The Registry's The Q Q1 2014

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1: 2014 A publication by

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THE OUTLOOK ISSUE 2014

outlook2014

january | february | march | 2014

Q THE

Commercial & Residential Real Estate

Silicon Valley is getting a much needed reboot

The Transbay neighborhood will shift San Francisco’s center of gravity The Bay Area’s workplace design is driving the global office interiors revolution The healthcare industry now shifts its focus to real estate Two Bay Area construction firms enter the second century in the region stronger than ever

Manufacturing absolutely makes sense in the Bay Area In housing, this time it is different

volume 3, number 1

EXCLUSIVE: Comprehensive development map for the Bay Area included >>> Just turn the page

comprehensive bay area development map

inside Current Activity Inside Cover | MAP comprehensive bay area development map Approved, in planning and under construction projects above 50,000 square feet throughout the broad Bay Area region

COMMERCIAL OUTLOOK 8 | Stuart Shiff Not Reinventing the Wheel DivcoWest returns to its tech roots

13 | robert pester Staying Focused on the Core Boston Properties sees nothing to dislike about the Bay Area

16 | christopher peatross Ahead of CURVE Swift Real Estate Partners targets distressed or undervalued properties

21 | jenny haeg Disrupting Each Day Custom Spaces sees longevity in startups

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AEC/Design OUTLOOK

economIC OUTLOOK

26 | primO orpillA

52 | dustin bogUe

Listening, Designing and Growing

In Housing, This Time It’s Different

Studio O+A finds demand for offices more like home

UCP Inc. doesn’t see today’s hot housing market as a repeat of 10 years ago

32 | Jeffrey Hoopes

55 | chris desavino

Building a Star Team At Swinerton, getting subs on board early is a key to quality

36 | jay turnbull

Mixed Market, Sure Results J.P. Morgan Chase Bank sees San Francisco as clear winner in California’s jumbled economy

Seeking Equilibrium and Consensus

58 | James palazzolo

Page & Turnbull still sees a future in historical preservation

From the Valley to the world Zoll Medical Corp. sees value in manufacturing locally

41 | barbara carlyle

61 | scott mason

The Front Row Seat of Your Life

Navigating the Healthcare Maelstrom

Pivot pushes aside formula for a new generation of office workers

Cushman & Wakefield sees changes in healthcare driving changes in real estate

47 | case swenson Starting the second century in Silicon Valley Barry Swenson Builder sees San Jose as a future tech hot spot

read more online >>> news.theregistrysf.com High Rents Not Slowing Bay Area Office, R&D Markets In San Francisco Supply and Demand Dynamics Favor Condo Developers Bay Area Home Sales Take a Breather After Sizzling Summer 2

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Dear Reader, As I was reading some of the responses from our esteemed group of interviewees, I began to realize just how good we have it here in the Bay Area. These are the golden days—I dare say days that are approaching the peak of the market. The peak, like the bottom, is a state that we can pinpoint only in the future. We don’t recognize it when we experience it, we only know in retrospect when exactly it happened.

Looking back, for instance, we know that 2008 was a year when the real estate market started to unravel. We did our first annual Outlook issue that year, and in re-reading it I was struck how some comments and attitudes of that year were similar to those of today.

Guess whether the following comment was made in 2013 or 2007 (the answers for the 2008 Outlook issue were all compiled at the end of 2007): “I think overall leasing activity will pick up as more tenants are coming to the end of their lease terms and new spec office buildings begin to come out of the ground. We’re anticipating a relatively healthy, balanced market.”

Or this one: “The biggest challenges will be negotiating with downtown, Class A landlords in realistic terms, as pertains to market value.”

Or this one: “Rents are going up and interest rates are still near all-time lows.”

All three were made in 2007! It’s an eerie reminder of where we are today.

There were some interesting quotes, too, which seem amusing given everything that has occurred in the last few years.

“I think that absent a large-scale, global event, such as a natural disaster, terrorist attack or other unforeseen catastrophe, the economy is on relatively sound footing. Having said that, recessions seem cyclical and irrational—we could all wake up tomorrow and create our own self-fulfilling prophesy of economic doom, and the media would be all too happy to exaggerate the whole thing: Presto, you’ve got a full-blown recession.”

Others back in 2007 firmly believed that whatever lay ahead of us, the natural cycle of things would find a way to sort things out.

Said one interviewee, “I don’t know if the government can intrude upon a fair market economy legitimately. I think things will best sort themselves out.”

As our markets continue to recover, we find ourselves facing issues that plagued our region during the previous decade, as well. Soaring rents have pushed some tenants into secondary markets, creating a slightly more homogenous tenant base in places like San Francisco. This makes the city especially susceptible to the ebbs and flows of that one particular industry: tech. The sector has particularly driven the rents in the recent past in San Francisco, which has forced other industries with less cash to find alternative. This is not a new issue.

“The sector I am most concerned about leaving is the nonprofit sector. With modest budgets and marginal operating capital, many will be forced out of the traditional office submarkets in San Francisco and, perhaps, out of the city entirely, and that’s a shame. I am currently working with several nonprofits whose leases are coming due, and they are all facing, at least a 100 percent increase in rent, just to maintain status quo.”

There is much optimism for 2014. I, too, believe that we have some room for growth and an opportunity to relish in the good times. The prognosis from our interviewees seems to support that opinion. It will be exciting to watch as the next chapter of Bay Area real estate unfolds.

Happy New Year!

Vladimir Bosanac

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Publisher Vladimir Bosanac (415) 738-6434 vb@theregistrysf.com President Heather Bosanac (415) 738-6434 heather@theregistrysf.com ASSOCIATE EDITOR Robert Celaschi 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. ©2014 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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For over 35 years Barry Swenson Builder For over 35 years Barry Swenson Builder has been a trusted and dynamic partner in has been a trusted and dynamic partner in development and construction throughout development and construction throughout Northern California.

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INNOVATION INNOVATION 408.287.0246 408.287.0246

2014

COMMERCIAL OUTLOOK

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Stuart Shiff

Principal, DivcoWest Properties

NOT Reinventing the Wheel STUART SHIFF FOUNDED DIVCOWEST

Properties in 1993. Since then the real estate investment firm has acquired more than 30 million square feet of commercial space in North America. DivcoWest and its affiliates now manage more than $2.5 billion of equity from offices in San Francisco, San Diego and Boston.

Before starting DivcoWest, Shiff was responsible for development, construction and leasing at Divco Ltd., a family-owned Canadian development and construction company. He holds a bachelor’s degree in civil engineering from the University of California at Berkeley. Shiff serves on the board of the Real Estate Academic Initiative at Harvard University and the policy advisory board of the Fisher Center for Real Estate & Urban Economics at the University of California Berkeley Haas School of Business.

Q: 2013 was DivcoWest’s 20th anniversary in the real estate business. As you reflect on the cycles we’ve experienced in the Bay Area market over the past two decades, what was the best lesson you learned, and what do you think is the most important thing to keep in mind as we all look ahead to the next few years?

SS: First and foremost is to respect and appreciate the importance of perspective and relationships. We learned how important this is over two decades of active participation in the challenges, rewards and cyclical nature of real estate, particularly in Northern California.

One of the principles impressed upon our team is that we are not looking to reinvent the wheel, but rather replicate it… with nuance. The markets will always ebb and flow, but maximizing success (or minimizing failure), always lies in the ability to navigate those ebbs and flows— and find opportunities in any portion of the market cycle.

There is no question that the recovery in Northern California has been substantial. Local economies have improved while interest rates and cap rates have remained

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low. The nuance here is that Northern California is comprised of numerous sub-markets, each consisting of several micro-markets. Recognizing and understanding the unique characteristics of each [of] these markets is the key.

The improvement in the micro-markets has not been uniform. Many transitional assets remain that provide value-added opportunities, especially as tenants migrate to locations where the right balance of lifestyle, competitive advantage and economic feasibility converge. We know we must understand these migration patterns to correctly determine what to expect next from our tenants. Part of that is to value the insights provided by both the tenants and the brokerage community.

attractive, and have grown with them.

Over time the technology industry has evolved from providing more “wanted” products to more “needed” products. It is now thoroughly intertwined in all industries and on many levels. This move from a vertical to a horizontal has created a more sophisticated scope of demand, one that involves both talent and innovation issues.

DivcoWest is returning to its tech roots and working on reshaping the industry

Q: You effectively started with a focus in the technology space. As DivcoWest grew, the opportunities across the country opened up, and you followed them. But, with recent Silicon Valley investments in the former Mission West Portfolio and recently the acquisitions from EOP of former Carr assets, you seem to be coming full circle as far as market emphasis.

SS: Northern California is where we learned many of the real estate lessons on which we base our investments today.

But we also have a long history of being active in other key markets around the country, like Boston and Austin. Most, if not all, of our opportunities have focused on growth-oriented, supply constrained markets. These markets benefit from a strong foundation built on education and employment.

No doubt that Northern California epitomizes the characteristics that we are looking for, particularly when one has learned where to look. As the tenants in this market have grown and migrated into other markets, we have been fortunate enough to understand which locations they found

Like our clients, we are focused on improving the path from education to employment and leasing to price appreciation. While opportunities continue to occur nationally, Northern California has remained a primary source of “supply” since many of the innovation decisionmakers continue to live and work here.

One of our most important roles in this new industry-level equation is to provide a reliable, educated and proactive resource that can enable technology industry leadership to provide for their expansion nationally. That requires knowledge that goes beyond just the needs of hardware and software. We are developing an expanded knowledge base for ourselves, for example by understanding the needs of life sciences researchers, and those looking at manufacturing products for emerging areas like robotics. We also need to better understand how to create attractive communities that can actively retain intellectual capital and spaces that can join multiple technology uses under one roof.

Q: Late last year you made a very big bet on Silicon Valley, especially in South San Jose. What fundamentally drew you to the South San Jose opportunity, and your recent North San Jose acquisitions?

SS: The Mission West transaction embodies several of the fundamental strategies that DivcoWest is continually trying to implement and improve. This was an

opportunity to draw upon a number of our strengths, like buying low-basis transitional assets where we could utilize our expertise to reposition and stabilize.

We felt we understood the market dynamics, which enabled us to better determine what might be next from a leasing and investment perspective. We’ve also put a lot of time and effort into building and maintaining the real estate relationships that positioned us to pursue and close on favorable opportunities.

As I mentioned earlier, one can have different perspectives on any given market depending upon the level of understanding. The example of Google Earth is often used at DivcoWest to show the complementary nature of different individuals within the company focusing on different aspects of our business—in order to develop the most comprehensive view of our world that we can.

The same idea can be applied to Northern California. An outsider would see Northern California or Silicon Valley as one market. But Silicon Valley is, in fact, comprised of several sub- and even micromarkets, each with its own dynamics.

As an example, we have generally observed a tenant migration from northwest to southeast in the San Jose / Silicon Valley corridor, concluding that, as markets like Palo Alto move below 10 percent vacancy rates, the migration moves southwest to Mountain View, etc. The path clearly leads to San Jose. When evaluating this portfolio, we felt we would be able to get ahead of the curve and pay what is a very attractive basis for the San Jose assets.

It was an acquisition that made a lot of sense. In retrospect, I think we also recognized the advantages of controlling much of the vacancy in a sub-market that was otherwise quite strong.

Q: Some people are very bullish on San Francisco’s ability to attract and retain both tech companies and young technical talent. However, that focused environment has only existed over the last few years.

For example, could the center of Bay Area economic gravity really shift to the city on a more permanent basis—or are we witnessing a temporary occurrence?

Stuart Shiff photographed at Quadras Sand Hill

Laura Kudritzki

SS: Interesting that in some ways the very industries that are expanding are the same ones that simultaneously improve everyone’s ability to access information

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Stuart Shiff

“The nuance here is that Northern California is comprised of numerous sub-markets, each consisting of several micro-markets.

Recognizing and understanding the unique characteristics of each [of] these markets is the key.”

Stuart Shiff, Principal, DivcoWest Properties

and generate productivity, many times remotely. That effect has never been greater. Increased mobility and accessibility can lead to more flexibility for talent to choose where they want to live, including the dense urban neighborhoods in San Francisco. Companies may find those same locational choices important, especially if they want to compete by more effectively attracting, accommodating and retaining top talent.

