbearable, but the progress of both projects is one barometer of the regional economy’s health. All of which reminds me of something TMG Partners’ Matt Field said at a panel that we hosted a few months ago in Mission Bay: “Others would kill to have our problems.” Thank you for your interest in our publication. Please send us your comments or questions. Regards, Vladimir Bosanac Publisher 2

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Q THE

Publisher Vladimir Bosanac (415) 738-6434 vb@theregistrysf.com

President Heather Bosanac (415) 738-6434 heather@theregistrysf.com EDITOR-IN-CHIEF Sharon Simonson (408) 334-2512 ssimonson@theregistrysf.com ASSOCIATE EDITOR Robert Celaschi EDITORIAL Mary Ann Azevedo Matthew Berger Robert Celaschi Hayden Dingman Veronica Dolginko Neil Gonzales Barbara E. Hernandez Nathalie Pierrepont Maria Shao Sharon Simonson Josh Wein DESIGN Laura Myers Design Photographer Laura Kudritzki Advertising Denise Franklin (408) 366-1984 denise@theregistrysf.com News news@theregistrysf.com Feedback letters@theregistrysf.com Subscriptions subscriptions@theregistrysf.com (415) 738-6434 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. ©2013 Mighty Dot Media, Inc. All rights reserved. This publication and/or its contents may not be copied, reproduced or republished in whole or in part without the written consent of Mighty Dot Media, Inc.

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IT DOESN’T TAKE A REAM OF STATISTICS TO PROVE THAT THERE’S A SURGE OF CONSTRUCTION

from San Francisco through Silicon Valley. The cranes, rising buildings and proliferation in constructionrelated news illustrate bountifully what the numbers detail: New development and construction has been sustained and expanding over the last three years and continues on the same path in the fourth. From $552 million in commercial construction starts during 2010 in San Francisco, San Mateo and Santa Clara counties, activity swelled to $606 million in 2011 and to $742 million last year, according to a report compiled for The Registry by McGraw-Hill. Projects starting in the first quarter have put 2013 on track to see construction valued at nearly $1 billion begin this year—and that doesn’t take housing into account. Look deeper and the picture sharpens even more. From San Francisco’s booming South of Market neighborhood down to North San Jose, access to Caltrain public transit correlates strongly with new development. Caltrain ridership from San Francisco to the Silicon Valley has doubled since 2004, with more than 47,000 passengers on average each weekday. With the train’s electrification, service is to expand again. Property values near stations are clearly rising faster than the market at large. Beginning at the new $1.6 billion Transbay Transit Center in San Francisco, scheduled for a 2017 opening, transportation-linked development nodes are forming along the Caltrain line from San Francisco’s Mission Bay and SoMa to Redwood City’s Depot Circle and San Mateo’s Bay Meadows, to clusters of development in Menlo Park, Palo Alto and Mountain View. All demonstrate a public-transit consciousness that has emerged with ferocity since the 2008 bust, the aging of the echo boomer generation and economic recovery. In deep Silicon Valley, higher-density redevelopment at Santana Row and in North San Jose is driving the suburban version of a transportation-served urban renaissance.

Billions of dollars in new construction— public and private— defines commercial real estate in 2013.

Construction equipment has been a common sight from San Francisco’s Mission Bay, shown here, all along the Peninsula into San Jose.

Laura Kudritzki

www.theregistrysf.com

Are Coming

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development

“Whether it is infrastructure in the form of transportation or creating a convention center or sports team that’s attracting entertainment to a place, all those things drive capital investment.” Mike Straneva, Americas real estate sector leader, Ernst & Young

The largest commercial project in all three counties to start to cross, he noted, and the region has streams of privately owned in 2013 is the Sunnyvale campus for LinkedIn Corp. JP DiNapoli buses to take commuting workers to the campuses of Google and Companies Inc. got the green light to re-do the existing research other tech companies. and development campus, then sold the site and build-to-suit The investments in large-scale public projects such as the contract to Kilroy Realty Corp. at the end of last year. Kilroy is Transbay Transit Center in San Francisco and quasi-public investing about $315 million to develop 538,000 square feet of projects such as the new 49ers football stadium in Santa Clara offices in a trio of buildings, and a 480,000-square-foot parking and the Earthquakes’ soccer stadium in San Jose are likely to fuel garage. Kilroy is aiming for a 2014 completion. more development still. “Whether it is infrastructure in the form The South Bay’s Westfield Valley Fair mall is also upgrading, of transportation or creating a convention center or sports team replacing an existing parking garage with a modern version and that’s attracting entertainment to a place, all those things drive adding more than a dozen new stores. capital investment,” said Mike Straneva, Americas real estate But developers are finding opportunity nearly everywhere from sector leader for Ernst & Young. He cited San Francisco’s AT&T San Francisco to North San Jose. Redwood City has more than Park as one good example. “That lit up the whole downtown. 800,000 square feet of construction approved or under way, much There was more shopping, more everything. People wanted to go. of it health care related. Menlo Park has approved construction I think you are going to see the same thing with the new 49ers staof 110,000 square feet of commercial space near downtown and dium. I think the Caltrain electrification will do the same thing.” the Menlo Park Caltrain station. Facebook Inc. Not all public projects have the same sort of has approvals to build over 430,000 square feet impact on development, though. A commuter at its West Campus on Constitution Drive. In rail station’s impact is likely to be limited to Mountain View, four office projects are in the whatever land is within walking distance, while a works totaling 178,000 square feet. stadium can have a regional impact. Palo Alto has more than 340,000 square But some places, and San Francisco is one, feet of offices going up in three projects, plus have become brands in and of themselves. nearly 600,000 square feet of parking garages. Any major investment helps the entire brand. “Things are booming here,” said Chief Planning “When you put major dollars into an area, Official Amy French. Deep-pocket developers it elevates it in people’s eyes,” Straneva said. don’t shy from the expensive real estate, she said, “Everything is about eyes. How many pairs of and while none has revealed profit margins to eyes will be there to shop, to dine, and in turn, her, “We have $6-a-square-foot retail space, and to live.” Roxy Rapp I don’t see anyone crying.” And while the Bay Area is notorious for high Roxy Rapp is shedding no tears. Roxy Rapp & Co. has developed more than 30 projects from mixed-use buildings to high-end offices. “I feel very lucky that over 90 percent of the properties I own are in Palo Alto,” Rapp said. The area, while not recession-proof, tends to get sniffles when other cities are laid low. Even in the worst of the recession, he saw only a 2 percentage point drop in occupancy and rents, he said. “And we are already back up where we were before.” Palo Alto and Menlo Park are equally stiff places to get projects approved, but Palo Alto yields higher rents, he said. Availability of public transit is more important then ever for a commercial project to succeed, Rapp agreed. Young tech workers want a San Francisco home address to go along with a Silicon Valley paycheck. Cars stopping at intersections near the Palo Alto downtown Caltrain station have long waits for pedestrians

www.theregistrysf.com

cost and bureaucratic complexity, Straneva said, when a developer does break through, it’s tough for competitors to match. That helps explain why Emerging Trends, a report from the Urban Land Institute, ranked San Francisco as a top region for real estate investment and development across all property types this year, citing a strong tech market where workers are leading a structural change away from suburban homes and toward downtown. Looking ahead, Stanford University alone has about 1.5 million square feet in plan review in Redwood City, comprising 13 buildings and four parking garages. Menlo Park has approved a general plan amendment and rezoning for nearly 700,000 square feet of offices, a 235-room hotel, and various commercial buildings like fitness centers and restaurants on two sites near the U.S. 101 interchange at Marsh Road. Also in Menlo Park, SRI International

Valley Fair Mall, left, and a rendering of Samsung Semiconductor’s planned corporate campus in Silicon Valley.

