The Registry's The Q Magazine - Q1 2020 by The Registry

A Publication by

COMMERCIAL AND RESIDENTIAL REAL ESTATE NEWS

2020 | Q1

OUTLOOK UNCERTAIN

CO NTE NTS Q1

04.

2020

PROJECT-FOCUSED V. PRODUCT-FOCUSED As prefab business grows, Clark Pacific changes focus

08.

PICKING BUYERS’ BRAINS Residential developer pegs success on diverse product types

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LATE TO THE PARTY BUT POISED FOR GROWTH Katerra’s growth is a signal of commercial real estate’s increasing love for tech and innovation

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MULTIFAMILY INVESTORS UNDETERRED Despite new legislation, investors remain keen on multifamily opportunities in the Bay Area

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EFFICIENTLY HEADING INTO THE FUTURE Bay Area’s upstart energy consultant Gemini Energy Solutions is working toward a more sustainable world

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CELEBRATING HALF A CENTURY Blach Construction is ready for the next 50 years in the Bay Area

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A FEW SURPRISES Bay Area lending market remains stable, even as global economy evolves

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ANOTHER BIG YEAR AHEAD As developers line up, San Jose strives to build equitably and sustainably

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STAYING LOCAL TMG continues to choose the Bay Area’s dynamic market as its base

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LOOKING FOR GROWTH IN ALL THE RIGHT PLACES As Skyline Construction grows a national footprint, it takes steps to scale intelligently with a purpose

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EVERY SUBMARKET IS FAIR GAME SWIG sees potential across wider market in the region

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STICKING WITH THE PLAN Paramount Group is laser-focused on San Francisco’s tight CBD market

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NO LONGER JUST TRANSPORTATION

52.

FURTHER READING

With space at a premium, BART looks to accelerate development around its stations

Check out these interesting stories and more online at theregistrysf.com

*Cover photo by Cullen Jones on Unsplash

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FRO M TH E PU B LI S H E R

V IS FOR VACCINE! PUBLISHER Vladimir Bosanac (844) 484-3734 vlad@theregistrysf.com

EDITORIAL Meghan Hall (844) 484-3734 meghan@theregistrysf.com

ADVERTISING Kellen A. Fisher Sales Director (925) 532-2615 kellen@theregistrysf.com

NEWS news@theregistrysf.com

FEEDBACK letters@theregistrysf.com

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

In the early days of the pandemic, a number of economic prognosticators gave a preview of what they thought would be a reasonable recovery following the impact of the Coronavirus self-induced economic coma. Three letters were used to describe the recovery; the letter V symbolized a sharp decline in economic activity followed by a quick snap back to “normal,” the U-shaped recovery envisioned a period of lower activity followed by a return to some level of normalcy, while the L shaped recovery, the worst-case scenario, meant that we’re in for a new reality - a sharp drop and sustained economic inactivity. With time, the wishful thinking around a V recovery quickly dissipated as millions of people were laid off around the end of March. The numbers of jobs lost were simply staggering, and it portended a deeper economic malaise that may likely take years to reignite. As these figures grew, hope from a U recovery slowly shifted toward the L. As of this writing, our best hopes are for some combo form of UL recovery, but it’s an evolving concept. My personal perspective is a little more closely aligned with an L recovery, although I’m no economist or infectious disease specialist. But, what I do know is how companies operate. I sincerely hope that all those millions of jobs will be recovered quickly, but I just don’t think any employer will hire people back until the demand for his services and products increases and the companies show sustained growth and profitability. Demand will likely be driven by consumer confidence, and nearly 15 to 20 percent, or more, of employable consumers will be unemployed soon, according to some estimates. Zip Recruiter will be an empty wasteland for the foreseeable future, and we won’t see their ads for a little while. This will affect commercial real estate, too, since everything in the industry is driven by jobs, and if jobs are not coming back, the industry, too, will suffer. I’m glossing over this, but in very simplistic terms no jobs means no leasing, it means no renting of apartments or selling of homes, no consumption of goods and services - you get the picture. Like a fever, unemployment takes time to run its course. Even with the strongest medicine, the body takes a little while to recover, nothing is instant. We’ll likely see something similar occurring with jobs, as well. Certain industries may rebound faster than others, and some companies will be very quick to innovate and use the circumstance to their advantage and hire at a lower cost. But most companies won’t rush into it. As they usually do, these companies will stretch their existing workforce to the breaking point, forcing them to work longer hours, accept more responsibility without additional pay and expand only when they absolutely have to do so. That means we’re likely in this for more than a semester, and the only word that starts with a V that will matter more than any other will be VACCINE!

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.

Co-founder & Publisher

Vladimir Bosanac

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PROJECT-FOCUSED V. PRODUCTFOCUSED AS PREFAB BUSINESS GROWS, CLARK PACIFIC CHANGES FOCUS “I believe the reason construction has lagged in adopting new technology is that each project is

Don Clark, Clark Pacific CEO

bespoke and most often with a new team. There hasn’t been a standard platform that is used across the industry to share information from project to project or from team to team.”

lark Pacific has been a major innovator in the construction industry for decades, adopting prefabricated construction processes long before many other players in the market, and before it became largely known as a way to decrease construction costs and timelines. In the Bay Area, these two factors can not only be a hindrance to a project but also can derail a development entirely. As market fundamentals continue to push the industry to innovate, Clark Pacific is evaluating the market and shifting its approach to pre-fabricated buildings and construction, according to Don Clark, CoCEO at Clark Pacific.

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Clark Pacific is known for its design, manufacturing and construction of prefab building and envelope systems. Can you please tell The Registry about prefab construction; what are its merits? Prefabrication, also interchanged with offsite construction, is when parts of a building or the complete building is manufactured off site and transported to the project site. Clark Pacific manufactures complete building envelope solutions, parking structures and complete prefabricated buildings that integrate the structure and cladding. The benefits of offsite construction run throughout the entire design and construction process and provide benefits

for all stakeholders. Some of its merits include: Solving skilled labor shortage and improving quality. With offsite construction, work is performed by fewer workers and in climate-controlled factory settings. Offsite construction allows skilled craftsmen a safer and more productive place to do their job; quality can be monitored and guaranteed throughout the production process. Compressing construction schedules and reducing project site and neighborhood impacts. According to the Modular Building Institute, offsite construction can deliver projects between 30 and 50 percent faster than traditional methods. Offsite construction occurs simultaneously

Escondido Graduate Student Housing – Four buildings ranging from six to ten stories, integrated structure and cladding, with windows installed offsite

UCSF Tidelands – Complete building envelope. Infinite Panel with GFRC, billows for additional shading for energy efficiency

Coleman 2 – Top of Parking Structure 2 at the Coleman Highline Development. One of three parking structures for the new office, retail and entertainment site

with the site and foundation work, and schedule delays due to weather and other external factors are significantly reduced since much of the construction takes place in a controlled environment. Additionally, having much of the work done off site, with materials arriving pre-kitted or preassembled, along with being erected more quickly than traditional construction, results in significant reduction of impacts to job sites and neighboring communities and businesses.

How has the industry responded to prefabricated buildings, and where do you see prefab sector going in the next five years?

We find that any structure or envelope solution with a lot of repetition is well suited for prefabrication. If prefabrication is a goal for the project and the design team engages with the pre fabricator at the project’s conception, we can help identify the best areas and solutions for prefabrication. At Clark Pacific we are moving from a project focused mentality to a product focused approach. For instance, we developed the Infinite Panel as our single source solution for the complete building envelope, utilizing a standard frame and connection system that meets or exceeds code requirements. This allows design teams to focus on the aesthetics of the building and it gives owners/developers a single source for the warranty for the building envelope. Parking garages are another structure type where there is a lot of repetition and opportunity to take advantage of offsite construction. Because of this we have standardized our parking structural components to gain the efficiencies from manufacturing, design and construction.

Delivering early cost certainty. By engaging in the design process early, the project’s design team and other key players align on requirements and arrive at reliable budgets very early in the project. It is this early collaboration and transparency, supported by modern methods of project delivery (design-build, progressive design-build), that gives all parties visibility into factors affecting the bottom line of a project’s budget and flexibility to develop and drive toward target value design.

The market is responding favorably to prefabricated building systems, [and] we are seeing a lot of interest and opportunities as owners and developers are looking for better project outcomes. We expect this to continue as the market becomes more educated on its advantages and the process, new prefabricators entering the market and as we advance and integrate our product offerings. Clark Pacific has been manufacturing building systems offsite for over 55 years. Many of our long-term customers have embraced offsite construction as part of their overall building strategy, and we anticipate more will adopt a prefabrication strategy for their construction portfolios. In your opinion, is there a product type that is best suited for prefab? If so, why?

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CONSTRUCTION

What are some of the biggest innovations happening in construction today? What impact do you believe these strides will have on the industry at large? Not only are we seeing major advances in software and manufacturing technologies but also great strides in new types of building materials. We can expect in the coming years that innovation in construction will evolve and be adopted much faster than in the past. As a pre fabricator we depend on the latest technology, since we design for manufacturing and strive for the most efficient design for constructability. We are seeing more technology utilized across all disciplines for better collaboration and integration to ensure accuracy and transparency. Why do you believe that the construction industry has taken longer to adapt to new tech or innovation? I believe the reason construction has lagged in adopting new technology is that each project is bespoke and most often with a new team. There hasn’t been a standard platform that is used across the industry to share information from project to project or from team to team. Are there any Bay Area projects that Clark Pacific would specifically like to highlight? If so, why?