San Francisco has always been known for a diversity of amenities and a culture that appeals to all generations, in particular younger workers. Over the past 10 years, technology has both broadened and deepened this area’s talent pool, including some educated here and some abroad. This ability of cities like San Francisco to adapt, in this case by helping businesses find ways to establish their companies in preferred urban sub-markets, has kept this talent happily ensconced.

Technology is now intertwined throughout business and culture. Every company across the board now has to rely on innovation to grow, which goes back to the concept of tech as a horizontal not a vertical.

Additionally, the demographics of the technology industry have continued to expand with time. The tech leaders with whom I began relationships 20 years ago now have extended families. Some, as I can personally attest, are becoming empty nesters. This means that technology is covering much more of the life cycle and is requiring a more diverse set of lifestyle choices. The Bay Area seems naturally able to expand with tech because

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the region provides so much diversity.

There is just a little something for everyone here and the continued strength in real estate reflects that.

As density increases, the challenge, of course, will be in our ability to maximize space uses by integrating different aspects of technology into intertwined communities throughout Northern California.

There isn’t any cogent reasoning I am aware of why biotech should not coexist with business technology. Or, that light manufacturing of technology instruments acts at cross purposes with life science research. In fact, I believe that more synergies can evolve out of close proximity and shared intellectual capital, and that can lead to an even greater diversity of industry resources and businesses. After all, isn’t that how Silicon Valley flourished?

Again, because of its already existing diversity, I think San Francisco and the rest of Northern California “gets it” more than some of the other markets. Think regionally. We already have the intellectual capital to feed an even bigger global success.

Besides, this market is a great place to be, especially if you are providing the environments these industries need to grow.

Q: What are the key things you will be looking for in making investment choices for your investment strategy during the next 12 to 18 months?

SS: The next 12 to 18 months will be about continuing to invest in the markets and assets that have demonstrated the ability to attract talent and build resources.

DivcoWest’s investment initiatives will

remain focused: Buy at what we believe to be an attractive basis; manage maturities whether lease, debt or fund life; and be diligent in positioning each investment to be sold at a beneficial point in the market cycle.

Technology companies will continue to broaden their influence and will certainly require even more engineering talent to do so. As a result, universities with strong technology curriculums like Cambridge, UC Berkeley and Stanford will continue to provide well trained minds for expanding businesses. These businesses will, in turn, help to guide our investment decision-making within both our existing markets and for potential opportunities in newer markets.

Another focus will be to expand our requirements for acquisitions. Things like access to transportation, onsite parking, flexibility to accept infrastructure upgrades, proximity of compatible technological uses and support resources and building infrastructure aspects that often take a back seat to forward planning.

In general, the real estate markets have recovered substantially from the trough in 2009. However, the opportunities to find transitional assets in need of leasing or capital remain available throughout our targeted sub-markets. Additionally, the demand for core product is very strong from both domestic and foreign buyers.

As always, our particular challenge is to continue to find the right product, execute our business plan and have the necessary core buyer demand upon completion of that business plan.

Counselor at Law “Character is much easier kept than recovered.”

Thomas Paine With over 20 years of experience, possessing a real estate broker’s license, and having owned and operated his own (non-legal) business, John is uniquely qualified to handle your important real estate and/or construction related legal needs with integrity, zest and common sense.

A recent trial provides an example of the breadth of his experience and effectiveness. A real estate developer/investor, for whom John provides general counsel work, was sued by an investor for fraud, breach of fiduciary duty, negligence, breach of contract and declaratory relief seeking millions in damages and control of one of the companies sued.

After several unsuccessful mediations, the case went to trial. John and his team successfully positioned the case procedurally so that certain legal issues would be tried to the court fi rst. The client prevailed on these issues and the plaintiff ended up settling just before a jury was sworn in. The client paid the plaintiff no money.

Whether it’s assistance with a transaction, every day legal advice, enforcement of property, contractual or lien rights, or prosecuting or defending a lawsuit, John does his very best to earn his clients’ trust and provide forceful and sound legal representation.

Over the past sixty years, Ropers Majeski Kohn & Bentley has conducted a multi-service practice offering litigation and transactional services to domestic and international businesses and individuals. Visit us at www.rmkb.com San Francisco 415.543.4800

Los Angeles 213.312.2000

San Jose 408.287.6262

Redwood City 650.364.8200

New York 212.668.5927

Boston 617.973.5720

Senior vice president and regional manager, Boston Properties

robert pester

Staying

Focused on the Core

ROBERT PESTER HAS BEEN INVOLVED in Bay Area real estate for more than 30 years. As senior vice president and manager of Boston Properties’ Northern California region, he oversees all company activity on the West Coast. Pester launched his real estate career as a commercial broker with Cushman & Wakefield when he was fresh out of UC Santa Barbara. He worked his way up to vice president before becoming president of Bedford Property Development, a private West Coast development concern that held more than $2 billion in real estate. In 1994 he became chief investment officer for Bedford Property Investors, an East Bay real estate investment trust. He led the acquisitions and development program.

He’s been with Boston Properties since 1998, when was appointed to his current position. Boston Properties’ Bay Area portfolio includes Embarcadero Center in San Francisco, Mountain View Research Park and Mountain View Technology Park. One of the newest additions is a parcel next to San Francisco’s new Transbay Terminal. Boston Properties will own 95 percent of the 61-story Transbay Tower planned for the site, slated to be the tallest building on the West Coast.

In keeping with what works, Boston Properties charts its course through a growing local economy

Q: We wrote earlier this year that Boston Properties was busy working on its developments in San Francisco while at the same time shedding some assets in Silicon Valley. Was this just an opportunistic coincidence, or is the organization truly placing more focus on San Francisco?

RP: Purely coincidence. While it is true we sold an asset in downtown San Jose, we also bought out our partners’ interest in our Mountain View Research and Tech Parks in this past year— an additional investment in the Valley in excess of $100 million.

Q: As someone who has visibility to markets across the United States, how are we comparing to those others? Yields are shrinking and prices are going up. Does it still make sense to invest in the Bay Area?

RP: We are focused on four core markets: New York; Boston; Washington, DC; and San Francisco, and I think it is safe to say that these are the highest profile markets in the United States.

We continue to look at development and acquisition opportunities all the time, but pricing is a little “frothy” right now.

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Robert pester

“Pricing is a little frothy right now.”

Robert Pester, Senior vice president and regional manager, Boston Properties

Renderings of 535 Mission St., left, and the Transbay Tower

Renderings courtesy of Boston Properties

Q: Given the anemic recovery across the country, is it conceivable that we may have the next recession hit our national economy before we actually get out of this one?

RP: That would be a good question for Mort Zuckerman, our chairman and founder. Just read his editorials from US News and World Report over the past few years for your answer. In the Bay Area, all the metrics point to a growing local economy for the next several years.

Q: What are the biggest challenges facing the commercial real estate industry in the Bay Area today?

RP: Lack of land. The Bay Area is built out, so if you are building something you have to tear something down first. Assembling a large site for a commercial development is very difficult to do.

One of your organization’s core strategies is to explore jointventure opportunities. Does this include potentially bringing international partners to the region? Other parts of the country?

If the opportunity presented itself where it is advantageous for us, it is something we certainly would explore.

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Q: Your national focus has been on traditional centers of economic activity. As we see the prominence of energy and technology expand, will Boston Properties (nationally) expand its focus on those industries as well? (Seattle, Austin, Houston, etc.)

RP: We have in the past, and continue to explore other markets, but have yet to find one with the right opportunity that makes sense for us. One of the things that have made Boston Properties so successful for so long is to stay focused on its core markets.

Q: Are you optimistic about 2014 in the Bay Area? Why? RP: The Bay Area is one of the most desired areas in the United States, tech capital of the world, with a booming economy, certainly one of the strongest from a commercial standpoint in the U.S. What is not to like about the Bay Area?

Q: What else should we be asking?

RP: As Shakespeare once said, “Brevity is [the soul of] wit”.

5 Z OOS K

| SAN FRANCIS CO, CA | 50,000 SF

4 15 - 2 3 0 - 7 0 0 0 | I N F O @ N I C H O L S B O O T H | N I CH O L S B O O T H . C O M

christopher peatross

President and CEO, Swift Real Estate Partners

Christopher Peatross at One Concord Center, part of the Swift portfolio

Laura Kudritzki

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CHRISTOPHER PEATROSS founded Swift Real Estate Partners in 2010. It was an ideal time to take advantage of a real estate market hit by the recession, and Swift started buying almost right away. One of those early properties was the 360,000-square-foot One Concord Center, next to the Concord BART station. It was a time when the market in the East Bay was still not in recovery mode. But Swift also knew how to fill property as well as buy it. Within six months Swift had boosted the occupancy at One Concord Center from 40 percent to 80 percent.

Prior to forming Swift, Peatross served as president and CEO of Carr, Trizec & Equity Office Properties, managing all aspects of Blackstone Group’s 55 millionsquare-foot office real estate portfolio. He guided the strategic investments and had operational participation in the public-toprivate transactions of CarrAmerica, Trizec, and Equity Office Properties. Before joining Equity Office, Peatross served as the Northern California Market Managing Director at CarrAmerica Realty Corp. for over six years.

Swift has already made a name for itself in Bay Area real estate

the curve Ahead of

Q: On your site, you have a quote from Warren Buffet that says, “The investor of today does not profit from yesterday’s growth.” But your investors do profit from your achievements in the past. What makes Swift different today from all the other things you’ve accomplished in the past?

CP: Success in past cycles does not guarantee similar results. Our markets are always changing and we must adapt to them. Two cornerstones of our real estate investments are: 1. Buying right, and 2. Operating efficiently

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christopher peatross

The market doesn’t have a strong supply pipeline, and values in many markets are not near replacement cost.

Christopher Peatross, President and CEO, Swift Real Estate Partners

Buying right inevitably means finding value in distressed assets and/or transactions that offer the best opportunity for creating value. In addition to distress, we also seek investments that are off-market or under marketed or that have very tight timeframes coupled with complex issues. Lastly, we are very conscious of replacement costs and their relationship to rents and sales prices.

Operating efficiently means not only operating an asset in the highest standard but also efficiently executing a business plan, no matter how complex. Swift is vertically integrated by design: We like to be as close to the real estate as possible, have control and find creative solutions.

Lastly, I’ve been a part of some exceptional organizations and some larger organizations. Swift may grow, but everyone is expected to stay close to the real estate. By definition that means we will not be as big as others.

Q: You have been on a very active fund-raising exercise over the last few months. How has that experience been for Swift? Was it a success?

CP: It hasn’t been easy. We’ve put a lot of effort into it and have been fortunate to get to where we are: To date, we have raised most of the fund, and the goal is to have a final close at the end of Q1 [of 2014]. We’re certainly excited by the partners who have decided to join us—and in that light, I do think it’s been a success.

Q: What were some things that surprised you in that process?

CP: I may not have appreciated how tough it would be. For example, we had potential investors that identified us as a strong operator in 2010, but despite our success over the last three years, they still didn’t invest in our fund.

Q: What is the sense you got from investors about the viability of our market? Yields continue to go down, prices continue to increase; do people still like to invest in our market?

CP: That last question is easy. Yes! If people didn’t still like to invest in our market then yields wouldn’t continue to go down and prices wouldn’t increase. The market is becoming more competitive, yet we believe there are still good deals in the market.

Q: Silicon Valley has a long history of booms and busts. Right now we have a boom that is the envy of the rest of the nation. Are we close to the peak of the boom or do you feel like we still have a little bit of room for property value growth?

CP: The market doesn’t have a strong supply pipeline, and values in many markets are not near replacement cost. If you look at the past three years of net absorption, and we continue to grow at that rate, we will have a very strong owner’s market.

I think a vibrant IPO market will push things further and we will have that in 2014. I also think that the traditional office tenants—the FIRE industries (finance, insurance and real estate)—

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are slowly but steadily improving. On the flip side, we may have to deal with the Fed tapering and continued budget uncertainty in Washington.

Q: We have heard that employment increases have been mainly supported by the technology industry around the country. Tech cluster cites certainly seem to be doing better. As the rest of the nation continues to await a recovery, is it possible that we experience another recession before we ever come out this one?