Laura Kudritzki rendering courtesy of NBBJ

has proposed a phased 25-year modernization of its campus on Ravenswood Avenue. Silicon Valley’s Golden Triangle, bracketed by U.S. 101, U.S. 880 and state Highway 237, is gaining momentum. Besides the 49ers stadium, two new corporate campuses—680,000 square feet for Samsung Semiconductor Inc. and a million square feet for Nvidia Corp.—headline revival. Developers including Southern California’s Irvine Co., San Francisco’s Jay Paul Co. and Legacy Partners Commercial are remaking Highway 237 with Class A offices for companies such as Amazon.com’s Lab126, Microsoft Corp., Motorola Mobility (now Google), Polycom Inc. and Flextronics. In recent months, Trammel Crow Co. bought 57 acres and South Bay Development Co. acquired 30 acres from Cisco Systems Inc. for additional office and research buildings along Highway 237. Nearby, developers are remaking and modernizing hundreds of thousands of square feet of existing research and development

space along North San Jose’s Orchard Parkway. Lowe Enterprises and Five-Mile Capital Partners are laying the groundwork for a 2.8 million-square-foot, master-planned development in the same vicinity. So is Ellis Partners, which is pursuing 660,000 square feet of new office and research development at Orchard Parkway and Atmel Way. Can the area sustain this construction boom? Very likely, Straneva said: “The big thing that you have to realize is that real estate is a lagging indicator.” Commercial real estate markets also don’t move in unison. Thriving tech companies create new jobs, so demand for apartments and housing usually comes first. That spurs retail, which in turn increases the need for warehouse and industrial space. Around the country, some major metropolitan areas are seeing strength in some sectors. Office demand is up in pockets around Washington, D.C., and Texas has good growth in jobs and multifamily housing. But only the Bay Area is firing on all cylinders.

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The Transbay Transit Center begins to take shape along San Francisco’s Mission Street.

Laura Kudritzki

The Center of It All Maria Shao

CALL IT A NEW HEART for downtown San Francisco. Right now, it’s a five-acre hole, 65 feet deep. Since spring 2011, crews using cranes, rigs, excavators and other gear have been digging dirt and pouring concrete below San Francisco’s Mission Street. They have excavated a Columbian mammoth’s tooth, Chinese porcelain teapots, copperplated spoons and 19th century apothecary jars. Roughly 300 steel pipes, three feet in diameter, crisscross the hole, bracing the surrounding walls. Throughout the site, digital sensors and automated surveying instruments provide real-time data on the shoring walls and groundwater levels to engineers working in the canyon below. From this enormous pit, a $4.2 billion crown jewel for San Francisco will emerge: The Transbay Transit Center, scheduled to open in 2017, is a once-in-a-generation public investment, a Grand Central Station of the West that will link 11 bus and transit systems to a pedestrian- and bike-friendly urban core. Private developers are rushing to ride the economic swell that will dramatically change San Francisco’s skyline and expand

and upgrade its downtown. Among the new buildings will be San Francisco’s tallest, the 60-story Transbay Transit Tower, which will connect to the terminal’s 5.4-acre rooftop park. Nearby, mostly on Folsom Street, will be residential high rises, town homes and other housing. The terminal’s construction “will change the face of the South of Market Financial District,” said Matt Lituchy, chief investment officer for Jay Paul Co., which is building a skyscraper in the zone. “We will have the best transportation hub in the Western U.S. The city’s center is shifting from north of Market [Street] to south of Market.” For the project’s first phase, the Transbay Joint Powers Authority, formed in 2001, has raised $1.6 billion from federal, state and local sources to build a 1 million-square-foot station designed by Pelli Clarke Pelli Architects. It replaces the original Transbay terminal, which was built in 1939 and demolished in 2011. Idled freeway ramps nearby, damaged in the 1989 earthquake, also were torn down.

The result: The state gave 19 acres to the project, 12 of them developable. Sales of this land will generate at least $500 million that the TJPA can use to fund construction. The second phase will extend San Francisco’s Caltrain line from the station at Fourth and King streets to the terminal via a 1.3-mile tunnel, largely under Second Street. The tunnel would provide uninterrupted service from downtown San Francisco to the Peninsula and Silicon

San Francisco’s Transbay Transit Center spurs billions of dollars in private-sector construction. Valley. Someday high-speed rail may connect to Southern California. So far, $600 million of the $2.6 billion for Phase 2 have been raised. Over 15 years or so, 6 million square feet of new offices and 4,500 new housing units, of which more than 1,400 will be affordable, should be built in the Transbay district. In addition, 11 acres of new parks, 100,000 square feet of retail space and

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transbay transit center

Seifel Consulting expects commercial and residential properties up to three-fourths of a mile from the Transbay Transit Center to see their values boosted by $3.7 billion. nearly 1,000 hotel rooms will be created. “We are going to see the tallest buildings in the city go up around the new Transbay Transit Center. It is going to be one of the city’s great truly mixed-use neighborhoods,” said Gabriel Metcalf, executive director of the San Francisco Planning and Urban Research Association, a non-profit civic-planning group. Both phases of the project will lead to an estimated 125,000 jobs, and more than $87 billion in gross regional product will be generated through 2030, the TJPA predicted. TJPA adviser Seifel Consulting Inc. last year estimated that after completion of both phases, owners of commercial and residential properties up to three-fourths of a mile from the transit center would see their values boosted by $3.7 billion ($3.1 billion for existing developments and $580 million for new development) thanks to “proximity to transit, open space and other neighborhood amenities.” The terminal’s exterior will feature undulating perforated aluminum that lets people outside see in. It will have four levels—one underground for trains, a concourse, a ground level with a Grand Hall and Light Column that allows in natural light, and a bus level above ground. On top will be City Park, a 5.4-acre green roof with an amphitheater, gardens, a trail, grassy areas and lily ponds. In recent years, technology companies, startups and others have led the migration south of Market Street. Office rents in the South Financial District south of Market Street lagged those in the North Financial District until 2010, when the current real estate boom started. But by the first quarter of 2013, the average full-service gross rent in the South Financial District had climbed to $53.14 a square foot versus