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A few that come to mind: Coleman Highline Development in San Jose is a recent project where we designed, manufactured and constructed two parking structures, with plans for two more parking garages, on a tight and high traffic site. The Coleman project is a great example of our parking solution, PARC. Stanford Escondido Graduate Housing is four buildings ranging from 6 to 10 stories, Type I construction. The buildings are complete prefabricated precast buildings with integrated structure and cladding. In addition, the glazing was installed in our Woodland, CA plant, further removing work offsite. It is estimated that our prefabricated solution removed over 65,000 work-days from the construction site. The UCSF Tidelands Student Housing project in the Dogpatch neighborhood of San Francisco is an example of our complete building envelope solution. We worked with the owner and design team through our target value design process to meet their aesthetic vision and budget requirements. Windows were installed at the plant and panels were delivered as needed for erection to minimize site and neighborhood impacts. As Clark Pacific pursues innovation in the construction industry, what are the biggest challenges that the firm—and others—face on a daily basis and will face in 2020? How does Clark Pacific work to overcome these obstacles?

We work daily to educate the market on offsite construction and the possibilities of integrated systems to achieve greater project efficiencies. Prefabrication and offsite construction represent a major paradigm shift for owners and project teams. To leverage prefabrication, the construction industry must evolve culturally and modify processes to achieve improved outcomes. Prefabrication and offsite construction should be reviewed as being a part of the strategy from the outset of a project. The nature of prefabrication requires solid team work, early design decisions, and a continuous iterative estimating process throughout. Ideally, owners will consider offsite construction even before a project is conceived, so they can achieve improved schedules, cost certainty and reduced risks that are inherent with offsite construction. Looking at the year ahead, what excites Clark Pacific most about the construction industry? Why? It’s exciting to see the increased owner interest and wider acknowledgment of the benefits of offsite construction and prefabricated systems, which are driving change in an industry that is not traditionally known for its speed in adopting new ideas and technologies. These methods offer a significant opportunity to teams (designers, builders, estimators and manufacturers) who do adopt them and are driven by a mission to bring continuously greater value to owners and the communities their projects serve.

Congratulations to our

P R E S I DEN T Lauren Jennings Vice President of Operations DCG Strategies

PA ST P RESI DEN T Kristen Thall Peters, Esq. Partner Cooper White & Cooper LLP D E L E G ATES Anna Duncan AVP, SBA Business Development Officer US Bank Sonia Sharma, RPA Hines

TRE ASURE R Jackie Matsumura, CPA Partner, Tax BPM

SE CRE TARY Cheryl A. Hayes, MBA VP - SBA Originations Bank of the West DIRE CTO RS Terry Allen, CFP, AWMA Managing Principal Enhance Wealth Advisors Jessie Banuelos Insurance Advisor Farmers Insurance

2020 BOARD OF DIRECTORS

Malinder K. Bhan Vice President, Sr. Business Relationship Manager JPMorgan Chase Bank Anne Bruff, Broker President Anne Bruff & Associates Marilyn Hansen Senior Director/Retail & Investments TRI Commercial Anita Jimenez Vice President United Business Bank

ABOUT CREW EAST BAY CREW East Bay was established in 2005 and is a non-profit professional association of over 100 Bay Area real estate professionals representing every business sector in commercial real estate. CREW East Bay comprises both women and men working to enhance leadership, education, business networking opportunities and professional development growth for our members as influential leaders in the commercial real estate industry. Visit CREW East Bay at www.creweastbay.org to learn more and attend our informative monthly luncheon programs, leadership breakfasts, dine around dinners, and other networking events. Join the network that works!

CREW EAST BAY ALWAYS WELCOMES NEW MEMBERS AND INQUIRIES Connect with us at www.creweastbay.org

RESIDENTIAL

Image Courtesy of Landsea Homes

PICKING BUYERS’ BRAINS “In the Bay Area, it’s a well-known fact that we have a shortage of housing. There’s such a need and strong demand for housing that those periods when the market cools off and slows down can only last for so long.”

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RESIDENTIAL DEVELOPER PEGS SUCCESS ON DIVERSE PRODUCT TYPES

he housing stock in the Bay Area is lagging across all product types: rental, condo and single-family as developers try to keep pace with what often seems like incessant demand. For those over at Landsea Homes, demand for product — and sales — was higher than normal, with buyers of all types, even millennials, jumping at the opportunity for homeownership. According to Josh Santos, Northern California division president at Landsea Homes, even if a market correction is in sight, demand for for-sale product is unlikely to wane too much.

How does the Bay Area compare to other markets in which Landsea has developed properties? The Bay Area has a very tech-centric and savvy buyer, so we want to make sure we meet the needs of that particular group

2019 was an impressive year for housing developers and property owners. Did the year shape up the way Landsea anticipated? Why or why not? As is often the case over the course of a long calendar year, we made adjustments and responded to the market’s twists and turns like every other developer. Towards late July, we saw an uptick in sales activity and that steadily increased through the end of the year. In fact, we had the strongest November and December sale months most of us at Landsea have ever seen. There were a total of 25 home sales in December, which is almost unheard for that time of the year – outside of the traditional selling season – so it was remarkable to see how things turned around at the end of the year.

Landsea Homes is a U.S. subsidiary of Landsea Green Group, which builds a variety of suburban, urban and master-planned communities around the world, including Germany, Hong Kong and Mainland China. Why was it important for Landsea to establish its U.S. presence by starting with the Northern California residential market? Our strategic focus continues to be creating in highly desirable markets across the United States. The Bay Area is the largest tech hub of the world and a mecca of strong and growing tech employment with a housing market that is struggling to keep up with job growth. For a variety of [such] reasons, we established a presence in the Bay Area.

level product types like townhomes and condos have proven popular in Northern California, [since] they provide important housing for those looking for attainable prices.

Josh Santos, Landsea Homes

and provide the proper technology in our homes to complement their lifestyles, hence our high-performance-home initiative. Additionally, our first-time entry-

In the Bay Area, it’s a well-known fact that we have a shortage of housing. There’s such a need and strong demand for housing that those periods when the market cools off and slows down can only last for so long.

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RESIDENTIAL

Over the last several years, Landsea has steadily expanded its presence in the region. What specific strategies has Landsea employed over the last few years to make a name for itself in the region, and how will those strategies carry over in 2020? Landsea has built and developed in locations where there is the greatest demand. We deliver high quality, best-in-class homes with one of the greatest purchasing experiences offered. We focus on that every day, which is why I think people have come to know the Landsea name in such a short period of time. We also understand the buyers and their needs, so we can tailor our homes to meet those needs. How has Landsea’s product evolved since it first entered the market? What will Landsea do in 2020 to differentiate the company and its communities from what other developers are doing in the region? Landsea prides itself on understanding who the buyers are and what they want. If you engage with prospective buyers, you will gain a deeper understanding of what they like. A differentiator for us is definitely our homebuyer survey process and our consistent check-ins. Through those processes, we receive real-time

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feedback and can make enhancements and adjustments to home features, materials, lighting and plumbing, etc. We’re constantly looking to improve as we gain valuable feedback from homebuyers. In 2020, we’re also launching the ‘Live in your Element with High Performance Homes’ Program, providing homebuyers with a three-tiered approach that includes home automation, sustainability and energy savings. Supported by a partnership with leading technology company Apple, the homes utilize the Apple HomeKit environment to operate all home automation features from one mobile application. Homebuyers will find our High Performance Homes to be more comfortable and healthier to live in, and less expensive to operate due to our energy-efficient features. The homes are responsibly designed to high standards in sustainable building technology, energy-saving efficiency and health-centric living. Across the Bay Area, developers face many challenges, including rapidly rising construction costs and land scarcity, which the industry feels acutely. What is Landsea’s approach to these challenges in 2020?

Land scarcity is one of the biggest issues in the region for developers. We are active participants with local building associations and consistently work to communicate about the challenges we face when trying to bring new communities to the region. Our goal is to work with local officials and educate them on these challenges, so that they have a better understanding of how we operate. Construction costs are always a challenge. As the economy gets better, we often see pressure on labor and construction costs, so we try to lock in pricing when we can and commit to buying and contracting in bulk. There is a benefit to having multiple projects in the same general region, [and] we are able to contract and purchase on a broader basis and control price increases. Also, our understanding of what a buyer needs and wants prevents us from spending money on unnecessary features.

There is this idea that millennials like convenience; however, the truth is that most of the home sales at our Catalina, The Vale and Siena communities have been to millennials. If the options to purchase a home close to where you work arenâ&#x20AC;&#x2122;t available, then chances are most millennials will end up renting but that really speaks to more of an availability issue. Our goal is to offer more of those options and make more homes available. The housing supply issue will absolutely remain relevant in the Bay Area. However, Landsea has always been open about providing a wide range of housing types, including age-qualified communities. Weâ&#x20AC;&#x2122;re looking at building our first age-qualified community in Northern California in the next year to two years. There is a great demand for different housing types for the empty nester looking to simplify as they transition into a new lifestyle.

There are many reports that indicate a major demographic shift is emerging, and those of all age ranges prefer to rent, as opposed to buy. Millennials like the convenience and flexibility of renting, while empty-nesters yearn for walkability and proximity to shops amenities. As a home builder, what is Landseaâ&#x20AC;&#x2122;s perspective on this trend? Do you think it will remain relevant in the Bay Area?

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CONSTRUCTION

LATE TO THE PARTY BUT POISED FOR GROWTH “When Katerra first launched in 2015, we were initially a materials-only business.”

Katerra’s Tracy, Calif. Factory

aterra is a technology-driven construction firm set out nearly five years ago to shake up the commercial real estate industry. Over the last several years, the firm has done just that, closing on several rounds of funding that have hugely exceeded industry expectations while bringing a number of new products to market, including Kova. In its expansion, the firm has also joined forces with other established industry players; in the fall of 2019, Katerra announced it had acquired UEB Builders and Fortune-Johnson General Contractors. In 2020, Katerra is looking to continue its successes, and according to Katerra’s Affordable Housing Lead Mollie Fadule, it will continue to strongly pursue technologies that transform all processes in the industry moving forward. How would you define the national building industry today? And why, until recently, has the construction industry lagged behind others in innovation? The construction industry is one of the last craft industries yet to fully embrace the technology age. According to McKinstry, global labor-productivity growth in construction has averaged only one percent a year over the past two decades, compared with growth

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of 2.8 percent for the total world economy and 3.6 percent in the case of manufacturing. If construction-sector productivity were to catch up with that of the total economy, it would boost the sector’s value added by an estimated $1.6 trillion, adding about 2 percent to the global economy, or the equivalent of meeting about half of the world’s infrastructure need. Katerra exists to help transform construction through the integration of technology with every process and every product. We view the building industry as vital to the environment and the social fabric of our communities. With communities across the world facing affordable housing shortages, we have an opportunity within the next decade to develop new solutions the right way, solutions that not only ramp industry productivity but also drastically reduce the carbon footprint of construction and provide relief for housing shortage and affordability. Since its founding in 2015, Katerra has grown to more than 8,000 employees with a project backlog of more than $4 billion. What does Katerra’s success say about its impact on the national construction industry today?