CP: Not only does the IPO pipeline remain strong, but the technology sector is diversified and integrating itself further within “old line” companies like Walmart, Macy’s, Bechtel and Chase, who are focusing on expanding e-commerce and back-office technology.

The energy sector is doing well and residential real estate continues to improve. Typically, euphoria in the markets with regards to valuations in real estate and IPOs occurs before a crash. However, we have not seen anything close to that environment yet.

Q: You have made some big bets in the East Bay, and the conditions are perhaps ripest for that market to take off. Do you agree, and do you feel optimistic about what it has to offer compared to other submarkets in the Bay Area?

CP: The East Bay is interesting because entry level and occupancy costs are materially lower than those in San Francisco. Consequently, rents are lower. The influx of information technology professionals has driven up residential rents and discouraged East Bay commuters from living in San Francisco. We believe there to be tremendous opportunity for redevelopment and investment within these submarkets and are seeing San Francisco based firms actively looking in the East Bay. Q: Was your fund raising focused on acquiring properties in the Bay Area only, or is Swift ready to expand outside of our region?

CP: Our team has a lot of history throughout the West Coast, and we are looking in Southern California and the Pacific Northwest.

That being said, we made a conscious decision to base our firm in the Bay Area and this market will always be a focus for us.

Q: Is there a fear of inflation? We have heard continuously for over two years now that it’s coming fast and furious, yet it seems nowhere in sight. What are you seeing?

CP: Inflation and interest rates are big topics among real estate investment committees, including ours. Real estate has always been something of a hedge for inflation, but rising interest rates can have a negative effect on the capital markets—notably through cap rates. Swift tailors hedging strategies on our debt to each asset and business plan, and we are constantly re-assessing. Although short-term interest rates have risen year to date, the Federal Reserve has acknowledged that they will maintain a consistent, long term bond buying program that will temper any fluctuation within the credit markets.

Swift Plaza in Concord, formerly One Concord Center, includes 2300 Clayton Blvd., above, and 1655 Grant St.

Laura Kudritzki

Photo: Amy Snyder

What matters to our clients?

“Having the right people on the team.”

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Founder and president, Custom Spaces Commercial Real Estate

jenny haeg

Disrupting Each Day “COMMERCIAL REAL ESTATE IS ALL I HAVE EVER DONE,”

says Jenny Haeg, founder and president of Custom Spaces. Her commercial real estate firm focuses on Bay Area tech companies and startups such as Square, Airbnb, Uber, Obvious/Medium, Spotify and Instacart.

But Haeg almost missed out on the industry. The Ventura native was attending the University of Southern California when she was offered an internship with Cushman & Wakefield. After going through the interview, she turned it down, “because the job sounded boring and awful.” But like any good brokerage, the company kept after her, because the leadership saw something in Haeg. They were right. She came on board and soon realized she had found her niche.

“I think that the coolest part of my job is that you get to meet some of the smartest people in the world. That’s what my day consists of,” she says.

Before founding her own startup, Haeg spent more than a decade in commercial real estate in the Bay Area, including seven years with The CAC Group (part of CBRE as of December 6), a San Francisco-based commercial real estate services firm focusing on tenant representation, project leasing, investment sales and property management.

Helping business find a nest to hatch their ideas

Q: How is Custom Spaces different from other, more traditional commercial brokerage houses?

JH: What differentiates our firm is our 100 percent focus on startups, tech companies and VC firms, as well as our approach with the companies that we work with.

We structured our firm to enable us to work with companies of all sizes, from two founders and an idea, to a company like Airbnb that is redefining the travel experience for millions of people around the world and expanding internationally. We love nothing more than working with a small company that has a world changing idea, and supporting them and helping them any way that we can as they grow.

We’re also unique in the type and breadth of services we provide, and our ability to leverage technology to deliver those services. For example, we recently launched a Web site at CustomSpaces.com that allows office managers and other real estate executives at companies to browse through thousands of beautiful office space photos, filter those photos by category (kitchen, boardroom, etc.) and connect with the vendors that created those projects.

Q: How many employees does your company have and what are your growth projections?

JH: There are currently seven people working at the company, and we are looking to expand over the next couple of years.

Jenny Haeg takes a break at the offices of client Airbnb.

Laura Kudritzki

www.theregistrysf.com

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Jenny haeg

Airbnb’s office in San Francisco illustrates the more open, flexible environment that many startups demand.

Laura Kudritzki

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“Often startups and tech companies are still in massive growth phases, and as a result their financials will look vastly different from older, more established businesses.”

Jenny Haeg, Founder and president, Custom Spaces Commercial Real Estate Q: TechCrunch recently described you as Houzz for startups in San Francisco. Is your focus to expand into offering additional services directly, or will you partner with certain service providers and expand your offering that way?

JH: TechCrunch covered the launch of our CustomSpaces.com site, and our initial focus there was on startups and tech companies in San Francisco, but our long-term goal for the site is to hopefully serve as a resource for the entire community that will allow anyone around the world to find inspiration when building our their office space and to connect with the vendors that can help them build their dream space. A huge part of our goal when building the site was to also allow the artists of our business, the architects, general contractors and other vendors, to showcase their work and share what they’ve created with the broader community, and we look forward to working with them to accomplish that.

o u r e xper i e nc e yo u r ad vanta ge Old Republic Title Company’s Commercial and Subdivision departments are established fixtures in the Bay Area real estate community. Account Executives Rob McGuire, Kevin Miller, and Rich Paoli have served as strategic partners to many of the region’s top landowners, commercial developers, homebuilders, commercial brokers, and commercial lenders. With over 73 years of combined local experience, their collaborative approach to pairing deal makers with opportunity has set them apart from their competition.

1000 Burnett Avenue, Suite 400 Concord, CA 94520 925.687.7880 www.ortc.com

Q: As you developed Custom Spaces, when did the company “turn the corner” and make you feel like it was going to become what you had envisioned?

JH: I have been working in commercial real estate for almost 15 years now, and have focused on startups and tech companies for virtually my entire career. As a result, founding and creating Custom Spaces to help broaden the scale and type of services that we can provide in response to the needs that most tech companies and startups have seemed like a natural progression.

Q: Working with startups, while to an outsider may seem extremely appealing, comes with its challenges. Startups could be financially constrained, they may not understand fully what their needs are, landlords may think twice about leasing space to early stage enterprises. How easy is it to work with such clients, and how receptive is the market to their needs.

JH: Working with startups is a lot of fun, and it is extremely energizing and exciting to work alongside some of the best entrepreneurs in the world and see the drive and passion they have for their businesses. However almost all startups face the same type of challenges at some point in their history. The need for flexibility and to conserve as much capital as possible to reinvest into the business are always of utmost importance, and are areas that we place a lot of emphasis on for all of the companies we work with.

Often startups and tech companies are still in massive growth phases, and as a result their financials will look vastly different from older, more established businesses. To help communicate their true value and potential, and what makes them so exciting, From left to right: Rob McGuire, Kevin Miller, Rich Paoli 12.24.13

Jenny haeg

we’ve developed a significant amount of experience and expertise explaining their business models to prospective landlords, and breaking down and structuring their financials in ways that make it more obvious to prospective landlords what innovative, fast-growing, and financially solid businesses a lot of our clients are building.

Q: Recently, CoreNet awarded two prominent technology facilities professionals for their work in the industry, and the message from them was clear that tech clients want flexibility and the ability to easily collaborate. How does this translate to specific demands that your clients have.

JH: There is definitely a movement towards a more open, flexible work environment. Embracing the sharing, creative and collaborative culture that most tech companies have, they are moving towards creating offices that allow for this. For example, a lot of companies are moving away from dedicated desks or are choosing desks that employees can move around as needed depending on the project they are working on at the time or the group of people they need to be close to. The idea is that an employee can create a team space at will by moving the desks around to fit the need of the moment.

Q: Today, your focus is primarily on San Francisco, but tech clients’ needs will change with time as they open multiple offices around the Bay Area, so will you look into expanding throughout the region with them as well?

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JH: Definitely. We’ve actually recently expanded our business down into the Peninsula specifically to address the needs of tech companies and startups who’d like to open an office there, and are also expanding into New York.

Q: There has been a bit of a backlash against squeezing people into a continuously smaller amount of space. Where is that trending today, and how have you seen those changes exhibit themselves?

JH: People are spending more time in the office than at home these days, so creating a space that feels like home where people are excited to be and are comfortable spending long hours is definitely important. A lot goes into making this happen, such as having an open feeling space where employees never feel isolated but instead feel that they are part of a team, working together. Having a large open kitchen is a big part of creating that feeling. A kitchen in a home is oftentimes the place where everyone comes together to hang out and so recreating that within an office space is becoming more and more important.

Q: Are you optimistic about 2014? Why? JH: We’re very optimistic about 2014. We think there’s a lot of extremely disruptive, innovative businesses that are growing and being started right now, and we don’t see that stopping any time soon. Custom Spaces will continue to help companies find that special space that allows them to flourish and build upon the unique culture they have already created.

2014

AEC/DESIGN OUTLOOK

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primO orpilla

Principal, Studio O+A

Listening, Designing and GROWING

Primo Orpilla at O+A’s office in San Francisco.

Laura Kudritzki

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IN THE EARLY 1990S, Primo Orpilla and Verda Alexander wanted to start their own design business. They were warned that they were young and didn’t have much working experience, but they looked around them and saw entrepreneurship was the norm in the Bay Area. They went ahead and put their initials on Studio O+A. Their pivotal contract was with a tiny startup called Ascend Communications. The client grew and eventually changed its name to Lucent. As Lucent grew, so did Studio O+A. “It was a great company, and the facilities manager demanded the best,” Orpilla says. “I remember once we had the wrong type of caster on a task chair—that’s the most stressed out I’ve ever been.”

Orpilla sees good designers as storytellers and, ideally, ghostwriters. They give a voice to the desires of the client.

And in these days of HGTV, Ikea, blogs and magazines, clients are more aware than ever of what good design can do to a space.

Contract magazine named Orpilla and Alexander the Designers of the Year for 2011.

The Bay Area’s design dynamic duo is leading workplace evolution inside and out

Q: The businesses your clients have grown are like their babies, and they have such specific needs and ideas of what makes them work.

How do you translate those specific needs into workable solutions and help them convey their strategy into a physical space?

PO: Well, that’s the job as we see it. Those specific needs and ideas are the materials we work with. They are just as important—actually more important—than the existing architecture, the finishes we select, the spatial decisions. Those things become meaningful only when they are filtered through an understanding of what the client wants. So we spend a lot of time at the beginning of a project getting to know the baby, learning what the client’s aspirations are, what their values are and how they like to work.

Then we apply that knowledge to the physical space. It’s all about creating the best possible environment for the baby to grow up in.

Q: We understand that your first dream was to design big houses. Today many people, especially tech workers, seem to spend most of their lives at work, or at least take a lot of work home

Practicing what it preaches, O+A aims for comfortable spaces that help employees become more productive and more creative.

Laura Kudritzki

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primO orpilla

with them. How does your original interest in housing inform the way you approach the modern workplace?

PO: When I first started in design, residential and commercial interiors were two separate worlds. But you’re right—because of the way people live today, they’re starting to merge. Most of our offices now include spaces that you’d be happy to have in your home. It’s a common-sense concept: If you’re going to spend a good part of your life in a place, aren’t you going to be happier and more productive and more creative if you can make yourself comfortable? That’s the idea behind the in-house cafes and pool tables and yurts. At Giant Pixel we put in a fireplace and lounge area that looks like a cool young professional’s pad. It just happens to have a whiteboard on one wall.

Q: Your firm has been in business for more than two decades. What are some lessons learned in that time? How have changing demands affected your approach to a job?

New Class A Office in Downtown San Jose with

PO: The lesson you learn—in any business really, but especially in design—is listen to your client. Over the years you come to realize that the way people work is always changing. You have to be alive to that change. You can’t afford to rest on past successes or expect the old assumptions to apply in every case. Really, you have to remake yourself with every project. That’s what keeps it exciting after 20 years. I think we’re more creative and innovative now than we’ve ever been.

Q: You have been spoken at a couple of conferences here and in Europe on the evolution of workplace design. What strikes you about the differences of how we approach that topic versus someone in Europe, or even in another part of the U.S.?