$51.98 in the North Financial District, said Colin Yasukochi, director of research and analysis for Northern California at CBRE Group Inc., a real estate services firm. Now non-tech businesses are attracted to south of Market structures that offer open, flexible floor plans, water views and proximity to mass transit. Buildings opening in the next several years near the terminal, where transit access will be enhanced, will likely command rents starting in the mid-$60s to more than $100 a square foot a year for the best views in the top offices, Yasukochi said. At a minimum, the private sector is expected to invest roughly $2 billion to construct about 3 million square feet of office space close to the transit center, assuming a cost of about $650 a square foot, he estimated. That’s a sizable addition to the approximately 20 million square feet now in the South Financial District, he said. The most iconic newcomer will be the 60-story Transbay tower at 101 First St., just north of the transit center. This past spring, Boston Properties Inc. and Hines purchased nearly 50,000 square feet of land from the TJPA for $192 million—a San Francisco land record at $4,000 a square foot. With Boston Properties as 95 percent owner, the developers plan a 1.4 million-square-foot tower for about $1 billion, or $714 a square foot. Also designed by Pelli Clarke Pelli, the curvaceous glass and metal obelisk will stand 1,070 feet tall, with its crown illuminated at night. Plans call for it to be completed in 2016, succeeding the Transamerica Pyramid and the Bank of America buildings as San Francisco’s highest. “It’s going to be the marker for transit in San Francisco,” said Maria Ayerdi-Kaplan, TJPA executive director.

“It will provide a wonderful luminescent building you’ll see from all points.” The skyscraper offers companies a chance to create an urban, vertical campus. The tower will have floor-to-floor heights of 14-feet, nine-inches, with 25,000-squarefoot floor plates and column-free space of 43 feet to 45 feet measured from core to façade. Clear ceiling heights will be up to 12 feet, more than in many existing buildings. The arrangement accommodates a higher density of workers than older, more traditional office space. Mirjam Link, project manager for development at Boston Properties, expects several anchor tenants to lease 300,000 square feet to 500,000 square feet each, as well as a variety of smaller tenants. There will be 28 elevators and a generous number of restrooms. While the building code requires two stairways, three are planned so that tenants occupying multiple floors can have one for internal circulation with finer materials and finishes. Anchor tenants might also secure their own dedicated elevator banks. The building will have raised floors with exterior louvers to let in fresh air through ducts running under each floor to the building’s core, where the air will be heated or cooled before being circulated. All cables, wires, ducts and other hardware for heating, air conditioning and electricity will be installed below each floor. “It is much better air quality. It’s also more energy efficient,” Link said. The tower will link to the terminal’s rooftop park via a fifth-floor patio with seating and retail such as coffee and snack shops. There may be amenities such as a gym on the fifth floor. A public elevator will connect City Park to another public open area, Mission Square, at street level.

read more online: www.theregistrysf.com

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Giant Transbay Transit Center Also Giant Engineering Feat

Hines and Boston Properties Close on Record Land Sale for Transbay Transit Tower Parcel

http://tinyurl.com/theregistry-giant

http://tinyurl.com/theregistry-hines

Above: The Transbay Transit Center is slowly rising to its eventual 60-story height.

Laura Kudritzki

Left: The 30-story office tower at 350 Mission St. will feature showers, bike lockers and electric car parking spaces.

Rendering courtesy of Kilroy Realty Corp./Salesforce.com

For Salesforce, Another Transbay Office Building Rises http://tinyurl.com/theregistry-salesforce www.theregistrysf.com

transbay transit center

The tower’s location will make it a landmark. “There will be a combination of commercial and residential uses that will make San Francisco more and more of a 24-7 city. It’s a new type of neighborhood that’s going to be much different,” said Bob Pester, senior vice president and regional manager for Boston Properties. Also north of the transit center, Boston Properties is constructing a 27-story office building of 307,000 square feet at 535 Mission St. The company purchased the site for $71 million and expects to spend $215 million total to complete the edifice by fall 2014. Further north will be 350 Mission St., a 30-story structure of 450,000 square feet to be completed in early 2015.Kilroy Realty Corp. purchased the site for $52 million and will spend about $275 million overall to construct the building designed by Skidmore Owings & Merrill LLP as San Francisco’s first ground-up LEED Platinum structure. It will have a five-story lobby with a 75-by 45-foot digital-media wall plus showers, bike lockers and electric-car parking spaces.

In December, Salesforce.com Inc. leased the entire building. South of the terminal will be 181 Fremont St. Jay Paul acquired the site and plans a 54-story tower with 684,000 square feet by mid-2015. The first 38 floors will be offices and the 14 highest floors will be luxury condos. “It allows us to offer a product that’s a very special place to work and live. It’s part of this urban vision where people can work, entertain and play in the same core district,” said Lituchy. (See Jay Paul Stikes Again, next page.) South and east of the terminal, on Folsom Street and between Main and Beale streets, there will be clusters of housing, greenery and retail. Most of the dozen residential blocks will have combinations of high-rise, townhomes and mid-rises, with an estimated 35 percent dedicated to affordable housing. “We wanted to create a first-class, urban pedestrian neighborhood,” said Michael J. Grisso, senior project manager at the Office of Community Investment and Infrastructure, successor to the San Francisco Redevelopment Agency. The design was modeled on

housing in Vancouver. The neighborhood can accommodate 350 residences per acre, the highest density in San Francisco, Grisso said. Land for three residential blocks has been sold so far. Golub & Co. of Chicago, working with Mercy Housing Inc., agreed to pay $30 million in 2011 to purchase Blocks 6 and 7, where they will construct 409 market-rate residential units and 147 affordable units. On Block 9, Avant Housing LLC (a joint venture of AGI Capital and TMG Partners), Essex Property Trust Inc. and Bridge Housing Corp. paid $43.3 million for the land this year and plan to spend an overall $250 million to $275 million to build a complex that will include a 41-story building. That complex will have 570 units of which 114 will be affordable. A few blocks away, Tehama Partners LLC is marketing 41 Tehama Street, a planned 31-story luxury residential project with 341 units. The vision is that today’s construction pit of pipes, concrete and dirt will give rise to a transit mecca, surrounded by a dense core of offices, housing, parks and shops.