KATERRA’S GROWTH IS A SIGNAL OF COMMERCIAL REAL ESTATE’S INCREASING LOVE FOR TECH AND INNOVATION

Katerra is a new kind of company in the building industry. We offer a comprehensive suite of products and services, combining end-to-end integration with significant investment in technological and design innovation. When Katerra first launched in 2015, we were initially a materials-only business. But we quickly expanded to include design, manufacturing and construction when we realized vertical integration was key to gaining efficiencies and achieving transformational change at a meaningful scale. The interest we have received with our unique approach is encouraging and reflects a growing desire by many stakeholders across the building industry to address construction’s entrenched challenges, including a persistent labor shortage, and bring more housing to more people, more efficiently. We’re excited with the innovations we’re bringing to market, and the benefits our approach can offer the broader industry. What are some of the products that Katerra is currently most excited about? Why? In January, we showcased a number of new products at the International Builders Show (IBS) in Las Vegas. The products we exhibited included Katerra structural systems – prefabricated building components such as roof trusses, wall panels, utility systems and more. Available in light-gauge steel and wood, the components are produced in our Tracy, California factory, flat packed and shipped to construction sites for fast assembly.

finishes to complete a bathroom install up to 70 percent faster as compared to a traditional build. These products reflect our approach to bring products to market that enable more efficient and sustainable construction. As Katerra continues to expand its influence in construction and design in 2020, what pain points within the industry is the firm most passionate about working to address? We’re focused on transforming how the traditional construction job site operates, because the industry desperately needs it. U.S. construction productivity has fallen for 40 years, and the skilled construction labor force is shrinking rapidly. Costs continue to rise at each part of the value chain, which impacts access to highquality, essential housing. Katerra’s approach is to move as much labor from the job site to the factory through the use of prefabricated building components. By doing so, we can provide new avenues for cost and time efficiencies by avoiding weather delays and fabricating building components with greater precision.

Katerra also offers a range of cross-laminated timber (CLT) products, a pre-fabricated, engineered wood building material that can be used as structural elements in buildings up to 18 stories. We’re especially excited about CLT, since we think it will become the backbone for future generations of high-performance, low carbon buildings. Our CLT factory in Spokane Valley, Washington opened in 2019 and is helping to increase the supply of this sustainable building material in North America. Lastly, we also highlighted a number of new products under our materials brand, KOVA. KOVA is a curated product line of finishes and fixtures for building and design professionals. New products we highlighted at IBS Katerra included pocket door locks, intelligent HVAC, finishes and fixtures and the KOVA Bath Kit, a kitted delivery system that consists of all materials, fixtures, and

Molly Fadule, Affordable Housing Lead at Katerra

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CONSTRUCTION

An example of how our approach can significantly reduce time to occupancy is our K90 project. Located outside Las Vegas, Katerra’s K90 R&D project set out to shorten the typical construction time of a 24-unit garden apartment building from 120-150 days down to 90 days. Using a combination of manufacturing, technology tools, innovative products and process innovation, Katerra completed the building – from foundation to finish – in 86 days. Looking into the year ahead, what trends or processes do you see emerging in the industry that could become mainstream? Mass timber is a renewable structural material that is quickly gaining traction in North America, driven by increasing demand and expanded building code acceptance of mass timber structures. With our CLT factory in Spokane Valley, Washington – the largest of its kind in North America, Katerra is helping to increase supply of this material. CLT allows developers, designers and builders to move beyond the traditional construction trade-offs to create buildings that are sophisticated and efficient, rapidly assembled and structurally sound, affordable and aesthetically pleasing. We believe it will become the material of choice across a broad range of market sectors, building types and geographies.

Katerra’s K90 Project in Las Vegas, Nevada

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Is there anything else you would like to add that The Registry did not ask or mention? Recently, Katerra added Jeff Hoopes to its Board of Directors. As the former CEO of Swinerton, Mr. Hoopes brings more than 35 years of construction experience to his role at Katerra. Additionally, our newest building components factory located in Tracy, CA has been ramping production. At 577,000 square feet, Katerra’s Tracy factory is an advanced manufacturing facility with automated wood frame wall, floor and roof truss lines, robotics-enabled cabinet, finish and window lines and cold-formed steel production. In addition to the production lines, the Tracy plant has a maintenance shop, office, an R&D lab and a product showroom. Located close to rail, shipping ports and freeways for ease of transport, the Tracy factory will serve Katerra projects across the West Coast. Tracy is our most technologically advanced factory to date, creating more than 500 manufacturing jobs. It provides a template for Katerra’s future component factories and offers insight into how we’re applying technology offsite to reduce time to completion at the project site.

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Image Courtesy of Bernadette Gatsby

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M U LT I FA M I LY F I N A N C E

MULTIFAMILY INVESTORS UNDETERRED DESPITE NEW LEGISLATION, INVESTORS REMAIN KEEN ON MULTIFAMILY OPPORTUNITIES IN THE BAY AREA “The fact that this is a supply-constrained market with extremely high barriers to entry and exceptional job growth is foundational to the continued strength of the Bay Area multifamily market.”

he Bay Area multifamily market can be tough to break into: legislation, property requirements and cost can be just some prohibitive factors for many investors. However, one key fundamental keeps the market going strong: demand for multifamily property far surpasses supply. This, according to Adam Levin, executive managing director for Levin Johnston of Marcus & Millichap, means despite hurdles that the local market presents, investors will likely remain bullish heading into 2020. From a general standpoint, what are your expectations for the Bay Area multifamily market in 2020? What fundamentals do you believe will be most pivotal to the health of the industry? Why? At this point in the current cycle, we can expect that the Bay Area multifamily market will continue to be a strong investment, [since] the principal fundamentals remain: People always need places to live

near strong employment opportunities, and the Bay Area is one of the world’s premier destinations to reside and work.

property located in one of the country’s most competitive markets – Mountain View, California.

The fact that this is a supply-constrained market with extremely high barriers to entry and exceptional job growth is foundational to the continued strength of the Bay Area multifamily market. Currently, investor demand far outweighs the supply of available properties for sale. Well-located assets will continue to generate investor interest and multiple offers, providing that these assets are properly priced.

Although this was a record-high sales price in the market, we and the buyer understood the long-term value of the land and the ready demand for housing in the community and were willing to come up to the number that ultimately secured the lucrative opportunity.

What was your most significant multifamily transaction in the Bay Area during 2019? Why? Levin Johnston experienced an extremely healthy year in 2019, completing over $600 million in sales spanning more than 70 transactions, the majority of which involved multifamily assets in the Bay Area. Our most significant transaction in 2019 was the $40.5 million acquisition of 2310 Rock Street, a multifamily townhome

A fourth-quarter Marcus and Millichap report highlights that of the more than 200 transactions that closed — totaling more than $2.1 billion — almost 50 percent took place in Oakland or Berkeley. Looking at 2020, do you believe there will be a submarket that will capture the sights of multifamily investors? Why or why not? Bay Area submarkets will continue to have wide appeal among multifamily investors in 2020. Investors are specifically interested in surrounding suburbs such as Mountain View, Redwood City, Fremont and East Bay.

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M U LT I FA M I LY F I N A N C E

These submarkets are considered home to major tech firms, such as Google, that are continuing to expand into other markets and attract a highly educated workforce – thus, making these markets extremely attractive to investors.

duced statewide rent control, went into effect this month in January 2020. How do you believe those in the multifamily market — including property owners and renters — will respond to the legislation’s impact?

Additionally, renters today are searching for affordability and portability – investors are seeking primarily located assets that are within walking distance to entertainment, dining options, shopping and local experiences.

In 2019, the San Francisco Bay Area had a 7.4 percent increase in investment activity even after the new law for rent control was passed, and the development pipeline remains robust. So, while some may say that investors are hesitant to deploy capital in these areas where rent control has been adopted – we are continuing to see strong investor interest in this market.

What types of assets do you believe will be most popular with investors in the coming year? While many of the new properties set to hit the market next year will be of higherend variety, we believe that value-add multifamily assets in the region’s outlying suburbs will be most popular amongst multifamily investors in 2020. Due to the tremendous demand for quality housing, investors are able to find value in repositioning historic, distressed, underrenovated or underperforming assets in these markets and upgrade them into trophy assets by implementing strategic capital upgrades that will encourage a stronger rental rate. In 2019, Marcus and Millichap points out that private investors and high-networth individuals were active throughout the region. Do you anticipate this will remain true in 2020? Why or why not? The Bay Area has always attracted a variety of investors including private investors and large institutions. We believe the Bay Area will also attract more small and midsize fund managers and high-net-worth individuals who are focused on value-add multifamily assets. 2019 also brought regulatory changes to the multifamily sector, including the signing of AB1482 into law by Governor Gavin Newsom. The law, which intro-

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throughout 2019, and we expect that trend to continue to tick upward in 2020. Driving this rise in activity is an influx of investors seeking exchange transactions through which they can trade up to a product that will deliver long-term cash flow and stability, in preparation for any correction that may be on the horizon. What do you think will be the biggest challenges multifamily investors will face in 2020? Looking ahead, as markets tighten further, it will be more important than ever for sophisticated investors to partner with leaders in their respective markets. For example, at Levin Johnston we go beyond the transactional mindset and take a macro approach that enables us to help clients to grow and sustain wealth within their portfolio of investments. We accomplish this by dominating the markets we serve, which translates to our ability to deliver an exceptional inventory of off-market 1031 exchange products to our clients. Conversely, what are you most excited about in 2020? Multifamily fundamentals are expected to remain strong in 2020 – as a firm, we look forward to finding the best deals for our clients and providing them with exceptional wealth management services.