PO: In Europe the old hierarchies are more entrenched than here. Managers over there still want their corner offices, and the separation between management and the general workforce is still pretty pronounced.

But there’s a definite interest in what we’re

doing. I sense it whenever I speak abroad.

The questions from the audience are always respectful, and you can feel people trying to figure out how this kind of design might work in their contexts. The workplace revolution is definitely coming to Europe.

Q: What are the top trends in workplace design that you foresee being the most impactful in the near term?

PO: One of the most interesting developments, I think, is the way technology is being integrated seamlessly into spaces that are drawing inspiration from past forms. There’s great respect among young entrepreneurs for the working traditions of the past, and the new workspaces often reflect that. The light-industrial aesthetic is increasingly popular—a fully wired, state-of-the-art facility, but in a framework of rough textures, raw concrete, unpainted wood. A workshop.

And then the other trend is the continuing expansion of mobility. This idea that

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creative work can happen anywhere, and often happens best in a cafe or in a cab on the way to the airport. The workplace, then, becomes the hub for a network of spaces, on and off the premises, where productive work gets done.

Q: What are the top trends that you are identifying in the Bay Area?

PO: The Bay Area continues to be at the forefront of workplace design. The trends are the same as those we see nationally, but that’s because they’re moving from here to other places. Every time a design magazine does a feature on cool workspaces there are one or two from New York, one or two from London, a few from other cities—and a bunch from the Bay Area. Our projects often get a mention in those surveys. It’s an exciting time to be working in design in San Francisco.

Q: Does the Bay Area still command the title of the pre-eminent workplace design leader in the world? Are other cities, and companies in other cities still emulating what we do here?

PO: I think so.

Q: Are they successfully doing it, because workplace design is not just about the interior setting, it’s about the strategy, the location, the space, the connectivity internally and externally (transportation, retail, live/work balance)?

Keep an eye on non-tech.

I think we’re about to see an explosion of manufacturing and service industries.

Primo Orpilla, Principal, Studio O+A

PO: Absolutely. Workplace design has become a branch of sociology. We’re figuring out how work is changing, how new generations of employees are bringing new values to the workplace and different expectations that have to be addressed in design. We’re right on the cusp of changing technologies and shifts in the economy and demographics. We’re smack at the heart of urban revival, this great movement back to the cities. All of the changes that are having profound effects on our society are being played out in the workplace and designers are caught up in the whirl.

Q: Are you optimistic about next year and why?

PO: I’m always optimistic—even when circumstances may not warrant it. But (2014) looks genuinely promising to me. We’re moving to a new office, you know.

Q: What else we not asking that we should be asking?

PO: Keep an eye on non-tech. I think we’re about to see an explosion of manufacturing and service industries.

The recently completed Zazzle office in Redwood City offers a variety of settings for employees to tackle a variety of tasks.

Images courtesy of Jasper Sanidad

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ADVERTISEMENT

The Way to Win in

2014 ConstruCtion

By Bruce Holms Executive Vice President & General Manager skanska usA

L

ooking ahead at 2014, we are entering into one of the most active periods of construction in the Bay Area since emerging from the recession. There are vast opportunities; almost as many as there are competitors. As a result, we’re going to see contractors differentiate themselves in ways that will, ultimately, change the construction business.

The Bay Area is thriving. We see healthcare providers continuing to expand existing facilities while also bringing care closer to home with new medical office buildings and clinics in the communities they serve. Universities statewide have initiated large programs to enhance facilities in ways that will help serve student needs and recruit the best professors to campuses. Our region remains a high tech hub. Rapid growth in this industry is powering expansions for needed research facilities and advanced data centers.

All of this requires infrastructure to support it. At Skanska, we are hard at work on the VTA BART Berryessa extension, which will bring our region’s primary mass transit system to San Jose for the first time. The Bay Area has a vast transit network which keeps our region moving and supports growth.

The new Transbay Transit Center and future expansion at the San Francisco International Airport will transform the Bay Area into a modern transportation hub.

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“the new transbay transit Center and future expansion at the san Francisco international Airport will transform the Bay Area into a modern transportation hub.”

All this makes the new year, potentially, one of the best in recent memory for contractors. The opportunities are exciting. Ultimately, we know that we will only be successful when we align our construction efforts with the business goals of our customers.

One important trend that is moving us in that direction is Lean Construction, where contractors streamline their processes to deliver projects more efficiently. This can trim time from the schedule, meaning customers can bring their facilities online faster than in traditional methods. We are seeing this successfully being deployed for the Palo Alto Medical Foundation’s new San Carlos Center.

Above: Bruce Holms

Additionally, more clients are leaning towards an Integrated Project Delivery method for their projects. With an IPD project, we sign the same contract as the owner, architect and other key partners. By sharing the stake in project success, the traditional walls of our industry are broken down.

The result is solving design and constructability issues before they emerge in the field, which greatly benefits the schedule.

It’s an all-around win.

New approaches to construction delivery are being paired with technology to create efficiencies that even 10 years ago weren’t possible. For starters, we are digitizing our construction drawings, enabling every construction crew on a site to work with most up-to-date plans in nearly real time.

Hours spent by project engineers walking a large site to update individual plan books can now be spent performing work. Over the course of a multi-year job, that can mean significant improvements.

We’re also developing apps that help us do work better and faster. Quality isn’t compromised when you’re able to work faster by using a mobile app instead of a piece of paper. All of these efforts are being made with the needs of our clients’ businesses and operations top of mind. We’re not simply a contractor – we’re a valued business partner.

The way to win in 2014 is to listen to your clients and adapt to the changing delivery methods and needs of the market – delivering quality buildings – without compromising safety, schedule or budget. r

Visit us at: usa.skanska.com

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Jeffrey Hoopes

CEO, Swinerton

Building a

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STAR Team IN AN ERA WHEN CHANGING EMPLOYERS IS THE NORM, Swinerton CEO Jeffrey Hoopes is a titan of longevity. He’s been with the company since 1984, when he started as a project engineer. In taking over as CEO this past September, he became only the 11th person to hold that job in Swinerton’s 125-year history. As a member of the executive team, Hoopes oversaw Swinerton’s expansion throughout California and into Oregon, Washington, Texas and Hawaii, and he led business development efforts that helped the company surpass a significant milestone of $2 billion in annual revenue.

The company is a diversified builder in commercial real estate, government, hospitality, healthcare, critical facilities and education, to name a few. In the Bay Area, the company is recognized as one of its most significant construction and building organizations with a varied portfolio that includes the de Young Museum, Williams-Sonoma Union Square and the headquarters of Gap Inc. Swinerton is 100 percent employee owned. It still holds California contractor’s license No. 92, obtained when the state first began issuing licenses in 1927.

After all, it is all about the people with whom you work

Q: The Bay Area is in a boom economy, and it is a very good time for the construction industry. What challenges does this environment bring for your organization?

JH: The largest impact to our organization has come from the lack of manpower availability at the subcontractor level. On the larger corporate campuses it’s difficult to run multiple shifts or expedite schedules because of the limited amount of manpower in the community.

Q: How do you maintain quality?

Jeffrey Hoopes checks on progress at one of Swinerton’s current projects, the third phase of the Trinity Plaza apartments in San Francisco’s Mid-Market corridor.

Laura Kudritzki

JH: We have been successful in maintaining quality on our projects by bringing our subcontractor base into the early planning and design process for each project. We are delivering the majority of our projects through a limited design-build process that includes design of the structure, curtain wall, mechanical, plumbing and electrical. Because almost 70 percent of the project cost is design-build, we can hand-select our subcontractor base early and thus ensure a quality project.

Q: Is the region’s booming economy going to create more competition from other builders who want to come into our region?

JH: The San Francisco Bay Area has several barriers to entry, including an existing base of very talented local builders, a limited subcontractor base that prefers to work with the local builders, and a very active union base that makes it difficult for nonunion contractors to enter the market. A few contractors will enter the market during this boom period but will have to offer very low pricing to be considered for projects. When the boom cycle has run its course and these outside contractors realize their losses from taking on too cheap of work, they will likely leave town. It’s pretty much the normal cycle.

Q: The construction industry for the most part has been a local industry. Do you foresee a period of consolidation regionally or even nationally?

JH: I see a future consolidation on a national basis allowing large construction corporations to enter some restricted markets. The majority of the consolidation on a national basis has come from offshore construction companies or large publically traded US companies. Examples of this consolidation are purchases such as Webcor by Obayashi,

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THIRD ANNUAL

Real Estate and Law

REAL Symposium

Wednesday, January 29, 2014 12:30 - 1:00 PM Registration 1:00 - 5:30 PM Program 5:30 - 6:30 PM Networking Reception

Paul Brest Hall, Stanford University Building 4, 555 Salvatierra Walk Stanford, CA 94305

For registration information, program schedules and/or sponsorship opportunities, please visit www.realsymposium.org

Keynote Speakers Robert E. Hall Robert and Carole McNeil Joint Hoover Senior Fellow and Professor of Economics, Stanford University Photo Credit: Peter Tenzer

Featured Panels

Eli Khouri Executive Vice President and Chief Investment Officer, Kilroy Realty Corporation

“Silicon Valley’s Paradox of Prosperity: The Challenges Associated With Growth” “Current Trends in Commercial Real Estate Finance: Debt, Equity and Everything in Between”

Presented By

Jeffrey Hoopes

“The largest impact to our organization has come from the lack of manpower availability at the subcontractor level.”

Jeffrey Hoopes, CEO, Swinerton

Howard S. Wright by Balfour Beatty, and Rudolph and Sletten by the [Tudor] Perini Corporation. These are just a few of many examples.

Q: Campuses and office space for tech companies are becoming individualized playgrounds. How is Swinerton responding to the changing environment in the technology space?

JH: We are currently building several million square feet of space in the technology sector. All of our work at this point is sustainable, green and environmentally sensitive, with the real differentiator in this technology space being the additional power and cooling requirements and collaborative space such as bike repair shops, kitchens, interface space and resting rooms. It’s all about the collaborative space rather than the workstation.

Q: Are you optimistic about 2014? Why? JH: 2014 is shaping up to be a great year. We’re seeing good projects with qualified, experienced and talented clients.

Q: Where do you see the greatest potential for your industry in the near term (product wise, healthcare, multifamily, office...)?

JH: The greatest potential for our industry in the near term is focused on the project delivery process rather than the market served. The construction process is very archaic and needs to be upgraded and streamlined with the use of Building Information Modeling tools and lean technologies.

Q: You joined Swinerton nearly 30 years ago as a project engineer and probably held almost every job at the organization. What excites you about Swinerton today, and how will that help you focus on your goals ahead?

JH: There are two key elements that have kept me here at Swinerton for 30 years, and they are the same reasons why I am so excited about the future. The first is because I enjoy the people I work with. Everything else is secondary in employee satisfaction.

It’s all about the people you work with. A bigger question might be, “Why does Swinerton attract the type of people that we do?” I think it’s because of the culture and differentiator that exists and is fostered here at Swinerton. That culture exudes from our value of employee ownership, in which we succeed together. No one person’s ego will become greater than that of the whole of Swinerton; our future is tied together both financially and emotionally.

The second element is our focus on new technologies through the use of BIM, which allows us to better control the outcome of the projects along with our risk profile. I see that in the next five years the contractor’s role in the project delivery process will be changing into more of a leadership role through different forms of design-build and design-build finance opportunities.

Q: Your company just marked its 125th anniversary. You have quite a legacy to uphold for this organization. Can you please tell us about the values that Swinerton has maintained during this time and how those will be carried into the future?

JH: In my 30 years with Swinerton, I’ve worked with five chairmen, more than 15 executive vice presidents, numerous leaders, and over 1,000 employee-owners. As you might imagine, there’s been a great deal of variety in styles and effectiveness. But looking across the entire spectrum, I believe there are two characteristics that nearly all of them, and certainly those who were most successful, have shared. One is an ability to adapt philosophies and strategies without compromising Swinerton’s values and who we are at our core. The other is an understanding that individual success can only result from team success; it’s not about star players, but star teams.

These may seem simple on the surface, but take a step back and consider what’s really involved in achieving both ideas—a willingness to change, a willingness to sacrifice and a willingness to elevate others. Not easy tasks, but necessary ones to survive and thrive over the next 125 years.