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Jay Paul Strikes Again

The Transbay district will feature a wide range of activities from transit, offices and homes to shopping, restaurants and parks. One tower being built in the neighborhood will echo its diversity: 181 Fremont St., the only mixeduse building in the district plan so far offering residences and offices. Jay Paul Co. expects to spend approximately $450 million to construct the 54-story structure, including purchasing the site from SKS Investments in March. When completed in mid-2015, it will be the second tallest in the district and have 684,000 square feet. The first 36 floors will hold offices; luxury condominiums will fill the top 17 floors. The 54th floor will be devoted to mechanical equipment. Small retail, such as food and coffee shops, will be on the ground floor. “We are big believers in vertical mixed-use projects. Mixed-use buildings in downtown are extremely sustainable and green because they promote living and working in the same vicinity. It’s the fundamental idea of walkable cities,” said Jeffrey Heller, president of Heller Manus Architects, the San Francisco firm Two-thirds of the that designed the building and is aimway to the building’s ing for at least a LEED Gold rating top, a double-height, from the Leadership in Energy and Environmental Design program. glass-walled gym Jay Paul Chief Investment Officer will separate offices Matt Lituchy said it is “complemenfrom condos. tary” to participate simultaneously in the residential and office markets. “It is a way to hedge bets. It’s somewhat of a conservative approach to this development.” The building, just southeast of the Transbay Transit Center, will be a slender tower on a compact site. The glass and steel structure will taper, meaning the floor area gets smaller on higher floors. The relatively small floor plans near the top of the building lend themselves to residences. These will command unobstructed views of water, bridge and city. “Views are one of the top selling points,” Heller said. The 75 condos, generally two- to three-bedroom units, will measure an average of 1,450 square feet each. Each floor will have two to eight homes, including penthouse units. Sales prices are expected to be $1,700 a foot to $2,500 a foot, meaning an average-sized condo at the lowest price would sell for about $2.5 million. The new residences will rival high-end San Francisco condos in the Millennium Tower, the Market Street Four Seasons Hotel and Resorts and the St. Regis Residences. Buyers are likely to be upper-level business professionals, retired or semiretired people, international consumers, young techies and others interested in a downtown location close to everything. Two-thirds of the way up the skyscraper, just below the residences, will be a level notched in from the building’s façade. This level is to be double height and feature amenities such as a gym, spa and community room, inside walls of glass. Encircling the amenities will be an outdoor deck behind a four-foot-high glass wall. The deck, offering an indoor-outdoor experience, can be used for running, walking or just sitting while enjoying panoramic views. The lowest 36 floors will hold 420,000 square feet of column-free office space. Floor plates start at about 15,000 square feet on lower floors and taper to 11,000 square feet on higher floors. There will be uninterrupted floor-to-ceiling heights of at least 10 feet. Net rents could start in the low $50s a square foot a year on lower levels and rise to the $70s a square foot on higher levels, said Karl Baldauf, senior vice president of Cornish & Carey Commercial Newmark Knight Frank, the brokerage marketing the office space. The building could attract both technology and traditional tenants, he said. 181 Fremont also will be one of only two buildings that connect directly to the Transbay Transit Center. On the fifth floor, a wide bridge is to link the tower to City Park atop the terminal. “The Terminal District is a game changer for San Francisco. When people get a chance to walk around the elevated park, they are going to be thrilled to be above the traffic and noise. This will be the new center of the city,” said Baldauf.

Developing offices and condos in 181 Fremont St. “is a way to hedge bets.” Matt Lituchy, chief investment officer, Jay Paul Co. renderings above courtesy of Jay Paul

Jay Paul Company Acquires San Francisco Transbay Development Site http://tinyurl.com/theregistry-jaypaulco www.theregistrysf.com

van ness & Market

Virtuous cycle Nathalie Pierrepont

PAWNSHOPS AND STRIP CLUBS once crowded the intersection of San Francisco’s Van Ness and Market streets, casting a pall that helped doom the west end of Market to neglect and decline. Now the crossroads is at the vanguard of renaissance, attracting millions of dollars in private-sector investment. The city approved a payroll-tax exclusion district for the neighboring mid-Market area in 2011. The dramatic impacts are visible everywhere: Construction cranes pierce the skyline. Metal scaffolding and colorfully painted plywood walls crowd the sidewalks. The tax policy exempts employers from a 1.5 percent payroll levy for hires made after the firms relocate to the area. The incentive has drawn Twitter, One Kings Lane, CallSocket, Yammer, Dolby and Square—and their roughly 3,750 employees.

Mid-Market renewal spreads west.

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Now the good vibes are emanating west as the young and educated workers coming to the area search for housing and amenities. “We’re basically creating a new neighborhood,” said Marc Babsin, principal of Emerald Fund, a San Francisco real estate developer that is transforming a former office building at 100 Van Ness Ave. into luxury apartments. Construction on the 400-foot tower began in April. Market at Van Ness long has had the attributes for a bustling and prosperous neighborhood. Flanked by the booming South of Market district and the quietly reviving Hayes Valley, City Hall and the Civic Center and San Francisco’s high-rise downtown, the central location, accessibility to public transit and proximity to cultural and governmental institutions should make it attractive. But revival has been a “long, long time coming,” Babsin said. Including the neighboring rough-and-tumble Tenderloin, 31 percent of households—more than three times the citywide rate—

Clockwise from right: A rendering of Crescent Heightsâ&#x20AC;&#x2122; 10th & Market apartments; a Hayes Valley garden; a bit of the grit that is giving way to new development; the streetscape at Market and Van Ness; and a restaurant in Hayes Valley.

Laura Kudritzki rendering courtesy of Handel Architects

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van ness & Market

Clockwise from top left: Crescent Heights complex at 10th and Market streets; a rendering of the 8 Octavia condos; the 8 Octavia site today; a sign touting the New Market area, or NEMA; Hayes Valley.

Laura Kudritzki rendering courtesy of Stanley Saitowitz | Natoma Architects Inc.

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“[Van Ness and Market Street] won’t ever be gentrified like South Beach. It will remain a pretty diverse area.” Marc Babsin, principal, Emerald Fund

live in “extreme poverty,” earning annual incomes below $15,000, according to city research completed in 2011. While more than half of San Francisco residents have bachelor’s degrees or more, only a third of the area population does. Nearly two-thirds of the residents are men, fewer than a quarter are families, and roughly half have jobs. The area has three times the liquor stores as other neighborhoods including San Francisco’s Bayview, Bernal Heights, Excelsior and Inner Richmond, and Oakland’s Fruitvale. Middle-class white San Franciscans migrated out of the Market and Van Ness area to the suburbs after World War II, according to the city. Then in 1989, the Loma Prieta earthquake brought down the Central Freeway (an extension of U.S. 101) after it crossed Market Street, laying bare the need for urban renewal. It took nearly 20 years, but in 2007, San Francisco adopted the Market and Octavia Neighborhood Plan. But because of the financial crisis, many development projects that were launched shortly thereafter were put on hold. The Market and Octavia Plan envisions a transit-oriented, high-density, mixed-use neighborhood at Van Ness and Market, with buildings reaching 400 feet to create “a visual landmark.” Very few other districts in the city excluding Downtown and South of Market are designated for high-rise development, Babsin said. “The planners thought that if we allocate sites for tall buildings we can actually get some kind of iconic neighborhood, and people will build off of that,” said Glenn Rescalvo, a partner at Handel Architects LLP. “Each of the four corners of that intersection are flanked with tall buildings, and it’s setting up the corridor of Market Street.” Handel is the firm behind Crescent Heights’ residential complex at 10th and Market streets. Miami-based Crescent became one of the first developers to act on the vision for the area in 2011 by launching 10th and Market Residences. Twitter Inc.’s new headquarters is across the street. Construction of the 754 units and 30,000 square feet of amenity space with a fitness center, a swimming pool, a fire pit and a billiards room is well underway. The south tower is set to open in the fall, and the north tower in the early part of 2014. Trinity Place, with 1,900 apartments and 60,000 square feet of new retail between Market, Mission and 8th streets, is open to visitors, with the first tenants to move in July. The first building, at 1188 Mission St., offers fully furnished junior one bedrooms and amenities like underground parking, fitness centers, bike storage and a do-it-yourself workshop. The second building, at 1190 Mission, which offers unfurnished junior-one-bedroom and one-bedroom apartments, will open in August. San Francisco real estate investor David Choo owns four parcels on Market Street between Franklin Street and Van Ness and engaged starchitect Richard Meier who designed a condominium development with a 400-foot tower and 180 homes atop a 65-foot