Adam Levin, Marcus & Millichap

For renters, the new bill could protect them from extreme, unjust situations. This, coupled with the development of new housing will likely continue to drive renter demand in the region. On a similar note, 1031 Exchanges have typically been considered one of the most efficient investment vehicles for real estate investors. With the introduction of OZs in 2018, are you finding that investor interest has waned in 1031 exchanged at all? Why or why not? We have seen year-over-year increases in 1031 exchange momentum in this market

Our strategy is to continue to help our clients find well-located assets that will sustain strong and steady cash flow for the long-term. We take pride in seeing our clients thrive – therefore, we focus on legacy assets and wealth preservation, and we only advise our clients to purchase assets into which we’d be comfortable putting our own money. Our firm is consistently able to bring the right capital to each opportunity to ensure successful closings of win-win transactions. We continue to lead the market in getting deals closed and exceeding our clients’ expectations on both sides of a transaction.

FROM THE 2020 PRESIDENT

“RECHARGE” …to regain energy… to inspire… to renew 1.) Networking - Let’s Do Business - #THINKCREWFIRST – Bringing things back to the basics and focusing on referring business and supporting one another. I will be presenting Networking tips at each Program. At the end of the year our members will receive a book with all 12 networking tips. 2.) Health & Wellness - Prioritize you… a positive work/life balance - You can’t do your job if you haven’t taken care of yourself first. 3.) Utilize CREWbiz - If you don’t know what that is - if you’re a member you have access! It’s an App you can download on your phone - or you can access online - You can search for anyone in CREWNETWORK. So, if you’re looking for someone in Furniture, roofing, painting, architecture, construction, insurance, etc - It’s here! 4.) Mentorship - Be a leader - Inspire others to dream more, learn more, become more 5.) OUR SPONSORS! - Maximize your exposure with a lot of new benefits!

Kristi Pearce-Percy

Principal - Business Development, Cuschieri Horton Architects 2020 CREW SV President

THANK YOU TO OUR 2020 ANNUAL SPONSORS PLATINUM

GOLD

Learn more about CREW Silicon Valley at

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ADVERTORIAL

EFFICIENTLY HEADING INTO THE

FUTURE BAY AREA’S UPSTART ENERGY CONSULTANT GEMINI ENERGY SOLUTIONS IS WORKING TOWARD A MORE SUSTAINABLE WORLD “Energy efficiency has become the strongest competitive advantage, everyone could be utilizing it.” Anthony Kinslow II

nthony Kinslow II, Ph.D. purpose in life is making a meaningful impact toward mitigating global warming. Inspired by watching “An Inconvenient Truth,” he has spent the last 13 years working toward making a meaningful impact through researching, implementing and educating on energy efficiency. Anthony argues that without engagement and education of marginalized communities we will be unsuccessful in preventing the most devastating effects of climate change. As Founder and CEO of Gemini Energy Solutions (Gemini), Anthony has created a vehicle to engage, educate and energize underrepresented minority communities and the underserved small commercial building market in energy efficiency. Through Anthony’s leadership, Gemini is working to implement strategies for overcoming cultural and

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socio-economic barriers that are preventing the vast majority of Americans from being aware and/or engaged in energy efficiency. Gemini, operating nationwide, also partners with municipalities – such as San Francisco International Airport and Memphis, TN – to support their efforts to meet their climate change goals and increase economic resiliency through energy efficiency. Born in Nashville, TN and raised in Baltimore, MD, Anthony holds a B.S. in Civil and Environmental Engineering from North Carolina A&T State University and a M.S. in Sustainable Design and Construction from Stanford. Anthony earned his PhD in Civil and Environmental Engineering from Stanford University where he created an improved way to remotely identify energy efficiency measures in

single-family homes. While at Stanford, in addition to his research, Anthony held the elected position of President of the Black Graduate Student Association. Anthony has received several awards including the Millhauser Fellow (2016), TomKat Innovation Grant (2016 & 2017), the Mel Lane Student Grant (2018) and was the keynote speaker for the University of Rochester’s Healthcare Technology Youth Apprenticeship Program annual conference (2016). Anthony has lived in Australia, United Arab Emirates and multiple different U.S. states. He currently resides in Foster City, CA with his wife Maria (another Stanford PhD) and newborn son, Marcus Alexander Kinslow. In his spare time, Anthony enjoys mentoring high school and college

students. Anthony’s favorite quote also reflects the way he lives his life, “life’s most persistent and urgent question is, what are you doing for others?” ~ Rev. Dr. Martin Luther King, Jr. As you look at your business in 2019, how would you characterize the year that just passed? 2019 was the year Gemini built its foundation. I started my company in the fall of 2016 and spent the next two years completing my doctorate and developing the Gemini Platform and Gemini training program that enables us to provide energy efficiency services to small- and mediumsized businesses that previously only the Fortune 500 companies could afford. 2019 was the first year we started working with clients. In doing so, we have been able to optimize our processes and procedures, improve our business model and create a strong company culture. Based on your experience in 2019 and recent history, in general, what are the

priorities for your business in 2020 and beyond? My priority for Gemini is to increase education and awareness across the small commercial real estate industry and within the small- to medium-sized business sector. These two groups are underserved and as such are missing out on opportunities to make their business more financially resilient. This is becoming more important as interruptions to businesses are occurring more frequently. From electric outages and severe weather to global pandemics, global warming and the subsequent climate change that is occurring will make external threats to businesses more severe and more frequent. Energy efficiency has become the strongest competitive advantage, everyone could be utilizing it but so few are. Energy efficiency is more than just reducing energy costs. In fact, to my knowledge, implementing energy efficiency measures is the only business decision that has been shown to:

• reduce operation costs • improve the quality and health of a space • increase worker productivity, and • increase revenue. When it comes to implementing energy efficiency measures there are two paths. The first is simply replacing equipment, devices and lighting with their energy efficient version. This is the relatively faster and easier version. The alternative path is to take the opportunity to recreate your space. Or, renovating the lighting system in a space already being occupied. Major retrofit of spaces often takes more time but maximizes the unique characteristics that energy efficient equipment brings. While the upfront cost for path two is often greater, the long-term financial benefits of recreating the space is typically greater. At Gemini we support both paths becoming our customers’ representative ensuring their goals are met.

Cont’d on p. 31

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CONSTRUCTION

The Bechtel Center for Ocean Education and Leadership in Monterey, Calif

CELEBRATING HALF A CENTURY “We haven’t merely been influenced by the Bay Area’s explosive growth; we’ve been a part of it.”

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Over the past three decades, I’ve seen the firm evolve from a ‘very good’ commercial contractor to a ‘best-in-class’ professional services firm focused on commercial construction. Innovation, customer service, field quality and safety underpin everything we do. Additionally, we have broken down many of the more traditional roles and take a meticulous approach to hiring the right talent. By playing to our colleagues’ strengths, we have seen continued success and growth. Also, we’ve become a Silicon Valley “Best Place to Work” over this time. How would you say the company’s evolution was influenced by the Bay Area’s explosive growth? We haven’t merely been influenced by the Bay Area’s explosive growth; we’ve been a part of it. Blach has evolved within both the private and public sectors, while remaining steadfast in serving the needs of our surrounding communities. Early on, our clients ranged from financial institutions and retail and distribution centers to manufacturing plants for large defense and technology hardware companies. As the Digital Age took hold and Silicon Valley evolved, we, too, have transformed with it. Not only have we rounded out our portfolio with software, biomedical and e-commerce clients, but we’re also entrenched in building the civic infrastructure necessary to support the resulting population growth. The construction industry has a reputation for lagging behind other sectors when it comes to innovation. However, Blach has embraced prefab, virtual design, technology-based and design-build solutions. When looking at the construction industry, where are you seeing innovation occur most rapidly?

n the Bay Area, you have to be at the cutting edge—or adapt extremely quickly—to not only thrive but also survive. For the last 50 years, Blach Construction has done just that, and the firm has grown steadily since its formation in the early 1970s, tackling a variety of educational, industrial, mixeduse and workplace projects in the Bay Area and beyond. According to Michael Blach, chairman of Blach Construction, the firm has no intention of slowing down any time soon, and in 2020 it already has its sights set on the next 50 years. Mike, you have been at the helm of Blach Construction since the age of 26 and had previously worked at the firm in various roles as a carpenter, expediter, project manager and more. As chairman, how have you seen Blach Construction evolve over that time?

Innovation is everywhere in our industry. Because we are native to Silicon Valley, which is probably the most transformative region in the world, we are accustomed to embracing it earlier than others. Our team is very creative and full of early adopters, so oftentimes innovative ideas are fostered within, which is really exciting and quite gratifying. Right now, the cost of construction is high, especially in the Bay Area. From my perspective, prefabrication poses massive implications to increase productivity and safety and improve the integration between designers and builders on a much larger scale. Our industry as a whole tends to be very disconnected; I see prefabrication as a way for us to collectively better meet the demands of our customers at a more affordable price point. What do you think 2020 has in store for the construction industry at large? Why? 2020 looks to be another really strong year for most firms in California. The contractors with whom I speak all say they have record, or near-record, backlogs. While it’s a great problem to have,

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CONSTRUCTION

BLACH CONSTRUCTION IS READY FOR THE NEXT 50 YEARS IN THE BAY AREA

our largest challenge, and one we’ve already been facing, will be attracting the next generation into our industry. That’s why the Associated General Contractors of California (AGC CA) has developed a platform to educate the next generation about exciting and rewarding careers in the construction industry. Called Build California (buildcalifornia.com), I’m very proud of the AGC CA’s leadership role in developing this pubic-facing campaign. Blach has had its hands on several big Bay Area projects, including Gateway at Millbrae, the Heising Simons Foundation Headquarters, the Monterey Bay Aquarium Bechtel Center and Santa Clara University’s Heafey-Bergin Hall. Are there any projects that Blach would specifically like to highlight? If so, why? Yes, we do have our hands in a lot. These projects are just a sample of what’s in our pipeline, but they’re each equally important to the Bay Area for varying reasons. If I had to highlight a few, these would be: • Gateway at Millbrae Station is currently the largest transportation-oriented development in the region, if not the state.