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jay turnbull

Founding Principal, Page & Turnbull

Seeking Equilibrium

& CONSENSUS

Jay Turnbull at the Walt Disney Family Museum at The Presidio in San Francisco

Laura Kudritzki

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JAY TURNBULL HAS BEEN AN ARCHITECT with Page & Turnbull since 1981. He had been an architect and urban designer in San Francisco and New York, where he worked at Skidmore, Owings and Merrill—gaining early experience on an urban scale—and the New York City Office of Midtown Planning & Development. He also was Architect of San Francisco Architectural Heritage for five years while maintaining a practice in historic architecture.

Turnbull has a particular interest in integrating new design within the historic context.

As a former president of San Francisco Architectural Heritage and a Peer Reviewer for the U.S. General Services Administration Design Excellence program, Turnbull has published and lectured widely on preservation related matters. He has been a preservation architect for numerous National Register and locally recognized landmarks and has consulted extensively on the seismic retrofit of historic buildings. His work has been honored by the National Trust for Historic Preservation, American Institute of Architects, California Preservation Foundation and other national, regional and local organizations.

Q: Page & Turnbull celebrated its 40th anniversary in 2013. What is different about how you work with clients today than it was in the past, and what is the same?

After 40 years, the architect sees a lot of the same among a sea of changes

JT: The key aspect of working with clients hasn’t changed: it continues to be communication. Understanding the client’s needs and translating them into built spaces remains the central task for any architect. One thing different these days is that, with instant messaging, you can never be far away from your work. This may reduce procrastination, but it’s difficult to set aside unscheduled time to just mull over the project and let ideas develop.

In terms of our work though, we aren’t the same Page & Turnbull that we were 40 years ago. While we’re still passionate about preserving historic buildings, few people realize that we have evolved into a design-focused practice with an emphasis on unique interpretations of historic buildings and spaces.

Q: You have worked on some iconic projects around California (Bright Angel Lodge in Grand Canyon National Park, The Walt Disney Family Museum at the Presidio of San Francisco, Hoover Pavilion at Stanford University, San Francisco’s Ferry Building, to name a few). What is your perspective on the new workplace design that we see around the Bay Area? Is it a sign of the times or will it have enduring legacy as some of the projects where you’ve had an opportunity to work?

JT: We are certainly moving toward smaller dedicated and individual “me” work spaces (which are theoretically paperless!) into larger collaborative “we” spaces with opportunities for shared activity.

Although there are smaller space allocations per worker, my sense is that the best collaborative offices provide maximum team, community and amenity spaces, which include focus rooms, informal meeting rooms, lounge space and coffee bars, all designed with more flexibility than in the past to maximize the real estate.

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jay turnbull

Q: How does this affect historic preservation? Can historic buildings be well-adapted to the modern workplace without sacrificing their integrity? How does an architect strike a balance?

be. I’d nominate the ‘adaptive re-use’ of SFMOMA, now under construction, as a future landmark. Sometimes it takes a while for people to get over the ‘shock of the new.’

JT: One has only to look at the kind of space being rented by tech firms in San Francisco to realize that historic buildings, sometimes stripped of interior detail, offer the very spaces that attract new businesses and that are forming the modern workplace, at least here. In order to achieve historic preservation goals, the first job is to find new uses for existing buildings. You don’t want to remove those parts of an old building that are ‘character-defining,’ but nothing preserves the best of what we have like finding a profitable continuing use.

Q: What will define a successful architect in the future? Is it harder to do your job today than perhaps it was in the past?

Q: Which (or which kinds) of the newer buildings in the Bay Area do you consider candidates for historic preservation years from now? Are we too caught up in newness and change to build something for the ages?

JT: Every age builds well. We sometimes fail to recognize the value of recent buildings. The former Crown Zellerbach Building, now One Bush Street, is a San Francisco Landmark and deservedly so. There are other mid-20th century modern buildings that will probably be recognized before long. ‘Brutalist’ styles haven’t been as popular, but a terrific example, the former Berkeley Art Museum by Mario Ciampi, at last appears to be saved, and should

VISIONARY AMBITIOUS THE FUTURE

w w w. 3 3 3 B R A N N A N . C O M

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JT: If the architect’s primary skill remains communication, what defines him or her will probably remain the ability to imagine built space. I’ve always believed it’s a miracle that any building gets built. It’s always hard: Thousands of individual decisions have to come together, with reasonable tolerance, to produce something that people can use. If we look at the number of sheets in a drawing set, which has increased over the last hundred years, we might think our work is getting harder. If we begin to see robots and 3-D printers doing some of the actual building, we might guess the process is getting easier. Whether you’re making a spoon or a city, it’s still hard.

Q: In our ever-connected and diverse world comprised of individuals from different countries and cultures, how does great design transcend those differences and accomplish to please so many?

JT: What a great question! One answer could be that, as societies become ever more diverse and design becomes international, the language of building will simplify. But I think there is something

“Understanding the client’s needs and translating them into built spaces remains the central task for any architect.”

Jay Turnbull, Founding Principal, Page & Turnbull

about good design that relates to us as people—our senses and our physiognomy—so that we are instinctively drawn to compositions that most of us would say are beautiful.

Q: Are you optimistic about the next year and the immediate future?

JT: Of course! I’m most optimistic about the ways in which our work continues to expand into new territories. We’re now working in places as far-flung as Alaska and Asia, on projects as diverse as the Zhongxing Concept Plan in Beijing, China and the University and Medical Center Master Plan in Anchorage, Alaska. We’re also seeing a growing pattern and acceptance of adaptive reuse and the rejuvenation of historic buildings more than ever before, which is hugely satisfying for us.

Q: What challenges are you anticipating in the near term in your industry and more broadly in real estate?

JT: In the construction industry, San Francisco excepted, the last five years have not been easy. As the recovery becomes more widespread I think we’re about to see a shortage of talent at all levels— design, construction, craft. In real estate, the entitlement process is eating up an ever greater share of project budgets, and opposition to large scale building can be brutal. Washington, D.C. isn’t the only place where the logjam dominates.

Q: What else should we be asking?

JT: Where is consensus? Where, in city governance, is there an agreement that we can do what we should do? In the Bay Area, where is real regional planning that organizes transportation, coordinates development, sets aside common areas and designs for climate change? If we are the optimists we say we are, we need to begin answering some of these questions!

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License #198069

Owner, Pivot Interiors

barbara carlyle

The Front Row Seat of Your Life BARBARA CARLYLE FOUNDED her contract office furniture dealership in her Sunnyvale kitchen in 1987. The company grew and in 1999 reinvented itself through a merger with a local competitor to form what is today Pivot Interiors. It now has seven locations throughout California, including San Jose, San Francisco, Los Angeles and Irvine. Carlyle heads the sales and marketing divisions of Pivot.

Her long-term clients include such Bay Area giants as Adobe, Apple, Autodesk, HP, Juniper, Oracle and Symantec.

In 2010, Carlyle was named Corporate Real Estate Service Provider of the Year by the Northern California Chapter of CoreNet Global, an association for corporate real estate and workplace professionals. Her involvement with CoreNet spans the history of the organization. She participates in its mentoring program, working with young professionals to uncover growth opportunities and paths for career development. Pivot also has become a signature sponsor of CoreNet with many employees serving on committees such as Young Leaders and Membership. The company is also actively involved in the International Facility Management Association, the

Creating natural environments for workplace of the future

Barbara Carlyle in Pivot Interiors’ San Jose showroom

Laura Kudritzki

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Client spaces include, from left, clothing brand Fox Head, visual communications company Gravillis, and software corporation Autodesk.

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“They are looking for a place where a personal connection to work and colleagues increases their productivity and effectiveness through a natural experience of interaction, creativity and fun.”

Barbara Carlyle, Owner, Pivot Interiors

Sample views from Pivot’s San Jose showroom

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International Interior Design Association and Commercial Real Estate Women.

Q: As the economy continues to improve, how are your clients’ attitudes toward interiors changing?

BC: Pivot’s clients are very savvy businesspeople. They understand that the workplace is a strategic financial investment, one that is paramount to attracting and retaining the best talent. Furthermore, our clients recognize that to retain that talent they need to create offices that will delight their staff with a compelling selection of work settings.

Q: There was a push into less space per employee over the last few years. Are you still seeing that or is the pendulum swinging in the other direction?

BC: Pivot is actually coaching our clients to think beyond “square foot per employee” formulas. Our tagline for the past three years has been: Your Space. Your Story. We believe that it’s critical for each company

to create a workplace that’s right for their people and their work. Employees still need individual spaces in which to work, but more effort is being focused on giving them a choice in how they work throughout the day.

Pivot believes that if we fundamentally understand what individuals are trying to achieve, and how they go about achieving it, we can co-create more purposeful spaces that optimize many different individual and team activities.

Q: Are you seeing through your network a new age of office space design throughout the country? Is there a spillover effect from the Bay Area into other regions?

BC: Yes! Our research indicates that by 2015, the majority of the U.S. workforce will be in their 20s. That generation has their own unique perspective and expectations of what the office environment should be. They are looking for a place where a personal connection to work and colleagues increases their productivity and

effectiveness through a natural experience of interaction, creativity and fun.

Q: How are companies like Herman Miller responding to these changes and attitudes of what an office looks like or how it functions?

BC: New trends continue to emphasize that workplaces must feel like a community worth belonging to. People want to work in a natural environment that connects them to their work and to each other.

Herman Miller sees Living Office as a new kind of workplace founded on the total experience of work.

Q: Are you optimistic about 2014? Why? BC: Pivot is optimistic about 2014. The San Francisco Bay Area is at the forefront of opportunities for the development of startups and also continued growth for existing companies. We live in an area where there are no boundaries to the continuing emergence and development of technology…. and it’s exciting!

A

nnouncing our 2014 BOARD OF DIRECTORS

Clockwise from left: Kimberly W. Scala, Partner, Archer Norris Cheryl A. Hayes, Vice President, California Bank & Trust Teresa Goodwin, Regional Director, HPA, Inc. Linda J. Griffin, Sr. Vice President, Argo Insurance Brokers Teresa Moss Fluegel, Sr. Vice President, Chicago Deferred Exchange Co. Elizabeth A. Swift, Vice President, Mechanics Bank Dana C. Tsubota, Partner, Wendel Rosen Black & Dean LLP Holly B. Neber, President, AEI Consultants Sandra Weck, Sr. Vice President, Colliers International

opportunities for women in the commercial real estate industry. Do The Deal with us in 2014!

East Bay CREW always welcomes new members and inquiries.

SILVER SPONSORS

GOLD SPONSOR

PLATINUM SPONSOR

SIGNATURE SPONSOR

For more information go to www.eastbaycrew.org

ADVERTISEMENT

Nick Pera VICE PRESIDENT, PRECONSTRUCTION BNBUILDERS

W ith the Bay Area’s strong construction market, are there any areas of concern?

“

A great risk manager once told me “more companies go out of business in a boom than a bust market.” Making up for work procured in a more aggressive market can be devastating to a company which self-performs work such as most subcontractors. In a boom market labor costs rise, productivity is less efficient, We have done an and material prices escalate at a non-standard rate. outstanding job of both We have been extremely hiring the most talented successful in avoiding any new recruits and seasoned subcontractor failures on our projects mainly due to our industry veterans extensive prequalification process, which ensures top performance and quality.

Recently we prequalified a group of 200 subcontractors within thirty days without printing one piece of paper.

“

Working in a market that can so dramatically fluctuate up and down in cost, how do you accurately track fluctuating construction costs?

The industry standard costs indices typically used for cost escalation just do not work here. You can take most published indices through the last recession and year-to-year they show an increase where we know based on bid results that costs dramatically dropped from 2008 to 2010. For this reason we created the BNB Historical Cost Indice, the BNBI, which tracks over 22 labor rates, 40 material commodity costs, subcontractors OH&P on a given year all based on actual project hours and material quantities. The result is a highly accurate escalation tool that we use on every project.

What excites you the most about the advances made in preconstruction technologies and techniques?

We have seen such a change in the industry over the past twenty years. What’s next? That’s what I love about my job – there’s always a better way. Utilizing the newest technologies and always asking yourself how can that make our product and projects better. If you can imagine it – it will probably happen.