podium building. It is currently under California Environmental Quality Act review. At 8 Octavia Blvd., DM Development Partners LLC and DDG Partners are developing 47 condominiums, multi-level retail and parking in a property designed by Stanley Saitowitz | Natoma Architects Inc. It is expected to open in late 2014. A development at Market and 9th streets with 273 apartments and 5,000 square feet of retail is to begin leasing in the fall. As of the fourth quarter of 2012, 40 residential and commercial projects in the Market and Octavia area were in the pipeline, according to the San Francisco Planning Department. Drew Gordon, Hudson Pacific Properties Inc. senior vice president for Northern California, said the city’s interest in the area’s renewal is directly behind his company’s decision to invest where the mid-Market area gives way to the Van Ness corridor. “The mayor’s focus on improving that section of Market Street gave us a strong conviction to continue to look for investments in that location,” he said. Hudson Pacific acquired 1455 Market St. in 2010, which portable payment company Square Inc. will be calling home by summer. In June, Hudson Pacific acquired 901 Market St., with 122,000 square feet of offices and 90,000 square feet of retail. Nordstrom Rack has leased not quite half the retail. Chris Maguire, chief executive of Cypress Equities, already sees change. The Dallas-based real estate firm and Washington, D.C., private-equity firm The Carlyle Group are developing Market Street Place, a 250,000-square-foot retail center on Mid-Market. “Market has been this little war zone, but it’s not a dead-end—it’s between City Hall, now the new Twitter headquarters, Union Square, and the Financial District. It’s not on the wrong side of the tracks. It’s surrounded by plenty of high-income residential and retail hubs,” he said. “By the time we deliver our project in 2015, you’ll see people shopping, going to the theater and out to dinner,” he said, “because now they’ll have a reason.” Public safety, vacant storefronts, cleanliness and homelessness were the most common concerns expressed to the city by local residents, merchants and workers in 2011. As the buildings around Market and Van Ness and in the nearby mid-Market District fill with boutiques, coffee shops, hipsters, overworked programmers and Lululemon-clad yogis, a sense of community should emerge, grit and all. “You’re going to have a lot more people walking around, day and night, which brings more services, more retail, a greater sense of security,” Babsin said. “But there are certain things that aren’t going to change.” Fifty-one percent of the city’s single-room housing units, which provide affordable shelter for the poor, are in the mid-Market area. That will remain. “It won’t ever be gentrified like South Beach, which was built in the 1990s and 2000s. It will remain a pretty diverse area,” Babsin said.

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mission bay

Life-science hub Mission Bay reaches ‘critical mass.’

lIve

It’s A Barbara E. Hernandez

WHILE THE FINANCIAL CRISIS halted most commercial development five years ago, the University of California, San Francisco, never seemed to stop building at Mission Bay. In 2010, the university broke ground on the 289-bed, $1.5 billion UCSF Medical Center. By 2015, UCSF expects to finish a $3.4 billion Mission Bay campus with biomedical-research buildings, housing, clinics and a new hospital. More public investment is to follow.

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mission bay

In 2011 and 2012, the National Institutes of Health sent more than $500 million in grants a year to the University of California, San Francisco, twice the annual NIH funding that the school drew in 2007.

Table source: Successor Agency to the Redevelopment Agency of the City and County of San Francisco

The private sector has swooped in behind, building thousands of new apartments, condominiums and laboratory and office space. Not quite 5,100 homes are built, in planning or under construction. That excludes roughly 500 housing units at UCSF itself and another 500 on the books. Private developers have erected 1.7 million square feet of biotech office space while various foundations have built 424,000 square feet more. In total, the city of San Francisco has approved 4.4 million square feet of office and lab space in the enclave— excluding the UCSF campus. Mission Bay has blossomed in the last decade as the university became one of the National Institutes of Health’s largest

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public recipients of grant funding in the nation. In 2011 and 2012 combined, more than $1 billion in NIH grants went to the San Francisco university. “We have created a critical mass of programs [at Mission Bay] along with our new hospital,” Lori Yamauchi, UCSF assistant vice chancellor of campus planning, told the San Francisco Planning Commission earlier this year. In its 17 years, UCSF Mission Bay has grown to 57 acres, roughly a sixth of the 303 acres that make up the neighborhood. It has also become the locus of UCSF growth and will continue to be. UCSF focuses solely on teaching health sciences to nearly 3,000 graduate students plus 1,000 post-doctoral scholars. It is the city’s secondlargest employer with 22,500 full- and part-time staff and faculty.

ABOVE: Biomedical researchers at the UCSF Mission Bay campus (left); Koret Quad (right)

courtesy of UCSF

BELOW: Most of UCSF’s planned growth through 2035 is targeted for Mission Bay, as it has been for the last 15 years.

Stella Kudritzki

Currently at Mission Bay, UCSF is constructing the 878,000-square-foot women’s, children’s and cancer medical complex that will open in February 2015 and Mission Hall, a 275,000-square-foot building that will house Global Health & Clinical Sciences, scheduled to open in mid-2014. Two years ago, UCSF launched its land planning for the next 22 years. The growth—from 8 million square feet today to 10.5 million in 2035—will primarily occur at Mission Bay, as it has for the last 15 years. Under its new Long Range Development Plan, UCSF hopes to build an additional 984,300 square feet of research-instructionoffice space to add to its already planned 2.3 million square feet.

About 724,000 square feet of research space and 28,000 square feet of instruction space are also proposed for the middle of the campus. UCSF proposes another 523 units of housing in the northwest corner of the Mission Bay campus to reach a total of almost 1,000. It also promises retail pavilions in 3.2-acre Koret Quad, a full-size sports field, a revamped transportation plan and permanent child care facilities. As it maps out Mission Bay plans, UCSF already knows that it needs to take the interim step of finding 300,000 square feet of office space near the campus to centralize UCSF staff. “It could be a lease or something else, such as a build-to-suit,” said Esther Morales, UCSF’s real estate services executive director.