The Bechtel Center for Ocean Education and Leadership in Monterey, Calif.

• Our ability to deliver high-end, complex design-build projects • Our commitment to sustainable and innovative solutions

• The Bechtel Center for Ocean Education and Leadership was a long-awaited and significant addition to the internationally renowned Monterey Bay Aquarium. This was a technically complex project to build and as a result, we’ve won several awards. • The Canada College Kinesiology, Wellness and Aquatics Center, an iconic structure overlooking Interstate 280 in Redwood City, is a showcase in education building. Apart from being architecturally unique, this project will not only allow Canada College to better support its athletics department and expand its course offerings but also serve as an added revenue stream, since the fitness center will be open to the surrounding community. • Workplace projects include some of the Valley’s most widely know tech firms that prefer anonymity. Not too long ago, we completed a [full] tenant improvement for an innovative biomedical firm dedicated to pioneering early cancer detection—a cause very near to me. How are they reflective of Blach’s approach to its work and the wider Bay Area AEC market? Independently and collectively, each of these projects represents:

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• Our support for affordable housing development • Our enthusiasm for continued Bay Area transformation and development Blach Construction is celebrating its 50th anniversary this year in 2020! How will the company be commemorating this milestone? We are extremely proud of turning 50, particularly in an era when many companies in the Bay Area don’t celebrate even a decade. We’ve got some celebrations planned to honor the people who helped get us here—namely our talented employees, loyal partners and subcontractors and supportive clients. We’re installing a History Exhibit in our San Jose Headquarters to commemorate our achievements over the last 50 years. And, we’re giving back to our community. When we asked our employees how they wanted to celebrate our Golden Anniversary, the results were overwhelmingly in favor of community service. Sacred Heart Community Service was a natural choice, and we decided to make some pro bono building

improvements to the facility we built years ago. Our employees also committed to volunteer at least 500 hours to support various events and drives, and we’re doing an internal fund drive. Blach will match employee donations, which, all-in, should exceed $50,000. What are some of the company’s most memorable milestones since it opened for business in 1970? When you’ve been in business for 50 years, there are a lot of memorable milestones. • We built the first submicron clean room in the Valley.

• We were very early adopters of technology, creating an inhouse, highly skilled virtual design and construction team led by a technologically savvy superintendent. • We developed Folia, a patented, adaptable and durable prefabricated building solution that offers significant schedule and cost efficiencies. • We renovated the Carmel Mission Basilica, one of the state’s oldest standing structures, with award-winning results. The list goes on, but honestly, probably the most gratifying is that our employees have continued to vote us a “Best Place to Work” year after year for the last decade or so. What are Blach Construction’s goals for 2020 and beyond? We’ve got our sights set to our 100thAnniversary! I foresee that we’ll continue to grow at a steady pace, taking on meaningful projects, partnering with like-minded clients and employing

Mike Blach, Chairman of Block Construction

talented people, each dedicated to making a difference in enhancing the Bay Area. Innovation, safety and efficiency will remain at the core of what we do, particularly as we devise solutions to tackle our industry’s next big hurdles, which are likely to revolve around reducing building usage of natural resources. Since The Registry first sat down with Blach, those throughout the San Francisco and the United States have begun carefully monitoring the progression of COVID-19 and its potential impacts. What is Blach’s perception of the current situation? The COVID-19 pandemic is an unprecedented situation that has beset the world. Our hearts go out to everyone affected by this virus. At Blach, we are doing everything we can to support our clients, colleagues and community as we work our way through this global – and local – crisis. I pray that within a very short period, the pandemic will subside and we will all be able to return to ‘normal.’

Gateway at Millbrae Station

• We made breakthroughs in sustainability with our Packard Foundation and Gordon and Betty Moore Foundation projects, putting us on the forefront of the green building movement as initial members of the U.S. Green Building Council.

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BANKING

BAY AREA LENDING MARKET REMAINS STABLE, EVEN AS GLOBAL ECONOMY EVOLVES

A FEW SURPRISES “We are all affected by global macroeconomic and geopolitical issues on grander scales today than we have been in the past, for better and for worse.”

lobal interconnectivity, whether technological or economical has both its ups and downs. However, the Bay Area’s regional economy is bolstered more than ever by a great many investors from not just with the region but also from around the country and world, giving it a resiliency that could likely withstand maturing economies, geopolitics or unforeseen circumstances, according to Chase’s Executive Director of Commercial Term Lending, Dave Demcak. The Registry spoke with Demcak about Chase’s perception of the Bay Area market and how

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investors remain bullish in 2020, despite some of the surprises 2019 threw at the commercial real estate community along the way. When looking at 2019, did the year come in as expected or were there surprises along the way? There were a few surprises in 2019 that changed the dynamic of the market, such as [interest] rates, geopolitical changes and economic factors. Strong employment reports and rising wages helped keep the market moving along, further extending the real estate cycle. I think the biggest

surprise for me was the change in course that rates took from late 2018 to today. This helped spur more real estate investors and developers to refinance, and it provided an avenue for many to diversify their investments. While it wasn’t a surprise, the evolution of retail continued to impact the market. It has been interesting to see how creative many owners have become to make retail a destination by providing more interactive experiences for tenants. It will be fascinating to see the ongoing progression of retail in the years to come.

Throughout 2019, the market saw what can be described as rather large fluctuations in interest rates, with the 10-year Treasury yield jumping and plunging half a percentage point on more than one occasion. What impact has this had on investors in the San Francisco Bay Area? Fluctuations in rates had a huge impact in the Bay Area in 2019, spurring new financing opportunities. Many investors refinanced to not only seek lower rates but also longer-term loans, to help improve their liquidity position or make some capital improvements. The high demand for commercial real estate in the local market has pushed prices even higher. We have a long history here, with deep market knowledge and understanding of clients’ specific wants and needs. We’re continuing to work closely with local developers and investors and are there for our clients through any cycle.

Rental rates are increasing, and vacancy rates are at +10-year lows. The Bay Area attracts many different investors to the market; international, REITs, investment firms, local investors and smaller-scale developers. Appetite for yield varies between the different types of investors depending on their risk profile, but it can be found.

The tech sector continues to be a large local driving force and has helped push the economy and real estate sector. Out of market investors and human capital continue to flow into the region for new tech start-ups and for the real estate they need.

Thomas Friedman famously coined the term “the world is flat.” We are all affected by global macroeconomic and geopolitical issues on grander scales today than we have been in the past, for better and for worse. A big change going forward will be the continued integration of technology into commercial real estate. It will continue to help shape and mold the industry, touching all aspects including property management, leasing, lending and marketing. Going back to Friedman’s phrase “the world is flat,” technology is a big factor in this with the advent of short term “on-demand” delivery services that many online companies and brick and mortar stores are offering. This creates a larger market for companies and investors than they would have had without technology and continues to drive our economy.

From an investor’s point of view, do you still see the Bay Area as one of the top investment markets in the country? The Bay Area continues to be home to some of the most desirable real estate in the country. The demographics of this market are strong, with rising incomes and a talented employee base that continues to move into the city. The Bay Area has shown resilience during challenging economic times and has been determined to bounce back.

in 2020, and what impact do you think that will have on the commercial real estate market?

How can real estate investors and developers prepare for a potential downturn? Dave Demcak, Chase

I also see some similarities on a smaller scale in other West Coast cities, especially where the tech sector is strong. For instance, Seattle has a dynamic economy with large industry disruptors headquartered there, causing a huge demand for high-quality talent. 2019 saw many changes in factors such as macroeconomic policy and geopolitics. How do you suppose these, as well as other fundamentals, may change

No one can see the future and we all look at the same economic data points to determine where we are at in the cycle. Although we can’t predict exactly when [a downturn may occur], it’s prudent for real estate developers and investors to start preparing for a potential downturn now by maintaining strong liquidity and looking at ways to streamline their business and increase efficiency. We continue to lend and maintain a fortress balance sheet that holds up through all points in the cycle, helping us to be stalwarts at all times for our clients.

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DEVELOPMENT

ANOTHER BIG YEAR AHEAD “This work is really about good outcomes for everyone in San Jose.”