It would seem that BNBuilders has seen a steady growth over the past decade, what is the key to your successful growth?

I know it sounds a little cliché, but hands down it is the people. As an example, whether there was an immediate need or not, we continued to recruit and hire the best because we knew It’s no secret that the Bay that very strong talent was available, and if we didn’t Area has a construction hire now we would have micro-climate a hole in management professionals five years down the road. We never turn away highly talented professionals; we see this type of hiring practice as an investment in our business.

“

“

Are you optimistic about 2014 and why?

We had our best year in 2013, and I’m beyond optimistic for 2014. We are anticipating significant growth and truly exciting construction projects. It’s a very exciting time at BNBuilders.

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CITY OF HOPE’S REAL ESTATE & CONSTRUCTION COUNCIL Presents the

Spirit

Life of

Award celebration Honoring

Register Now To register, visit www.cityofhope.org/ rec-spirit-of-life-award or call Anne Campanella at (800) 732-7140.

Christopher Meany Wilson Meany

Media SPonSor:

Tuesday, april 29, 2014 | 5:30 P.M. MarrioTT Marquis | San Francisco

CornerStone SPonSor:

DEV21902ks

President, Barry Swenson Builder

case swenson

Starting the second century in Silicon Valley AS A LEADER OF HIS OWN CONSTRUCTION COMPANY, Swenson Development & Construction, for over twenty

years, Case Swenson had the pedigree of a builder family that has been a major player in Silicon Valley development for a century. In 2013 he devoted more time to a family business that his father, Barry, a perennial valley fixture had been running for over three decades.

In his new role at Barry Swenson Builder, he is responsible for the operations as well as project development and construction, real estate development, property management and accounting. Case Swenson provides executive support throughout the life cycle of each project from contract negotiations, pre-construction planning and design with clients and project team to construction feasibility, monitoring cost and schedule through the final stage of project completion.

He is a strong believer in the opportunity and promise that the capital of Silicon Valley—San Jose—has to offer, and he intends to be a major player in its realization.

The South Bay builder sees downtown San Jose at a turning point

Q: The construction industry in the Bay Area has been on a tear recently. These are the good days. What challenges does a market like this present to your industry?

CS: Consistent supply of qualified labor and commodities at a reasonable price remains a priority to our partners and clients.

As these prices rise due to demand, we are constantly balancing customer expectations with market conditions. To address this concern our firm advocates the integration of the design-build team early in the development process, so that we can be ahead of the curve, and lock in subcontractors and their pricing well in advance of ground breaking. This also allows us to leverage best practices and previous design scenarios so that we don’t have to start from scratch with each project.

Case Swenson at the Hotel De Anza in San Jose, a Swenson project from 1931.

Laura Kudritzki

Q: Barry Swenson Builder has been a major force in Silicon Valley for almost 100 years. As the economic and technology concentric circles expand north and east, will the company look to expand its presence more broadly across the region?

CS: BSB is setup to manage projects within 200 miles of San Jose. I believe you are referencing tech company expansions up the peninsula and some moves into the East Bay. Although we’ve witnessed the referenced expansions into the north and

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east, we’ve also experienced a considerable amount of growth in the South Bay Area, specifically the downtown San Jose market.

We have the land and the opportunity here in San Jose to deliver quality product to the technology concentric circles at a much better price point. I believe downtown San Jose will be the “hot spot” for tech companies in the not too distant future.

Q: Are you concerned from a supply side about the competition in your industry generated by the level of activity in the region?

Do you foresee companies based outside of the Bay Area competing with the local players more and more?

CS: I’ll be honest, there’s a lot of work to go around in our submarket and, yes, we have seen an increase in out-of-town construction management firms acting as general contractor locally. Our company tends to work on complex projects that require long-term knowledge and influence to get a project over the finish line. Our relationships with municipalities and subcontractors continue to be a strong value-add to our clients.

Q: Do you anticipate M&A activity in the industry in the near term, 18 to 24 months?

CS: I’m speaking for our firm only, but in my opinion, San Jose still has a heritage of local family-based development firms that remain critical to the success of economic growth. There are a handful of key players that control a majority of the opportunity land sites, and each firm has its own “style” and approach. On the construction side, you might see “talks” by some of the larger, national firms as they look to leverage books of business in certain submarkets like the Bay Area, but I don’t foresee a large amount of M&A at this time. It is an exit strategy that would not be of interest to these long-term family businesses.

Q: How is the rising cost of construction impacting your business?

CS: The rising costs have definitely made an impact on the financial feasibility of our developments. Luckily, we’ve been able to lock in rates and contracts with our key subs this year, and for some of the projects that will break ground in early 2014. Our developments are in a constant state of adaptation as we get creative to address the rising construction cost issue. Our exit sales/lease pricing analysis has been able to cover the cost delta, but we continue to value-engineer and sharpen our pencils on each project, to keep a conservative outlook.

Q: Campuses and office space for tech companies are becoming individualized playgrounds. How is Barry Swenson responding to the changing environment and needs of clients in the technology space?

CS: I’m responding to this from a development perspective: The “individualized playground” and changing environment brings to light a common thread, which is the need to attract talent via on-site amenities and flexible working conditions. Our firm has keyed into this by advocating for the redevelopment of sprawling tech campuses, and the re-zoning of these properties to unlock the air rights above the land (as opposed to using up more land). By

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densifying these plots of land we can create an ecosystem that allows for housing, retail and hospitality within the same parcels, thereby increasing the quality of life of the employee and lowering a city’s carbon footprint by promoting less cars on the road or the need to drive everywhere.

Q: Some may argue that the center of economic gravity in the Bay Area may be shifting north to San Francisco. What indication do you have of Silicon Valley still holding its important leadership role in the region?

CS: Obviously I’m a little biased to the South Bay, and I could speak on this subject in an advocacy role for hours on end, but Silicon Valley continues day in and day out to increase the amenities and public transportation flexibility that is crucial to acquiring the best talent. Don’t be surprised to find out that our main companies’ tech talent doesn’t want to raise their families in the city (San Francisco). Silicon Valley is that perfect mix of quality of life, where you can live close to your job and have access to some of the best schools and entertainment in the Bay Area.

We offer a safe and enticing solution to the age bracket that has had its “fun” in the city, and is ready to settle down. The companies will expand where the employees want to be, and we’re already starting to see the needle move south from the Highway 85 dividing line (Cupertino / Sunnyvale / Mountain View).

Q: With the recent development announcements around North San Jose and in the general vicinity of the Golden Triangle (the area between highways 237, 101 and 880) we are seeing that Silicon Valley still holds a very large appeal for investors and companies to be located there. This is in proximity to downtown San Jose, the traditional heart of Silicon Valley.

How optimistic are you about downtown San Jose’s ability to attract large employers and to become an urban center of gravity for the South Bay region?

CS: I’ve had my thumb on the pulse of downtown for decades, and I’ve never seen so much activity. We’ve increased our retail presence and are going to be delivering thousands of new highdensity apartments and condos right in the core. You’ve already heard rumblings of companies opting to make the switch to downtown San Jose, due to its proximity to transportation, amenities and lower cost office space. I don’t think that the North First Street or Golden Triangle corridor will cannibalize downtown, it is just another step in downtown’s direction.

Will we get another owner-user pioneer like Adobe? Maybe, but I don’t think we need to rely on that to make a judgment on downtown San Jose being “successful.” With the San Pedro Square Market expansion, Little Italy expansion, Convention Center expansion, San Jose International Airport expansion and all of the housing starts, why wouldn’t San Jose stay true to its moniker of “The Capital of Silicon Valley?” My question is down the road as the peninsula and North First Street corridors rise in delivery costs to the large employers, will they actually have a choice in where they operate? Downtown San Jose is at a turning point, and its time for employers to lock in their foothold.

“2014 will bring the highest dollar volume of work in our firm’s history (as Barry Swenson Builder).”

Case Swenson, President, Barry Swenson Builder

Q: Are you optimistic about 2014? Why? CS: 2014 will bring the highest dollar volume of work in our firm’s history (as Barry Swenson Builder). We’re seeing activity in literally all sectors: hospitality, medical, retail, residential, senior housing, and warehouse space is now at a premium.

Q: Where do you see the greatest potential for your industry in the near term (product wise: healthcare, multifamily, office...)?

CS: In and out of this past recession, multifamily has been one of the only financeable products. As supply comes online, and the units become more affordable for the general population, the product will become less financeable for the developer. We are cognizant of these forces and believe it is time for a shift in supplying other product types, including senior housing (both market rate & affordable) and medical. That is a huge demographic (the baby boomers) that has defined every real estate trend for the last 60 years, from single-family homes to big-box retail. We need to address this need and start planning accordingly.

Q: What does the future hold for Barry Swenson Builder and its leadership?

CS: I was speaking with our CFO the other day and realized that the average employee length of stay at BSB is now approaching 20 years per employee. This is due to a mix of self-directed responsibility and employee flexibility. We continue to mentor the new kids on the block through a leadership team that has survived the best and worst markets in the valley, and our philosophy has always been to incentivize leaders to really take ownership of each project from soup to nuts. I definitely see younger employees stepping up to the plate daily, and we hope to nurture those emerging leaders into the upper ranks of the firm. We rely heavily on our staff to consistently deliver quality projects to our partners and clients, and it’s our foundation of tradition, innovation and integrity that brings us full circle with each project. We’re expanding, we’re hiring, and we’re looking forward to the next 100 years of development in the Silicon Valley.

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2014

ECONOMIc OUTLOOK

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dustin bogUe

President and CEO, UCP Inc.

In Housing, This Time It’s Different Dustin Bogue at one of the newly completed homes at Fairview at Eagle Ridge in Gilroy.

Laura Kudritzki

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DUSTIN BOGUE founded Union Community Partners in 2004 to acquire and develop undervalued property in Northern California.

UCP buys distressed notes, finished lots, partially finished lots and entitled land in several California markets. In 2008 the company was bought by publicly held PICO Holdings Inc. and the name was changed to UCP LLC. Since then, UCP has acquired nearly 6,000 residential lots and invested more than $190 million in California and Washington state. In 2010 the company formed Benchmark Communities to build homes. Currently, Benchmark is building in Monterey County, Santa Clara County and Fresno County.

Bogue began his career in the Northern California title industry. After several years in residential and commercial development services, he started with Wellington Corporation of Northern California as director of land acquisitions and development. He and the executive team at Wellington created two portfolio technology start-ups: Bridgewater Ventures, an early-stage venture capital company, and Cenatek Inc., a solidstate storage device company where Bogue acted as executive vice president. He furthered his career as vice president of development and sales at Landcastle Real Estate before setting out on his own.

UCP was spun off as its won publicly traded company this past July.

Circumstances are ripe for continued recovery and an increase in M&A activity

Q: You founded UCP in 2004, arguably near the top of the last housing market cycle. Are we in the same phase now, nearly 10 years later?

What insights do you have on the market, and how is this cycle different?

DB: The current housing environment is different than 2004 in many ways. First, 2004 marked the top of a long run of an inflationary housing cycle making home affordability, especially in the Bay Area, extraordinarily low. That is to say, the percentage of people making a median income could afford a median priced house.

In contrast, today, evidence of a housing recovery in most of our markets like the Bay Area, includes decreasing levels of existIt’s tough to get support from municipalities for low-density housing in the Bay Area, Bogue says, but it gets easier on the outskirts, such as Fairview at Eagle Ridge in Gilroy.

Images courtesy of UCP

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“The current housing environment is different than 2004 in many ways.”

Dustin Bogue, President and CEO, UCP Inc.

ing home inventory, high affordability, an increasing volume of new home sales and increasing home prices. Secondly, though we have seen significant home price appreciation through 2013 in many Bay Area markets, this appreciation is resulting from historically low pricing levels, which is indicative of the market attempting to return to the mean and progress in a normalized fashion. We refer to this as the Square Root shaped recovery.

Q: The housing market in the Bay Area has regained momentum, but only in certain areas. Santa Clara, one of the markets where you operate, has seen a strong resurgence in the industry, but some other areas have not seen as much recovery. What are the major drivers of that recovery in your mind, and how do you see them spreading, if at all, into other regions?