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mission bay

The entire Mission Bay project required $700 million in infrastructure and improvements, paid by taxes and assessments. It is expected to have in total more than $4 billion in development. The city hopes to have 6,000 homes and 4.4 million square feet of office space at Mission Bay, excluding the UCSF Mission Bay campus. “There was never a set schedule for Mission Bay, other than it was always anticipated to build out between 20 and 30 years. Mission Bay has been very successful and is anticipated to be completed on the earlier side of the range,” said Catherine Reilly, project manager for the Successor Agency to the San Francisco Redevelopment Agency. “We have currently under construction one affordable housing project, six market-rate housing, a public-safety building and the first phase of the UCSF hospital. There are also several additional projects that are starting design approval and should have permits in the next 12 months,” she said. Bosa Development, a Mission Bay pioneer, is working on its third condominium project. The company sold its last condo at the 329-unit Madrone development in April; its 99-unit Radiance at Mission Bay sold out in 2009. In March, Bosa started work on a Mission Creek site and is poised to start construction on 267 condos. Bemi Jauhal, Bosa sales and marketing director, said Mission Bay’s location minutes from Caltrain, the Peninsula and downtown San Francisco, plus sunny skies and water views, make it one of the most desirable city addresses. “We do have people that bought because they work at UCSF, but it’s not a huge number,” she said. San Francisco-based BRE Properties Inc. paid $41.4 million in 2011 for 3.84 acres at 1200 4th St. and is building 360 apartments and 17,000 square feet of shop space. Total development costs are $630,000 a unit. Also in 2011, California College of the Arts expanded its Mission Bay campus by purchasing 2.5 acres for $8.4 million. Alexandria Real Estate Equities Inc., a real estate investment trust that specializes in life-science tenants, spent $109.9 million on 210,000 square feet at 455 Mission Bay Blvd. South in 2011. As of June, the space is to house the headquarters of Rock Health, a startup accelerator. Alexandria sold two Mission Bay parcels to Salesforce.com Inc. for $278.2 million in 2011 but the planned campus has not been built. At the same time, Alexandria also has acquired 409 Illinois St. and 499 Illinois St. for $293.3 million. In May, the company said it leased 97,700 square feet of 499 Illinois, or 45 percent of the building, to an unnamed life-science company for 10 years. Other tenants include the California Institute for Quantitative Biosciences (QB3), Bayer AG, Celgene Corp., Fibrogen Inc., Nektar Therapeutics Inc. and venture-capital firms such as Novo Ventures, OrbiMed Advisors, Third Rock Ventures, venBio and Versant Ventures. Housing and mixed-use property developer Related California built Crescent Cove, an affordable apartment complex north of the channel, in 2007. Currently, the company is developing a mixeduse project with 200 apartments and 10,000 square feet of retail. Because most of the 65 acres in the north of the project is almost filled, Mission Bay’s development will now be focused on the 238-acre southern end.

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Mission Bay development pipeline Non-UCSF

UCSF

Building

Owner

Total Leaseable SF

Building

1650 Owens Street

Gladstone

180,000

Rock Hall

Total Gross SF 170,600

1700 Owens

Alexandria

153,000

Byers Hall

154,400 384,900

409 & 499 Illinois

Shorenstein

450,300

Genentech Hall

550 Terry Francois

Hines Global REIT

285,000

Rutter Center and Offices

158,600

500 Terry Francois

Sobrato

298,000

Diller Building

160,500

1500 Owens

Alexandria

160,700

Owens and 3rd Garages (retail)

455 Mission Bay Boulevard

Alexandria

187,500

Smith Cardiovascular Research Building

TOTAL Non-UCSF / built

1,714,500

1455 3rd Street

Salesforce

1600 Owens

Alexandria

TOTAL Non-UCSF / with foundations installed

4,200 236,000

Sandler Neurosciences Building

237,000

178,100

TOTAL UCSF / built

1,506,200

245,800

UCSF Medical Center

423,900

Academic Office Building

263,500

TOTAL UCSF/ under construction or starting soon

1,132,500

TOTAL UCSF

2,638,700

869,000

Mission Bay Housing

Built | Under Construction | Approved Mission Bay NORTH: Units Constructed Total # of Units 595

for-sale

Catellus Urban Development

for-sale

July 2003

Rich Sorro Commons

Mission Housing (Agency sponsored)

100

rental

100

June 2002

Avalon at Mission Bay (255 King)

AvalonBay Communities

250

rental

March 2003

255 Berry Street (Channel Park)

Signature Properties

100

for-sale

May 2004

Mission Creek Senior Community

Mercy Housing (Agency sponsored)

140

rental

140

June 2006

Avalon at Mission Bay II (301-51 King)

AvalonBay Communities

313

rental

September 2006

235 Berry (Signature II)

Signature Properties

for-sale

March 2007

325 Berry (Park Terrace)

Opus West

110

for-sale

September 2007

355 Berry (The Edgewater)

193

rental

September 2007

236

rental

236

August 2007

Arterra (300 Berry Street)

Urban Housing Group Related Companies (partially Agency sponsored) Intracorp

269

for-sale

August 2008

330/335 Berry Street

Bridge Housing (Agency sponsored)

131

for-sale

131

September 2009

353/383 King St. (Avalon Bay III)

Avalon Bay

260

rental

September 2009

Project Name

Developer

The Beacon

Third & King Investors, LLC

The Glassworks

420 Berry (Crescent Cove)

TOTAL

Type

2,835

# Below Market Rate 27

Completion Date March 2004

674

Mission Bay NORTH: Schematic Design Approved Units Project Name

Developer

340 Berry Street

â&#x20AC;&#x201D;

Total # of Units 129

for-sale

Total # of Units

Type for-sale

Type

# Below Market Rate 80

Approved

# Below Market Rate 0

Completion Date July 2008

Status

Mission Bay SOUTH: Units Built Project Name

Developer

Radiance

Bosa Development

Strata

Urban Housing Group

192

rental

March 2009

Madrone

Bosa Development

329

for-sale

July 2012

Approved

TOTAL

620

Mission Bay SOUTH: Units Under Construction Total # of Units 150

rental

# Below Market Rate 150

UDR

315

rental

Approved

Urban Housing Group

147

rental

Approved

Block 5

BRE

172

rental

Approved

Block 11

BRE

188

rental

Approved

Block 13 West

Equity Residential

273

rental

Block 12 East

Bosa Development

267

for-sale

Approved Approved (about to start construction)

Project Name

Developer

1180 4th Street

Mercy Housing (Agency sponsored)

Block 2 Block 3 West

TOTAL

Type

1,512

Status

150

Units Built

Total Units 3,455

Below Market Rate (included in Total Units) 674

Under Construction

1,512

150

MISSION BAY TOTALS Schematic Design Approved Only TOTAL

129

5,096

904

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redwood city

Rapid Transit josh wein

Redwood City’s gateway arch welcomes passengers disembarking at the Caltrain station.

Laura Kudritzki SPECULATIVE OFFICE BUILDING is returning to the Peninsula. For years, build-to-suit projects have been the norm in the Bay Area. But Redwood Towers, a new development planned for downtown Redwood City, will go up with or without a tenant. Developer Deke Hunter, a managing member of Hunter Storm LLC, does not expect a problem. “There’s a movement afoot for employees to take residency in areas they think are hip and cool. Therefore you’re starting to see businesses positioning themselves to attract those employees,” whether they’re living in San Francisco’s Mission District or elsewhere, Hunter said.

“The game-changer for the employer and employee is the ability to access heavy rail, whether that’s BART in the East Bay or Caltrain on the Peninsula.” Today there are about 3.6 million square feet of commercial real estate in downtown Redwood City and about 26.8 million citywide. But community leaders have big plans for their quaint inner city and have adopted a downtown-specific development plan covering 180 acres. Today, there is more new housing on tap than has been built downtown in 50 years, representing a 150 percent increase to the number of downtown housing units.