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AS DEVELOPERS LINE UP, SAN JOSE STRIVES TO BUILD EQUITABLY AND SUSTAINABLY

evelopment has almost overwhelmed San Jose, with project proposals large and small steadily flowing into the City’s Department of Planning, Building and Code Enforcement. While officials such as Rosalynn Hughey, the director of the City’s planning department have great faith in the planning process that produced such guidelines as San Jose’s General Plan, 2020 and beyond will place greater emphasis on building with economic and environmental sustainability and inclusivity in mind. 2019 was another big year for the City of San Jose, with several major project milestones reached, including the unanimous approval of West San Jose’s Winchester Ranch Mobile Home Park and Google’s formal submission of its plans for 80-acres around Diridon Station. In your opinion, how was 2019 for San Jose’s Department of Planning, Building and Code Enforcement? Was it what you expected it to be? Why or why not? We expected 2019 to be a busy year. We knew we’d be taking in Google’s Downtown West mixed-use project application in the fall and that we’d be bringing major projects for approval, such as Adobe, Santana West, South Bascom Gateway Station and Winchester Ranch. Big projects like these tend to be in discussion for months and don’t come as a surprise. What’s harder to anticipate is the hundreds of smaller projects that come our way every month. We issued more than 2,000 permits last year, from installing a sign to constructing a highrise building. And following decisions by our Council to relax the zoning code and align with new State laws for accessory dwelling units (ADU), our ADU program exploded in 2019. Our ADU permits issued increased by 360 percent over the last two years. We had to quickly reconfigure our permit operations to handle the workload. San Jose has several areas of major growth, including downtown near the San Jose McEnery Convention Center, North San Jose and the Alviso, less urbanized South San Jose, and West San Jose, near major outlets like Santana Row. How are these areas of development similar? How are they different? What’s similar is that all of San Jose’s growth subscribes to the smart growth strategies of our General Plan and that we’re

focusing on densified mixed-use developments in urban villages along transit corridors. Of course, in a 180-square mile city like ours, there will be areas experiencing different rates and types of growth. How do you think these different parts of the city will continue to grow in 2020? Will growth be more concentrated in some areas more than others? Given the proximity to the airport and transit, we’re seeing growth concentrate in downtown and north San Jose. Building on years of planning, our downtown has become Silicon Valley’s urban and cultural center. Public life is increasingly vibrant here. And with Caltrain, BART, VTA Light Rail, and California High Speed Rail all planning to converge at Diridon Station, downtown is poised to become the rail hub of the West Coast—a gateway between northern and southern California. It’s why Google chose to locate here, and others, such as Adobe, are expanding their offices. Additionally, the area around Santana Row and Valley Fair is continuing to develop into a major urban node, with concentrations of retail, office, hotels and housing. The West San Carlos corridor and South Bascom area, with proximity to both the Diridon Station, Google Project and Santana Row, are also growth areas. What are you looking forward to the most this year in your role as Director of San Jose’s Department of Planning, Building and Code Enforcement? Why? While I’m looking forward to progress on our high visibility development projects and the work we’re doing to review our General Plan particularly to address our housing crisis, this year there’s some internal work that I’m excited about. San Jose is a member of the Government Alliance on Race and Equity, and I’m excited to be a champion of equity work in our department, as well as a champion of the equity goals of our General Plan. Just as past zoning practices and government policies played a role in segregation and concentrating poverty and poor health outcomes for certain groups of people of color, we can now bring a mindful, racial and social equity lens to our work in planning, building and code enforcement—so that we are creating an inclusive community and workplace where race is no longer a determinant of success and health outcomes. This work is really about good outcomes for everyone in San Jose.

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DEVELOPMENT

What trends have you identified over the past year that will be important to watch over the course of the next 12 months? A big and relatively new trend is interest in commercial office and R&D development in downtown and north San Jose. Beyond Google’s proposal, we’re seeing other commercial developers—such as Jay Paul, Boston Properties, Sobrato, Westbank and Peery Arrillaga—make a bet on San Jose by moving forward with entitlements and construction. Of course, no trend or issue is more important than addressing the Bay Area’s housing crisis, and our Mayor and Council are committed to policy-making that helps make housing more affordable to build. So, we’re going to continue to see parking policies and fee incentives and zoning changes that enable denser, more affordable housing construction. Looking at the development pipeline in 2020, are there any projects expected to deliver this year that the City of San Jose is particularly excited about? Why or why not? How will these projects shape San Jose as a city moving forward? Yes, 2020 promises to be one of our most exciting years! The most talked-about is the Google Project, and Diridon Station Area Plan amendment. Google’s 80-acre Downtown West Mixed-Use Project is within the 250-acre Diridon Station Area Plan, or DSAP. Both involve General Plan amendments that are marching forward together to our Planning Commission and City Council in the late Fall. The DSAP is being amended to reflect the new development capacity, new land uses, new VMT traffic analysis methods, new rail/transit plans, and new design guidelines. We’re doing a great deal of public engagement on this, so that the plan reflects our community’s values and aspirations, as well. The result will be a long-term framework that will guide future development in the area around Diridon Station. Together, these projects are bringing to life the vision for an inspiring, transit-oriented part of our downtown that integrates jobs, housing, retail, dining, culture, public and open spaces, and more—a new neighborhood district. This is a transformative project that is far-reaching for all of San Jose and its future, and it’s already rippling through and spurring development interest throughout the city.

Climate Smart plan to help us strike this balance. Along with building in a way that makes it affordable is building sustainably. We’ve worked with developers such as Marty Keller of First Community Housing on using modular construction. We’ve worked with StarCity to allow co-living developments where communal facilities are shared and there’s a reduced requirement for parking. To reduce greenhouse gas emissions, we now have a Reach Code in effect that raises the bar over state requirements on energy efficient and low emission construction. Once every two months we host a Developers and Construction Roundtable meeting where we discuss and get input on practices and policies that address these kinds of development challenges. What are some of the city’s primary goals as it continues to navigate increased development over the next couple of years? With the smart growth strategies of our General Plan and Climate Smart plan as our rudder, a key goal is to keep working with the development community on creative ways to bring projects to fruition affordably and sustainably so that everyone in our City can benefit. We want our City to be an inclusive one—where there are a variety of choices for housing, mobility, employment, and services and amenities—and where our children and future generations can thrive. Is there anything else you would like to add that The Registry did not ask or mention? San Jose is on the leading edge of how a post-World War II suburban city can transform from an auto-focused city into a walkable, urban city. We are mindfully working to reduce emissions and further the state’s and Paris Accord’s goals to address climate change. While we are recognized as the largest city in the Silicon Valley global economic engine, we are also simply home to more than one million people. I’m excited to help navigate growth and change, to help people see how change can lead to a better city, and I welcome all to join me in the community engagement, planning and development work for our beautiful home, our great City.

Like all big cities, our biggest challenge is managing growth so that we have healthy economic and environmental conditions, funding for infrastructure, and equitable outcomes for our community, including affordable housing and services and amenities. Fortunately, we have guidance from our General Plan and

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Rosalynn Hughey

What are the biggest development challenges facing the City of San Jose today? How is the City working with property owners, developers and others in the industry to mitigate these hurdles?

‘Efficiently...’ cont’d from page 21 What makes energy efficiency even more appealing now is that throughout the country and particularly in California there is a concerted effort to reduce the financial burden for energy efficiency retrofits through little to no interest loans. Gemini helps our clients take advantage of these financial opportunities by providing the energy calculations and financial analysis required to be approved. What is something that most building owners are not aware of and should be? The one thing I would want every building owner to know is that there is a ticking time bomb on their roof, in the form of a HVAC unit. In my industry, it is well known that HVAC package units (the box units you see on the roofs driving down the highway) are typically over their expected life. This means that at any given time, without warning, they can fail. It is not a question of if, but rather when. Replacing just one of these package units can cost over $20,000. Typical owner-tenant contracts have the building owner as the responsible party to pay for replacing a major equipment like the HVAC package unit(s). Alternatively, building owners can be proactive, replacing their equipment before it fails and installing a high efficiency unit. We identify whether a building owner is at risk of a package unit failing and guide them through the process of receiving financial loan to replace the equipment. If the utility is under PG&E there’s an opportunity to receive a zero percent interest loan for projects up to $250,000.

The increased capacity of devices combined with the reduction in equipment cost in the industry has led to the ability for us to conduct faster and more accurate energy assessments at a lower price point.

to track in real-time their energy performance.

As you look into 2020 and beyond, how will innovation continue to shape the industry?

As of now, outside of the PG&E territory, there are very few financing options available to property owners of commercial spaces under 50,000 square feet and SMB owners. While Gemini was developed to serve this clientele, we can not do it alone. Gemini is developing partnerships with companies in an effort to build a coalition to address this gap. However, until financial options become more widely available, there are limitations to the energy efficiency measures these markets can implement and therefore a lack of interest in supporting these markets.

Currently, the ability to remotely track, manage and control a building’s energy performance in real-time through building energy management systems (BEMSs) is cost prohibitive for 99 percent of the commercial market. And when they are utilized, more often than not, they are not calibrated correctly. As innovation continues, I foresee the cost of these systems dropping such that anyone will be able

What challenges do you anticipate the industry will face in 2020?

Has innovation in the industry helped you transform your organization into a company prepared for the future and in what ways?

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2201 Valley, a 28-story ground-up creative office tower located in Oakland

www.theregistrysf.com DEVELOPMENT

STAYING LOCAL

“Our issue continues to be the high cost of buildings–both built and to-be-built. We are patient.”

Michael A. Covarrubias

MG Partners touts itself as “The Bay Area’s Real Estate Developer,” and since its establishment, it has focused almost exclusively on the real estate market in this region. The firm has worked on a number of high-profile projects in Northern California, and the company continues to forge ahead with new exciting developments across the region announcing its plans for Telegraph Tower in Oakland, an 875,000 square foot development in the fall of last year. Also in October of 2019, the firm revealed it had closed on a $220 million separate account to invest in a number of value-add opportunities throughout the Bay Area. Despite its notoriety and wide-spread success, TMG is keen on remaining local, and with its strong history of development and solid market fundamentals to back it, TMG is optimistic about 2020, according to Chairman and CEO Michael Covarrubias. As a developer, TMG has focused exclusively on the Bay Area since its founding 35 years ago. Over the course of the past several decades, why has TMG specifically chosen to stay close to home?