DB: Every market in which we operate has experienced pricing momentum resulting from historically low supply of both resale housing stock and new home development. In the core Bay Area markets, we have seen significant household creation and job creation, which are core long-term growth drivers of the housing industry. This combination of affordability, low resale home supply, job creation and household creation is likely going to foster an environment that will cause homebuyers to move from the core Bay Area to other housing markets that match their lifestyle and affordability. This has happened this year in places like Mountain House, Tracy and Manteca. Morgan Hill, Gilroy and Hollister have also experienced robust growth in 2013.

Q: What were your goals in going public in July, and did your achieve those goals?

DB: Our goal was to complete a public offering that provided us with sufficient capital to execute our growth strategy going forward and we are pleased we achieved that. It should be noted that despite having weathered the storm of one of the United States’ most uncertain economic times, PICO Holdings, Inc., our parent company at the time of the IPO, remains a committed partner.

We believe we have a great business with considerable potential and we remain focused on executing our strategy to facilitate sustained growth and create long-term shareholder value.

Q: Tri Pointe Homes recently purchased Weyerhaeuser’s homebuilding business. Do you foresee more consolidation in the homebuilding industry across the country vs. California, and if so, what is driving that consolidation?

DB: Yes. In fact, I believe you will see more M&A across the industry for three reasons. First, there is a lack of high quality and developable land, and much of this limited supply is in the hands of smaller regional builders. Second, it is very difficult to grow a large homebuilding platform in new markets organically; it takes a great deal of patience and market expertise. Third, small and medium sized homebuilders are structurally short of liquidity and financing and require strong balance sheets to grow.

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Q: One of the challenges in the Bay Area for homebuilders is available land for development. There has been a lot of infill, highdensity work under development lately. What is your prognosis for homebuilding in the Bay Area? Do you ever see that trend reversing here?

DB: The municipalities have more to say about the direction of future housing stock than anyone else and in today’s political climate, there is a very deliberate push to high-density nodal design and transit-oriented developments. In fact, it is quite difficult to find appropriate land and gain support at the municipal level for low-density development. Accordingly, for the near term, I do not see this trend reversing in core markets.

That being said, as you migrate out of the core, some of the more bedroom-oriented communities in the Bay Area are planning to provide more of the low- and medium-density singlefamily detached development the core cities are not. At UCP, we actively seek land acquisition opportunities where others might seek to avoid complexities, as we believe we can add significant value through our expertise in entitlements, re-entitlements, horizontal land planning and development, and by designing and selling homes to our core customer base.

Q: What will you look forward to in the next year? Where do you think the opportunities lie for your organization?

DB: We will remain focused on growing our business and sticking to our disciplines. As we have announced, we are opening new communities in Southern California in 2014, and we will be opening new communities in the Puget Sound market in the future, as well. We are always seeking opportunities that will allow us to grow our footprint geographically and further anchor our investments in core growth markets characterized by highly favorable long-term economic and demographic fundamentals.

We believe we are well positioned to grow the enterprise, because we already own all the land we need to meet our business plan through 2015, and we only utilize about half of our land supply. This is one of our core competitive strengths that affords great opportunity to grow and maintain our investing disciplines.

Q: What do you fear in the coming 12 to 18 months? What should we all be on the lookout for as the year turns?

DB: I believe that some of the most significant risk facing the housing market in general currently resides in Washington, D.C. If we can maintain a reasonably stable political climate and keep interest rates at or near where they are today, over the short term I would expect to see the economic recovery gain momentum.

Furthermore, the residential homebuilding industry is cyclical in nature and is sensitive to changes in economic conditions such as levels of unemployment, consumer confidence, availability of financing and interest rates. However, the best way to protect against cyclicality is to remain diligent in identifying the best opportunities in the best markets—and not always following the herd.

West Region Director, J.P. Morgan Chase Bank

chris desavino

CHRIS DESAVINO IS THE WESTERN REGIONAL DIRECTOR for the commercial real estate business within J.P. Morgan Real Estate Banking. He is responsible for providing the firm’s credit, treasury, and capital markets products to clients throughout the western United States.

He has been with Chase and its predecessor banks since 1989.

Prior to that he was a senior project manager for Nu-West Inc., a publicly traded real estate development company based in Phoenix and Calgary. DeSavino is a past president of the Real Estate Investment Advisory Council and former vice chairman of the Arizona Programs Board for Childhelp USA. He has been a frequent speaker for organizations including the International Council of Shopping Centers, the Urban Land Institute, Valley Partnership and the Real Estate Investment Advisory Council.

Mixed Market, Sure Results

Q: As someone who is physically in Arizona, how would you describe Northern California commercial real estate market as it relates to the rest of the country?

Real estate recovery in the region is strong, but industry fundamentals are important

CD: Northern California commercial real estate is mixed. On the one hand, markets like Sacramento and the Central Valley are still recovering from a severe housing oversupply.

While those markets are slowly recovering, we have not seen a very strong jobs rebound, and commercial real estate trends are still soft.

San Francisco, and the greater Bay Area, on the other hand, are probably the strongest commercial real estate markets in the Western U.S. and the nation as a whole. The growth in rents is most evident in office and multifamily. Specifically, multifamily rents have grown about 50 percent faster than the U.S. averages, and most experts expect office rents to lead the country with rent increases of approximately 6 percent this year and over 6 percent

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in each of the next four years. In fact, San Francisco is among only a handful of cities that will see new speculative development in office.

specifically for low cap rate markets, increases in cap rates could be problematic if they come without increased demand for space and higher rents.

Q: We have heard over the last two years that inflation is coming fast and furious, and it does not seem likely in the near term.

What conditions need to be met in order for it to kick in?

Q: Are you expanding your investment activity? Where and in what types of markets?

CD: It seems to me the Fed is very focused on controlling or moderating inflation. The Fed has targeted inflation at 2 percent and it is currently running around 1 percent, so there is some room to run. On the whole, I wouldn’t expect real inflation until we see GDP growth significantly over 2 percent and improvement to the real unemployment rate. That’s going to be harder to achieve unless you are an economy whose jobs are centered in energy, healthcare and/or technology. On balance, if we see inflation approach the Fed’s target level of 2 percent, then it will come with benefits of GDP and job growth.

Q: What near-term economic and fiscal issues concern you?

CD: As it relates to commercial real estate, I am concerned about long-term interest rates rising too fast. One of the results of the Fed’s bond buying has been to artificially boost asset prices.

Real estate has benefitted from this value boost and from record low borrowing costs. My concern is that interest rates rise too quickly and ahead of the economic drivers that will increase demand for office, retail and industrial space. For real estate, and

CD: J.P. Morgan and our predecessors have had a longstanding commercial real estate presence in many markets including New York, Chicago, Houston, Dallas, Denver, Phoenix and Irvine, CA. We also think that it is good business to lend throughout real estate cycles and in fact find it safer and more profitable to provide capital at market bottoms with positive trends. With that in mind, we opened new real estate banking offices in San Francisco and Los Angeles on the West Coast as well as Atlanta and Orlando in the Southeast. We are also dedicating more resources to serving clients in Seattle, Boston and Washington, D.C. All of our expansion markets are growing and we are steadily building our presence.

Q: You have access to markets across the globe, so how does the San Francisco Bay Area market compare in terms of investor appeal to other global mega cities? Is it affordable, is it more/less immune to economic risk, does it offer sufficient growth?

CD: San Francisco is such a wonderful and unique city. Not only is it a great place to visit, but it’s an extraordinary place to invest.

One of the most important attributes of the Bay Area is its access

Welcome 2014 CREW Silicon Valley Board Members:

Silicon Valley A special thank you to our partners and happy new year to all.

Signature Sponsors:

Partnership Sponsors:

Fellowship Sponsors:

Jill Collins, CBRE Past President Claudia Folzman, Iron Construction President Brian Franklin, Morgan Stanley President Elect Nancy Brandt, Berliner Cohen Chief Financial Officer Lisa Macaluso, ReelGrobman Secretary Todd Pearson, All Bay Paint Director - Membership Anna Rosa, Transwestern Director - Sponsorship Sarah Edwards, SRS Real Estate Partners Director - Programs Rosanna Davidson-McMahon, Orchard Commercial Director - Communications

www.crewsv.org

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“One of the challenges to investing in San Francisco is that real estate cycles tend to be more severe here than most markets.”

Chris DeSavino, West Region Director – Real Estate Banking, J.P. Morgan Chase Bank

to intellectual capital. Companies like Apple, Google, Facebook and Twitter are important for the jobs they create, but also as important symbols to our nation’s culture of innovation. The city’s cultural, culinary and recreational attributes make it a huge draw for the most talented young professionals.

One of the challenges to investing in San Francisco is that real estate cycles tend to be more severe here than most markets. There are significant impediments to new development, and the supply constraint along with cyclically strong demand contributes to increased pressure on commercial rents and home prices. In other words, San Francisco is more volatile peak-to-trough, but has a strong upward trend through the cycle. Traders love the volatility (if they play the cycle position correctly) and long-term investors have done very well over multiple cycles.

Q: Multifamily housing, while a product still pretty strong in the Bay Area, seems to be getting replaced by condo development.

What do you like/dislike about that transition, and how big of a bet is J. P. Morgan making in that area in the Bay Area and around the country?

CD: We still think the attributes supporting apartment rentals are very compelling, particularly in dense urban markets with proximity to good jobs. While the re-emergence of condos is justified in places like San Francisco, the financing of these projects is not an area we are active in. The reasons have less to do with demand and more to do with government policies that don’t allow condo developers in California to take meaningful deposits on presold units. As a result, the risks associated with financing new condos aren’t balanced for the investor or the lender.

Q: The general state of the economy seems to be improving at a snail’s pace. Is it conceivable that we (as a nation, not just in the Bay Area) could have another recession before the rest (outside of the tech/energy clustered cities) of the country ever catches up?

CD: I believe that 2014 will be another year of modest growth.

Corporate earnings remain very strong and there is tremendous liquidity in the market. The U.S. is a global leader and has relative strength and stability as a place to invest. The key for Silicon Valley is that it continues to maintain its position as the best place to recruit and attract talent.

! s r e n t r a P 3 1 0 2 r Thank you to ou BWRS

BOMA Oakland-East Bay 1000 Broadway, Suite 200-K, Oakland, CA 94607 www.bomaoeb.org www.theregistrysf.com

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James palazzolo

President of California operations, Zoll Medical Corp.

From the Valley

to the world

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ZOLL MEDICAL CORP., a Massachusetts company that’s part of the Tokyo-based Asahi Kasei Group, develops and markets medical devices and software for clinicians, emergency medical services and firefighters. These products help advance emergency care and save lives, while increasing clinical and operational efficiencies. Zoll’s core technologies include products for defibrillation and monitoring, circulation and CPR feedback, data management, fluid resuscitation and therapeutic temperature management.

James Palazzolo has been president of Zoll’s California subsidiary since 2008. He is responsible for the general management of Zoll’s therapeutic temperature management business as well as operations related to Zoll’s AutoPulse product, a cardiac support pump. He previously held positions in sales and marketing, business development and research and development at other medical device companies at all stages of development, including Radiant Medical and Revivant Corp., which were acquired

by Zoll.

Zoll’s California subsidiary recently moved from Sunnyvale to a new building purchased in San Jose to accommodate growth.

Q: You have a manufacturing facility in one of the most expensive labor and real estate markets in the world. Why have you decided to maintain that facility in the Bay Area, and how does it help you differentiate in the market?

JP: There are several key factors as to why we manufacture our products in the Bay Area. First, we believe that the talent pool for positions in engineering, clinical and manufacturing is ideally suited for both the development and manufacture of our core products: the Intravascular Temperature Management System and AutoPulse noninvasive cardiac support pump. Second, our experience has demonstrated that keeping our manufacturing facility in this area allows us to sustain tight control of cost and quality at the same time. We have found that manufacturing here is significantly less expensive than it is elsewhere when our high expectations for quality are factored in. We have to be very calculated in how we run our business, and we have to be fiscally conservative. To overcome the cost structure issues, including the headwind created by the recently introduced

medical device tax, we need to have excellence in manufacturing execution.

Q: Where are the products manufactured in San Jose designed to be sold? US, globally?

JP: Our products are sold globally.

Q: Describe the employees who work at your facility in San Jose.