Sleepy downtown Redwood City wakes from its reverie.

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Cornish & Carey Commercial Newmark Knight Frank

is proud to announce the listing of

Karl F. Baldauf

Senior Vice President Lic #00960724

415.445.5117 kbaldauf@ccareynkf.com

/181FremontSF

redwood city

The 300,000-square-foot Redwood Towers offices will be built steps from Redwood City’s Caltrain station platform. Baby Bullet express trains arrive three times each morning and evening to shuttle workers to and fromSan Francisco’s South of Market neighborhood. The ride lasts about 30 minutes—half the time that it does on a “local,” or non-express train. Kilroy Realty Corp., Hunter-Storm’s Redwood City partner, expects to invest $160 million, about $533 a square foot, a small percentage of the more than $1.4 billion in estimated investments the Southern California office landlord has in its pipeline and under construction. That includes the price of buying the land—a former city parking lot. So far, the city has an approved environmental impact statement to allow 2,500 new homes and 600,000 square feet of new downtown commercial development (500,000 square feet of offices and 100,000 square feet of retail). Already, with Redwood Towers and other developments, those housing and office thresholds are nearly 50 percent met. “It is happening quicker than we ever expected,” said Dan Zack, the city’s downtown development coordinator. But the downtown plan’s development capacity is much larger than these figures suggest, with limits on development set not by floor-area ratios but maximum height—12 stories—parking, and

New Downtown Redwood City Housing 333 Main St. 4 stories / 132 units Sares Regis Group of Northern California/JP Morgan 145 Monroe St. 6 stories / 305 units Greystar Development 201 Marshall St. 5 stories / 116 units Raintree Partners 601 Main St. 8 stories / 196 units Lennar Multifamily Investors LLC. 490 Winslow St. 66 units The Acclaim Cos. (Acclaim has acquired a neighboring parcel and is expected to expand its unit count.) Source: City of Redwood City www.theregistrysf.com

redwood city

building attributes and their effects on the environment. “We want wide, well-lit and shaded sidewalks lined by storefronts with windows and doors, and we want a lot of people coming and going, and we want it to be a fun comfortable place,” Zack said. Baby Bullet express service, which Caltrain commuter rail began in 2004, has helped to transform downtown, he said, bringing in technology company startups. It wasn’t always so great. Until recently, downtown Redwood City looked very much like it was stuck in the past. Then in 2011, the City Council approved a new precise plan for the downtown area that called for increasing the density and height of its buildings. Additionally, before the city’s redevelopment agency was dissolved, it invested heavily in the area, helping finance a new movie theater and to demolish a New Deal-era courthouse annex and convert it to an open space and recreation area. The planning took years. The council adopted a slightly different version of the land plan in 2007. A local property owner sued under the California Environmental Quality Act to block it. The city lost and a judge ordered it to scrap those plans after finding faults with its environmental review. Then the financial crisis hit, putting a chill on building and lending nationwide. For Redwood City, rather than soliciting developers to build

downtown at the nadir of the financial crisis, it was forced back to the drawing board. By January 2011, when the City Council again approved a precise plan for the area, this time with a “bulletproof” environmental impact review, the economic climate had started to change. Hunter Storm had monitored the city’s progress on the precise plan closely, and in late 2010 it acquired the key corner parcels from two private property owners, then worked closely with the city on the plan’s final steps, Hunter said. In mid 2012, the city selected its joint bid with Kilroy. Historically, Kilroy projects have been about 70 percent leased at the beginning of construction and 80 percent leased by the end of construction. Though Redwood Towers does not have a tenant, Kilroy has begun meeting with prospective occupants. “The chances to build 300,000 square feet of brand new, Class A space literally on the Caltrain station are few and far between on the Peninsula,” said Mike Sanford, Kilroy’s senior vice president for Northern California. Kilroy has built spec projects before, though the rest of its projects under construction—about 1.5 million square feet—are 100 percent pre-leased. Lenders are still wary of financing speculative development. “I think most developers, if they can get a lender to finance it, would

I'm wondering what in the world I'm going to do the day I wake up and don't have to go to work. They'd probably end up still seeing me on the job! Troy Metcalfe Visit Troy at www.dpr.com and find out what it means to him to build great things.

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“That urban feel and access to transit is exactly what’s attracting so many tenants to San Francisco, and we think that relates to downtown Redwood City as well.” Mike Sanford, Kilroy Realty Corp., senior vice president

probably be optimistic to go,” Sanford said. “What differentiates us is we don’t need debt. We’ll fund the whole project without assetspecific debt, which allows us to be more nimble.” The building is being designed to appeal both to technology companies and professional services. High ceilings, extra restrooms, showers, lockers and Gold certification or higher under the Leadership in Energy and Environmental Design program are all planned for the building and are elements that appeal to tech employers. The San Mateo County Courthouse also sits not far from the station, generating a draw for law firms and other

professional services, too. Sanford said Kilroy has had meetings with prospective tenants looking for 75,000 square feet to 300,000 square feet. About half have been technology companies and half professional service. Beyond the courthouse, downtown Redwood City is itself an attraction, Sanford said. There are restaurants, shops, drug stores, a post office and movie theater all within a few blocks. “That urban feel and access to transit is exactly what’s attracting so many tenants to San Francisco, and we think that relates to downtown Redwood City as well,” Sanford said.

Redwood City San Francisco San Jose

5/29/2013 9:32:38 AM

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Laura Kudritzki

No longer reviled as a “downtown killer,” Santana Row has been designated one of 70 “urban villages” in San Jose.

santana row

Hipster alert

Mary Ann Azevedo

SAN JOSE leaders have been vocal about making their city less of a suburban bedroom community by adding jobs and attracting a younger, hipper population. They are on a mission to create dozens of “urban villages” throughout the city where residents can both work and live. What may surprise those who know San Jose civic history is that the city isn’t pinning all its hopes on downtown. Under the city’s new general plan, San Jose has designated 70 “urban villages” citywide. One is at Winchester and Stevens Creek boulevards, home to the 42-acre Santana Row redevelopment and Westfield Valley Fair mall, one of the most-selling malls in the country. The vision is to create “active, walkable, bicycle-friendly, transit-oriented, mixed-use urban settings.” Eleven years ago, when Santana Row opened, many feared the tandem centers would become a retail juggernaut that would kill renewal downtown, a scant three miles east. San Jose has expended some $2 billion in public funds in the last several decades to keep downtown alive. Meanwhile, more than 1,500 people now live at Santana Row, and the figure is growing. As employers struggle to recruit and keep the best young talent, the

Santana Row and Valley Fair are becoming a South Bay center of gravity.

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“People who work in office buildings and run those businesses and hire people are learning they need more than a cube, parking space and desk. They need an environment.” Jeff Berkes, Federal Realty Investment Trust

Santana row eleven years on... PRIVATE INVESTMENT: $750 MILLION*

AVERAGE TENANT SALES: $600 SQ. FT.

VISITORS A DAY: 30,000

SIT-DOWN RESTAURANT FOOD SALES: $900 SQ. FT.