88 Bluxome, a one million square foot project comprised of office, retail and PDR to be developed in conjunction with Alexandria Real Estate

Our local relationships are key to our track record of success. Over the last three decades, our firm has cultivated deep relationships across the Bay Area region with property owners, tenants, brokers, construction companies, capital sources and financial institutions, as well as lo-

cal, state, government officials and our stakeholders. We value the opportunity to enrich the communities in which we work. In concert with some of these very relationships, we have also delved deeper into the issues of housing, growth, water, transportation, education and other matters critical to the overall sustainability of both the Bay Area and the greater State of California. What regional market trends and nuances did you see emerging at the end of 2019 that you think could be prevalent in 2020? Why? A critical trend has been born from the demand for housing at all levels, but with an emphasis on affordable and missing middle housing. As a result, there has been a slight shift in restrictions and requirements, allowing for more density and encouraging the mix of income levels in multifamily properties. Relatedly, both because of this need and the continuing high cost of construction, you are seeing more and more technology in the modular housing sub-industry, which provides these types of developments faster and cheaper-without jeopardizing quality. TMG has pursued a broad mix of product types, including 30 million square feet of office and research and development, multifamily and retail uses, in a portfolio valuation of $5.5 billion. Office and research and development consti-

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DEVELOPMENT

TMG CONTINUES TO CHOOSE THE BAY AREAâ&#x20AC;&#x2122;S DYNAMIC MARKET AS ITS BASE

tute 45 percent and 28 percent of TMGâ&#x20AC;&#x2122;s portfolio, respectively. Looking into the next year and beyond, how will TMG approach the development or acquisition of a property? We have always sought to look over the horizon-to be first in a submarket-and analyze the needs of that localized area to provide unmet housing, office, retail, or a mix thereof. We are not just opportunistic, but we seek a more holistic value add for each community. Part of our initial analysis includes our decision on whether we plan for a long-term hold or disposition, so that we can offer our investors dependable performance by both individual property and portfolio. Are there any projects that TMG would particularly like to highlight? Why? While we are consistently active in the three key markets of San Francisco, Silicon Valley and Oakland, we are currently most proud of the five properties in Oakland. It has been a tremendous opportunity to be a part of the new engine in East Bay, as driven by the excitement of Oakland both for office tenants and residents. How are these projects reflective of not just the current Bay Area CRE market, but the expectations of developers and tenants? The developments in Oakland have given way to a safer, cleaner, more dynamic city and they offer options for those expanding from San Francisco. A very exciting part of this is the cultural expansion in the

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Platform 16, a joint venture with Valley Oak Partners. Located in downtown San Jose, the project totals 1.1 million square feet

public visual arts and other performance art venues. Oakland is now competitive with major cities across the country. Mayor Schaaf has played a key leadership role in this transition. TMG has invested widely in all major Bay Area counties, with projects like 1330 Broadway in Oakland and 88 Bluxome in San Francisco. Are there any submarkets that you believe will be more likely to capture the attention of

developers and investors over the next 12 months? Why? Is there a particular submarket that TMG has its eyes on? I can answer both those questions by directing you to the South Bay where we are active with Boston Properties on a development around Diridon Station, as well as having a lead position in creating the City Center of Fremont. These are both very desirable and still-burgeoning submarkets with many assets, not the least of which

is transportation nodes and demand for living near a thriving office market. Many would say that we are reaching a more mature stage in the market cycle; do you believe this to be true? Will 2020 remain a good year to invest? Why or why not? We believe the recovery is not at its death knell yet. So, into 2021 we remain confident in the Bay Area market, of course

subject to a Black Swan. Our issue continues to be the high cost of buildingsâ&#x20AC;&#x201C;both built and to-be-built. We are patient. Michael, you joined TMG back in 1988 and have directed the company since 1995. What are your biggest goals for TMG this year? How is TMG working to achieve them?

weâ&#x20AC;&#x2122;ll be opening a new office in Silicon Valley to better manage current and future developments in that market. And our goal across the company is always to continue expanding our existing relationships.

We are broadening our experience with three new additions to the TMG team, and

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essica Carps serves as Skyline’s COO and its first female member of the Board of Directors. Her background in management consulting and manufacturing has allowed her to bring a unique and innovative perspective to the construction and real estate industry. She is responsible for creating repeatable processes and systems to facilitate growth, drive profitability and create redundancy, which has allowed Skyline to expand nationally. Since Jessica joined the firm in 2015, Skyline’s revenue has increased from $175M to $550M. Today, she oversees Skyline Enterprises, the holding company for the Skyline family of companies, and she leads the Sky Service Team, a group that has successfully executed the start-up of two new subsidiaries in 2019. Another key aspect of her role as COO is overseeing the Skyline family of the companies’ employee stock ownership program. She prides herself on being a steward of the well-being of the employees that work for Skyline and views the program as a core component to the culture and success of Skyline.

What motivated you to expand outside of the Bay Area?  Our expansion was very much customer-driven. We have very strong relationships with our clients, particularly our tech clients, who have been asking us for years if we can help them with their own office expansions into other markets. However, effective expansion requires more than customer relationships. It requires you to have the right team in the market, a team with familiarity with the buildings, owners, facility managers and strong relationships with subcontractors. In 2019, we found that partner in Andy MacGregor, now the President of ACCEND, and opened up ACCEND Construction in Chicago. In 2020, we formalized a long-standing customer service partnership with Unimark and Servicemark in Seattle through a formal acquisition. The great thing about our expansion plan is that it is a win-win for Skyline and for our customers. It allows us to diversify out of one market, avoiding the cyclical nature of the construction industry. It also provides opportunities for upward mobility for existing employees and increases the potential ESOP stock value, which as a 100 percent employee-owned company is beneficial for our employees and shareholders. What drove you to the Chicago and Seattle markets for expansion? Seattle and Chicago both have experienced significant growth in the tech industry, an area where we have deep expertise and strong relationships. Many of our clients are looking to diversify their business out of the Bay Area and into more affordable areas to capture talent and reduce overhead expenditure. We wanted to be able to service our valued clients in other areas, making the move to become their national interior construction partner. Ultimately, we were drawn to Chicago and Seattle not only because we have strong partnerships and found great leadership talent there, but because of the synergy and similarity to the Bay Area commercial real estate markets, their deep talent reservoirs, and opportunities for scalable growth.

Jessica Carps

From an acquisition perspective, the basis of our expansion plan is to find companies with strong brand recognition and talent in their local markets

Tell us about your company structure and why you operate under so many different company names? We have two strategies for entering new geographic markets or service lines: “greenfield” offices, as demonstrated in Chicago with ACCEND and Skyline Capital Builders in the Bay Area, and acquisitions, as demonstrated by Unimark and Servicemark in Seattle. From an acquisition perspective, the basis of our expansion plan is to find companies with strong brand recognition and talent in their local markets. Nobody knows the intricacies of building in each major metropolitan city better than the people who have been doing it for years. Our goal is to find small to medium sized successful companies who are looking for financial and business resources to take their organization to the next level. We are not looking to change their name or who they are - just support and enhance their business operations. From a greenfield perspective, we are

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AS SKYLINE CONSTRUCTION GROWS A NATIONAL FOOTPRINT, IT TAKES STEPS TO SCALE INTELLIGENTLY WITH A PURPOSE looking to build similar brands, and we are somewhat limited legally by the naming conventions that are available in the markets. Both expansion models, greenfield and acquisition, benefit from the resources of our SkyService team, a group of subject matter experts in many areas of the business including Human Resources, Finance, Legal, Branding, Sales, Safety, IT & Security. This corporate team alleviates much of the burden of running the business so the leadership team within each firm can focus on quality project execution and providing the optimal client experience. Skyline Enterprises is 100 percent employee-owned. Why the ESOP model and what has the impact been for your employees? The Employee Stock Ownership (ESOP) model is an income equality solution and has been influential in numerous ways. Most importantly, our clients see and feel the result of the ownership culture. Our employee-owners take great pride in providing the best client experience through open communication, cost-saving measures and full project transparency. The ESOP model also rewards the hard work of all staff, not just a small few, by providing a secure retirement, which has proved to be a wonderful recruiting tool to attract talent in the industry. We feel very strongly that employees are the heart of our company, and we are motivated to operate under a fair business model. What is your company doing to brace for a potential slow down? It is part of our corporate strategy to maintain a strong balance sheet so that we are not only prepared to weather any downturn but to leverage such events into growth opportunities. We believe that we are in such a position now. We continue to look for companies who are ready to take their business to the next level, or owners who are looking for a strong exit strategy as they move toward retirement. Our recent geographic diversification allows us to be less reliant on just one area or region, which has further strengthened our financial position. For example, since the COVID 19 event, companies have started to approach us who are looking to be acquired. More will come and we will act on the right one, with the right leadership team in the right location. Given where Skyline stands today, what are the priorities for your business in 2020 and beyond? 2020 has already proven to be an eventful year. We are closely monitoring the impact of COVID 19 on the economy and the industry to ensure that our businesses are prepared both financially and operationally to not only withstand [themselves] but to be at

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Salesforce Tower, private client

the forefront of solutions. On top of that, a few priorities remain top of mind for us: implementing technology solutions to streamline the business, integrating our newly acquired firms into the family of companies and continuing to provide the absolute best quality projects to all of our valued clients. There are a limited number of women in C-suite positions in this industry. Do you see yourself as pioneering, to some extent, as these companies embrace more diversity and inclusiveness? You know, it’s funny, I think that other people think about situations where I am the only woman in the room much more than I do. I give 110 percent to everything I do, and I come to work every day with the intention of always doing the right thing for the organization and the employees I work for. I feel very lucky to have been a part of organizations, particularly Skyline, that value hard work and effective leadership above all else. I think it is important to make sure others are afforded the same opportunity. I’m proud to have been able to promote numerous talented women onto Skyline’s leadership team, and I truly enjoy mentoring emerging female leaders to speak up, take risks, have confidence and push hard for what they believe in. Also, as a working mom, I am quite aware of the intrica-

cies of managing both work and household responsibilities. I have supported significant changes to the benefit offerings at Skyline over the last few years to ensure that our work environment supports both working mothers AND fathers. That starts with enhanced maternity and paternity leave and continues through affordable and strong health benefits, extra support in the form of child and elder care, gym reimbursement for mental health and wellness, and unlimited PTO to create the work/life balance necessary in order to manage both of these areas. I am committed to Skyline’s “people above all” mentality and I look forward to seeing more women take on leadership roles in the industry in the years to come.

ages could drive material costs even higher but change the course of the labor market entirely.   How do you anticipate the coronavirus will impact construction over the course of the year?

What are some of the challenges in the industry that you expect to see unfold in the next few years?

While the full impact of the coronavirus is unknown at this time, we anticipate disruptions in the supply chain as manufacturers around the world are slowed. To address this and continue to serve our clients, we have developed an internal task force to work very closely with our subcontractors to identify and assess risk. We are monitoring the situation very closely and on a project by project basis to understand if and how construction schedules and costs will be impacted and will institute best practices to address these challenges.