JP: Dedicated to cost savings and excellence in execution. Every employee understands how critical our products are in saving lives. More than 5,000 lives are saved each year with our temperature management product line. Countless more cardiac arrest victims are saved with our AutoPulse devices. Our quality management system is designed to ensure that each employee adheres to strict guidelines. This intuitively drives a sense of purpose and focus on every task we do, whether it is in development, production, inspection or distribution. We are also an extremely diverse company.

Our employees come from every part of the world, and we feel that this is a tremendous strength.

Manufacturing in Silicon Valley continues to bring broad appeal to one medical device company

Q: How has that profile changed in the last 10 years?

JP: That profile has been consistent over the past 10 years. Even though our head count has grown eight-fold, we try to maintain a small company sense of mission and vision. It is imperative that we retain a high level of dedication and diversity in our workforce.

Q: As an East Coast-based company with a global presence, what makes the Bay Area an attractive market to you, and what do you have here that you are not able to replicate in any other location?

JP: This part of Zoll was originally formed through the acquisition of three companies: Revivant, Radiant and Alsius. Each of these companies had California roots, two of which were Bay Area based. From a continuity perspective it makes sense to remain in Silicon Valley and continue to develop and grow our business. We believe

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James palazzolo

“We have found that manufacturing here is significantly less expensive than it is elsewhere when our high expectations for quality are factored in.�

James Palazzolo, President of California operations, Zoll Medical Corp.

we are a California-based company. As opposed to many companies that look to outsource manufacturing to reduce operating costs, our experience is that we can achieve cost reduction through insourcing products.

facturing and distribution in one location we can optimize our operations.

Q: How does your facility in San Jose play into that strategy?

JP: We chose this location in San Jose for three reasons: location, size and value. For more than 70 percent of our employees it is a closer commute than our previous facility in Sunnyvale. The city of San Jose really helped make the transition easy. The new building is 2.5 times larger than our previous site, which allows us the room

JP: Our San Jose facility is based on lean manufacturing principles. We use this approach to minimize overhead costs and keep our cost of manufacturing as low as possible. By maintaining the entire spectrum of product development, manu-

Q: From a real estate perspective, will your location in San Jose allow you to scale your operations beyond what you are doing today?

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to continue to grow over the next several years. We purchased the building in order to control escalating rent rates and to realize the benefits of long-term capital investment needed in our factory. Our temperature management product line has grown significantly each year, and we expect that it will continue to do so. We were out of growth space and needed to expand, and San Jose proved to be a good value proposition for us.

Q: Healthcare is considered by some to be one of the industries that will continue to drive the economy of the Bay Area and perhaps the nation, as well. Do you agree with that, and what are going to be the main drivers of that in the near term (18 to 24 months)?

JP: The healthcare industry will continue to be a key economic driver. As medical cost containment is a politically active topic, everyone is searching for methods to drive costs down and improve patient outcomes in the acute critical care arena.

Companies that achieve both of these requirements will be successful in the long term. At Zoll, we recognize that our products must meet these criteria, and we are poised to continue to deliver new, innovative products that are a value proposition for acute critical care providers and will help to improve patient outcomes around the world.

Q: Are you optimistic about 2014? Why? JP: The new year will represent an important milestone for Zoll. As we bring up our new facility and continue to grow our core business, we will also be integrating products from two recently acquired companies, CoAxia and LifeBridge, into our manufacturing lineup. Additionally, we have numerous clinical trials underway that will further strengthen our market position in the area of temperature management and acute critical care to make a significant impact in public health. We are looking forward to facing the challenges of 2014 and the years to come.

Leader of the Healthcare Practice Group in the Americas, Cushman & Wakefield

scott mason

Navigating

the Healthcare Maelstrom SCOTT MASON JOINED CUSHMAN & WAKEFIELD in May of 2012 to lead the firm’s multi-disciplinary healthcare team. Working out of offices in Washington, D.C., Mason oversees strategic planning, mergers, acquisitions and sales of health facilities, property/ facilities management, project management, compliance appraisals and more. He had already been a well-known healthcare strategy consultant for 25 years, and had served as chairman of the American Association of Healthcare Consultants. He’s also a board-certified hospital administrator and frequent national speaker. His career has included services with Booz, Allen, & Hamilton, the American Hospital Association and Samaritan Health Service (now named Banner Health).

Q: Perhaps nowhere else can the word “healthcare” be more polarizing than in Washington, D.C., where you live and work.

Can you tell us what the political process has taught you about this industry, and how you apply those lessons in your daily work?

SM: Those of us who drink the Potomac water can lose a sense of reality easily. The most unfortunate thing is that the political process has hijacked reform, and it seems that the game and who wins it is sometimes more important than the outcome that it generates.

To me, one of the most important things is to separate Obamacare from healthcare reform. Healthcare reform is an ongoing process, and there are many good things happening there. It is generating new thinking about curbing costs, where care can be provided and by whom. Healthcare is going through a process of disruptive innovation. Some of it is very good, and it is coming from outside of the industry. Retail clinics are one of the best examples of that. The CVSs of the world have come to the realization that there is a whole segment of population that

Imminent industry change will shift real estate use and needs, as well

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can be served in their stores, and this is expanding dramatically.

The lesson that I learned is that not every change has to be legislative or regulatory. There are lot of things already going on in the industry that will transform it dramatically.

Q: What do you see as the top drivers of change in healthcare real estate, and how will they manifest themselves?

SM: A key driver is the need to bend the cost curve. The annual rates of increase in healthcare costs from the past are simply unsustainable. Healthcare costs too much. One very simple way to accomplish that is to shift certain services away from hospitals.

To illustrate, there are 16 major avoidable ambulatory conditions for which people continue to be hospitalized. The industry is starting to understand that from a service and practical standpoint, too. Admitting people can cost lives, because they can be exposed to things they would not have been had they been treated in an ambulatory environment.

So, as the industry starts to shift its thinking toward a distributed ambulatory delivery model, everything has to change.

One cannot expect the same physical environment to function effectively as you had in a big hospital. Also, in medical office buildings we are moving from a multi-tenant setting to single tenant. With that, you can achieve more efficiency with the services you provide, better control costs and improve patient throughput and the patient experience. It is really manifesting itself through patient focused design and zeroing on their needs

Redwood City San Francisco San Jose

Ad Campaign_2012.indd 2

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vs. a physician-focused design, which was the way of the past and based on a different methodology of hospital care. So, done right, the new ambulatory care is transforming physical space.

Second, the days of the solo practice or smaller regional systems are behind us. Large systems will dominate the landscape, which will bring greater sophistication in terms of organization. So, in some cases we will see repurposed retail centers serving the needs of a population in neighborhoods where they live and work as part of these larger systems.

Finally, mixed-use development and things like patientcentered medical homes are becoming very attractive in communities around the country. People are living longer and have a greater quality of life than they did in the past, even with chronic illnesses; they don’t have to be isolated from society. Baby boomers in particular are attracted to mixed-use developments that eliminate the need to travel by car everywhere. There is a paradigm shift in thinking how these people can be served in a non-hospital setting, and it’s a dramatically better and more cost-effective way to do these things in patient-centered medical homes. A primary care oriented approach to chronic illness is proving to be dramatically better than the traditional subspecialty care model.

All these changes have tremendous implications for healthcare real estate in the near future.

Q: How are services performed in hospitals today going to be delivered to us in the future?

SM: Hospital use rates, usually expressed as patient days per thousand population, have been declining somewhat dramatically.

Fewer people in a given area need to be hospitalized on any given day, and the main reason for that has been innovation and our ability to treat patients in new ways. In the past, people with chronic illnesses had to be hospitalized and, as stated above, isolated from their families and loved ones. Technology and our ability to treat these illnesses has enabled these people to live not only longer lives but also to live lives with these illnesses in such a way that they are less of a burden to their normal, day-to-day activity.

People do not feel the need to be hospitalized, and they do not want to have to go to the hospital if it is not necessary. They want healthcare that is convenient and accessible where they live and work.

This will drive how these services will be performed.

Increasingly, services that were previously offered in hospitals are offered in a non-hospital setting. And often, these services, such as retail clinics, are more nurse driven than physician driven.

Q: What does the future hold for hospitals?

SM: We should be clear on one thing, hospitals are not going anywhere. However, more and more, they will be focused on three main, high-intensity areas: birthing, trauma and complicated circumstances, including some end-of-life issues.

The stand-alone hospital will be vulnerable. It needs to be part of a hospital system that will be able to offer many services,

including wellness services. But a key area of intense attention by providers right now is the challenge of managing risk. This is the traditional insurance component increasingly being assumed by both patients and providers. Providers will be required to focus more on wellness and enabling people to live healthier lifestyles that they are willing to pay to attain. There will always be a facilities component in healthcare, whether that is a retail facility and ambulatory network or a hospital core that is part of a network of complementary service providers.

You will likely see an increase of investment in ambulatory services because the need for these services, in well-designed centers, will not decline. However, excess capacity in hospital beds will only continue to strain the system as those services shift to a more distributed ambulatory delivery model. This is the primary reason why almost no hospital today is increasing its bed capacity. Only in dramatically growing population centers are new beds being added. The typical freestanding community hospital that has been serving the needs of its population for the past few decades is going to be vulnerable in the future.

Q: We seem to be at the start of a massive consolidation effort in the industry. What will the landscape look like in five to 10 years, and who will be the winners and the losers?

SM: Consolidation is indeed happening across the industry.

However, it is important to underscore that it’s not just hospitals.

Today, it also involves insurance companies and physician groups.

It feels like family here. Challenging each other to be our best, not only as a team but as individuals.

Jody Quinton Visit Jody at www.dpr.com and find out what it means to her to build great things.

10/1/2012 8:20:15 PM

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scott mason

“Not every change has to be legislative or regulatory. There are lot of things already going on in the industry that will transform it dramatically.”

Scott Mason, Executive Managing Director, Leader of the Healthcare Practice Group in the Americas, Cushman & Wakefield

And this is very important. Healthcare delivery is about all three.

It’s increasingly an integrated delivery system. This is why we are seeing consolidation in all areas. This is the future of healthcare.

In the future you will see creation of bigger networks of related and complementary facilities services with a focus on managing costs, risk and wellness of patients. The winners will be those who quickly adapt to the new market demands and that measurably improve the patient experience.

Q: We often talk about demographics when we speak about healthcare, but rarely are the demographics of the service providers mentioned. Do we face a shortage of doctors, nurses and other qualified personnel in the coming decades, and how will we compensate for that?

SM: This a problem already today; there are acute shortages of physicians, notably in primary care. Just to illustrate, when the Massachusetts version of affordable care rolled out, people entering the system could not find physicians to serve them. That will only get worse in the future as a whole generation of physicians is trying to retire in the next 5 to 10 years.

Another aspect of this depletion of resources is that younger physicians have vastly differing values. They want to be home and have dinner with the family. We, in the industry estimate that for every physician that leaves the system, due to retirement, it takes 1.5 new physicians or so to replace him.

One may think that the obvious fix is to educate more physicians, but it is not that simple. We have a somewhat increasing supply of physicians now, but it takes many years to educate a physician. A key issue is that we have too many specialists and not

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enough primary care practitioners. Primary care physicians are significantly under-appreciated and under-paid in our system.

Perhaps an equally troubling issue to physician shortages is the shortage of nurses. The demand for advance nurse practitioners and physical extenders is growing at a pace that we cannot grow them fast enough. The problem is not lack of interest. One of the limitations is lack of nursing education programs and the shortage of nurse faculty. A related issue that is beginning to get more attention is regulatory; specifically around licensing and allowing nurses to do more things clinically.

Q: What are the healthcare industry’s top challenges in the next 12 to 18 months? How will the industry overcome them?

SM: Chaos of the current transition. The industry will simply have to adapt and be nimble as the environment changes and a new normal settles in.

Shifting to a different facility capacity and placing greater emphasis on freestanding ambulatory care facilities placed in strategic, retail locations.

Rethinking how they approach their communities and how they reposition themselves through branding, location strategy and accessibility; being closer to where their customers live and work, and doing all this during a time when their resources are being depleted by lower government payments (Medicare and Medicaid).

Real estate has to be part of the solution. We in the industry have to help them rationalize better their real estate needs and set clear objectives under the new delivery model of distributed ambulatory care networks.

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