RETAIL SHOPS: 70

TOTAL SQUARE FEET: 1.5 MILLION

RESTAURANTS: 20

OFFICE EMPLOYEES ON SITE: 350

HOTEL VALENCIA: 212 ROOMS

PRIVATELY OWNED CONDOS: 219

AVERAGE HOUSEHOLD INCOME: $94,000**

APARTMENTS: 615 APARTMENTS***

*$450MM complete; $300MM ongoing **Neighborhood ***Including Misora, opening October/yearend Sources: March 2013 Investor Supplemental, Federal Realty Investment Trust; 2012/2013 News Releases, FRIT

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santana row

neighborhood has become a draw. “Valley Fair and Santana Row have proven to be the s hopping hub for Silicon Valley, the South Bay, parts of the East Bay and up the Peninsula,” said Jeff Berkes, West Coast president for Federal Realty Investment Trust, Santana’s developer. Federal is buying properties adjacent to its 42-acre site for more development, and its aggregate investment is approaching $1 billion. It is pursuing plans to build 690,000 square feet of offices on three sites—including two surface parking lots within its 42-acre footprint and a third it is acquiring that must be re-zoned. Federal already owns an 80,000-square-foot office and retail building at Santana Row, and

in total has nearly 105,000 square feet of office space; 85 percent is leased. “Most companies aren’t going to build their own Googleplex, so we’ve built that for them,” Berkes said. “People who work in office buildings and run those businesses and hire people are learning they need more than a cube, parking space and desk. They need an environment.” Westfield Corp. Inc. is expanding too with a 1.5 million-square-foot development plan—a parking garage and 640,000 square feet of shop space—originally approved in 2007. Matt Ehrie, district vice president and general manager of Westfield Valley Fair, noted via e-mail that the shopping mall added 12 new retailers over the past

year, including Burberry, David Yurman, TAG Heuer and Miu Miu and has 14 more new stores in development. Westfield also is planning a new dining terrace that is slated to begin construction later this year, Ehrie said. The Winchester family of Winchester Mystery House fame said in April it was bringing an 11.6-acre site on the west side of Santana Row to market for the first time in more than 40 years. The family is offering a redevelopment opportunity under a 50-year ground lease. The land is currently entitled for 500,000 square feet of offices and shops. The Winchester property could accommodate more than a million square feet for the right user, said Silicon Valley’s

The Winchester Mystery House is a national historic landmark, but other property owned by the Winchester family is coming on the market for development next to Santana Row.

Laura Kudritzki

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bill ryan SVP development barry Swenson builder

Where is your development activity taking place, and what do the next two years hold?

I’m seeing strong rental activity in all sectors of the market: office, retail, industrial and residential. Apartment rentals have led the way over the last couple of years. I believe this sector of the market will remain strong over the next several years due to low inventory and high demand. Current construction of new apartments is insufficient to meet the growing demand. Several projects that were originally planned as rental units are converting to condominiums. BSB currently has plans to build more than 2,500 units over the next several years to meet the growing demand for both rental and for-sale housing. Retail demand has been steady. An increase in household incomes in the Bay Area has given rise to many older retail properties being renovated and re-tenanted to accommodate a shift in consumer preferences. Since the beginning of the year, downtown San Jose retail has seen a flurry of activity as businesses rush to take advantage of the anticipated increase in population due to several housing projects set to break ground this year. I had three offers to rent one of our downtown restaurant locations before the space became available.

What is the current status of investment in the valley? Who’s lending and for what kind of work?

Lenders are beginning to ease their criteria for traditional debt. In this environment of low interest rates and property appreciation, the underwriting on many of our projects has become more favorable in the last few months. Investment in the valley has been strong for the past year. I believe this trend will continue for the near future. We all expect interest rates to increase over the next few years, but I don’t believe the increases will be large enough to slow the current rate of growth. In fact, I think real estate valuations should increase for the next several years. The investment community is beginning to see real estate as a favored asset class again. Much of the activity over the last five years has been from investors looking for undervalued assets. I’m seeing a shift in the profile of our equity partners to a more traditional strategy of buying and holding long term for both income and appreciation.

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santana row

Clockwise from top left: Residential living at Santana Row; the CinéArts movie theater; a place to rest on the Row; the Hotel Valencia.

Laura Kudritzki

S. Gregory Davies, a partner with Cassidy Turley Commercial Real Estate Services who is representing the family. Historically, tech companies wanted to locate in suburban business-park environments with low-rise buildings where they could have a campus. “For 30 years, there was no way to attract a high-tech company to a vertical environment,” Davies said. “It’s almost swapped from product of least choice to product of choice. The entire Stevens Creek corridor is going to take off as a result of the success of the retail centers in that area.” Proximity to Santana Row and Valley Fair is a major selling point at SummerHill Homes’ Midtown Village, where 110 singlefamily and townhomes priced from the mid $900,000s are being developed, said Robert Freed, president and chief executive of SummerHill. Residents can easily walk to both centers.

Buyers are an ethnically diverse crosssection of mostly high-tech workers in their middle and later 30s with young families. “We have sold out every release within five minutes through an online process,” Freed said. For now, San Jose officials are paying close attention to Federal’s office leasing. “Depending on how they do, other people will want to get in the game,” said Michael Brilliot, senior planner with the City of San Jose. Developers also are watching the success of the Hotel Valencia at Santana Row, the hotel of choice for visiting pro hockey and football teams. “That’s where the 49ers have apartments and hang out,” he said. Leah Toeniskoetter, San Jose director for research nonprofit SPUR, believes that Santana Row is proof that South Bay residents like urban environments. “Although it is a development that was created from scratch all at once and is by

no means a traditional urban neighborhood, it demonstrates some of the truths about urbanism—that people like to spend time outdoors in public, that good design matters, that people-watching is fun, that it takes a critical mass of pedestrians to give a shopping district energy.” Still, the jury is out on how strong the economic force for change really is. Todd Oliver, a principal with Terranomics, the retail arm of Cassidy Turley, says land in the area is so expensive that developers have to create density to justify values— moreover, they have to get their hands on the property first: “There’s a lot of viable, strong businesses, and [developers] have to figure out something that makes more money than what’s already there.” “Leases need to expire and owners would need to sell. That’s a long process; businesses are not wanting to give up that easily,” he said.

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Going p

The sprawl of the South Bay is getting a multistory makeover of offices and housing.

Matthew Berger Samsungâ&#x20AC;&#x2122;s new U.S. headquarters will be clad in white metal and clear glass. It will join a neighborhood already populated by (insets, from left) Canon USAâ&#x20AC;&#x2122;s headquarters, Santa Clara stadium, Crescent Village Apartment Homes, many low-slung office parks and a Hyatt House hotel.

Heather Diaz rendering courtesy of NBBJ

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north san jose

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AS SOME Silicon Valley tenants move into San Francisco and others expand along the Caltrain lines that bring commuters from the city, some tech companies are defying the return-to-the-city trend by heading to the South Bay. Along San Jose’s North First Street and Santa Clara’s Great America Parkway, new landmarks are starting to compete with the roller coasters of the Great America