Clearly, the coronavirus is changing the landscape that we operate in as we speak. Prior to recent events, two of the main challenges we anticipated encountering were rising construction costs and a shortage of labor. While we cannot control all the aspects that contribute to rising costs, we have taken the initiative to work with and inspire students coming out of college to pursue careers in the commercial real estate industry. However, COVID 19 is changing the situation in the industry and the economy every day. It’s highly possible that supply chain disruptions and short-

We are also prepared to face these issues from previous initiatives we have taken to increase reliance on American made products and services. A few years ago we created an organization called the Build America Challenge with the goal of procuring products and materials for construction projects made in the United States. Through this process, we developed a rich database of American produced construction products, which we are currently refreshing so that we can best provide an additional resource and value add to our customers.

Delta Dental in San Francisco

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• Prepare the Preliminary Report or Title Commitment disclosing such matters as easements, mineral and oil reservations, taxes, bonds, assessments, existing restrictions and other recorded matters affecting title to the subject property.

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• Aid in obtaining necessary lender consents and signatures on the map. DUE DILIGENCE SERVICES ORSCS is your single-source advantage for national due diligence services. ORSCS simplifies the complicated and timeconsuming process of ordering multiple due diligence products for commercial real estate transactions nationwide. The transaction is coordinated through one contact, at one location, using one platform, so we can assist in delivering a stress-free closing for your customers. Our comprehensive solutions include: commercial land surveys, zoning reports and letters, property condition assessments, environmental studies and commercial appraisal services. Additionally, we offer flood determinations and Qualified Intermediary services for 1031 Exchanges. OLD REPUBLIC NATIONAL COMMERCIAL TITLE SERVICES Old Republic Title has a long history of insuring some of the largest commercial properties and the most complicated titles in the United States. Old Republic National Commercial Title Services (NCTS) handles the largest, multi-state, multisite transactions in the country. NCTS projects include commercial buildings in major metropolitan areas (Atlanta, Boston, Chicago, Houston, Miami, Minneapolis, New York, and San Francisco, to name a few), sports stadiums, energy (wind and solar farms) and mixed and multi-use developments. These projects are insured directly by Old Republic Title or through an authorized agent or approved attorney. Due to statutory retention limits or lender requirements, the risk is occasionally shared via reinsurance or coinsurance with other title insurance underwriters. In all cases, Old Republic Title provides the services needed to close these complex and often incredibly large transactions. SMALL BALANCE/MULTIFAMILY AGENCY Our centralized team provides a custom, bundled solution for the acquisition or refinancing of properties with at least five units, and a loan amount between $1 million and $7 million. We deliver standardized documentation and a streamlined workflow to close, fund and secure the loan in compliance with Fannie/Freddie’s Small Balance Multifamily lending guidelines and within agencymandated timelines.

SPECIALIZED COMMERCIAL SERVICES Old Republic Specialized Commercial Services (ORSCS) is your single-source advantage for fast, accurate third-party physical due diligence services, along with specialized title and settlement services nationwide. ORSCS simplifies the complicated and time-consuming process of ordering multiple due diligence and title products for commercial real estate transactions nationwide. The transaction is coordinated through one contact, at one location, using one platform, so we can assist in delivering a stress-free closing for your customers. TITLE & SETTLEMENT SERVICES* We offer centralized title and settlement solutions with underwriting to provide quality products and timely delivery. Our full suite of title products includes: ALTA Owner’s, Loan and Leasehold policies, customizable property reports, Owner & Encumbrance Reports (O&E), deed reports, recording services, Uniform Commercial Code (UCC) and Judgment Searches. Also, we provide full closing and settlement services, sub escrow/disbursement services and earnest money escrow management/disbursement meeting state requirements for the issuance of polices and endorsements. 1031 EXCHANGE** ORSCS coordinates 1031 Exchanges through Old Republic Exchange Company, a wholly owned subsidiary of Old Republic International Corporation. Old Republic Exchange provides peace of mind with its professional Qualified Intermediary services, optimum security of funds and unsurpassed financial strength. Types of Exchange Services: • Like Kind – Real Property Exchange • Multiple Asset LKE Programs

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DEVELOPMENT

EVERY SUBMARKET IS FAIR GAME VETERAN BAY AREA DEVELOPER SEES POTENTIAL ACROSS WIDER MARKET IN THE REGION “Right now, the coronavirus pandemic and potential health crisis we are facing is having an immediate impact on the way we as individuals live, work and play. It’s also having an impact on how companies like ours and those of our tenants, operate.”

he Swig Company, headquartered in San Francisco, has been a venerable player in the Bay Area commercial real estate market since its founding more than 80 years ago. The firm has tackled some of San Francisco’s most iconic projects—including the San Francisco Fairmont Hotel—and its current real estate holdings include about 9 million square feet, the majority of which is located in Northern California. While The Swig Company’s portfolio of properties extends beyond the Bay Area, the firm has largely remained close to home and kept a keen eye on the market. Moving forward into 2020, the firm will continue to carefully pursue capital projects throughout the region, according to The Swig Company’s President and CEO, Jim Carbone. Jim, you stepped into your position as President and Chief Executive Officer of The Swig Company in 2018; how was your first full year in this role? Was it as you expected, and what did you learn from 2019 that you will bring into 2020? The year seemed to go by very quickly, and I learned a lot. Mostly, I learned I have a great team in place, which is important because, as you know, we are an active investor and operator with assets and a variety of projects in New York and Southern

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Jim Carbone, Swig Company

California, as well as here in the Bay Area. The company is in a solid position moving forward. Over the past several years, The Swig Company has pursued target capital projects, activating lobbies, updating building exteriors, adding amenities and outdoor environments, etc. In 2019, the firm’s major redevelopment and renovation of 633 Folsom—which Swig built in 1967—helped land Asana as a tenant. Will Swig pursue a similar strategy for its assets in 2020 as the Bay Area market continues to churn? Why or why not? Absolutely, we will continue to pursue this strategy. We are continually evaluating opportunities to re-invigorate our buildings to make them relevant and attractive to modern tenancy and, as you can imagine, these projects can sometimes take a long time to come together. Are there any upcoming projects that The Swig Company would particularly like to highlight? One of the projects our asset management team, led by Connor Kidd, is excited about this year is the re-imagining of the 45,000 square foot second floor of the historic Mills Building (at 220 Montgomery). I’m excited about the project, too, because it will

completely revamp and reposition space that was previously a trading floor for the New York Stock Exchange. The focal point of the plan is a dramatic 1,232 square foot skylight utilizing dynamic glass. As a firm with a long history of working in the San Francisco Bay Area, are you seeing the region as one cohesive entity or do you think certain submarkets will continue to dominate others? Why? I think like any major market you find office submarkets in the Bay Area that dominate slightly during times of economic expansion, but I’m actually struck by how the period of unprecedented growth we’ve seen in the last few years has so broadly benefitted markets in the region. For example, the tech sector expansion, while centered in San Francisco, has benefitted Oakland and other Bay Area markets. Many of Swig’s Northern California assets are in San Francisco, with several in Oakland and Mountain View. Does Swig have its eyes on any other submarket in the Bay Area? Why or why not? Our investment team, led by Tomas Schoenberg, is always looking at good opportunities to acquire assets in transit-friendly, amenity-rich urban submarkets throughout the inner Bay Area. That said, I’d emphasize that because we have the complication of being late in the cycle as well as the added uncertainty of being in a presidential election year, we remain cautious when assessing any new investment opportunity in the Bay Area or, indeed, any of our target markets. At the beginning of 2019, The Swig Company announced changes to its executive structure to enhance the rollout of its h3experiences program. Why did The Swig Company choose to create a program designed to provide tenants with flexible workspace options and amenities, and why is such an initiative important in a market such as the San Francisco Bay Area?

We’ve developed an app for h3experiences, which helps our tenants connect to us, their buildings and the community, and we will continue to develop the programs and offerings we provide to tenants. We just produced our first sustainability report, and we are committed to expanding our partnerships within the industry and with our tenants to find and pursue ways to help mitigate the disastrous effects of climate change. What have you found to be the biggest challenges for investors in the Bay Area? How does The Swig Company plan on overcoming these challenges in the years ahead? Right now, the coronavirus pandemic and potential health crisis we are facing is having an immediate impact on the way we as individuals live, work and play. It’s also having an impact on how companies like ours and those of our tenants, operate. As a company and as individuals, we are making adjustments and keeping up with the current information and best practices with the goal of helping our employees and those of our tenants and the community as a whole, to remain as healthy as possible through this crisis. The Bay Area is one of the most popular investment markets in the country, which makes it challenging to buy new assets, for sure. It’s also expensive from a construction cost perspective so we, like our peers, really have to do our homework to make sure renovations and improvements pencil before embarking on new projects. What are you most excited about in 2020? Why? I’m looking forward to the opening of 633 Folsom, which I think is shaping up to be a beautiful project and a very strong addition to the neighborhood. I can’t wait to see the finished project and see Asana move in.

That’s right, Deborah Boyer moved into a new role to head Innovation and Community Impact. We really wanted to bring all of the innovative things we were doing within our buildings, and in the community, into one cohesive platform. This led to the creation of h3experiences, which is really the bringing together of everything we do for and with our tenants—flexible office solutions, new technology, sustainability and community impact. The community impact aspect is really a differentiator for us, because we are very active in establishing partnerships with local non-profits and giving our tenants an opportunity to engage with those partners. How will The Swig Company continue to expand h3experiences over the course of the next year?

Rendering Courtesy of The Swig Company and Gensler (633 Folsom)

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Image Courtesy of Paramount Group (One Market Plaza)

STICKING WITH THE PLAN “We could have easily handed over the keys to the lender, and I’m proud that we are one of the few office REITs that hold the distinction to this day of never giving back an asset to our lender.”

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PARAMOUNT GROUP IS LASER-FOCUSED ON SAN FRANCISCO’S TIGHT CBD MARKET

ew York City-based Paramount Group lept into the San Francisco commercial real estate market in 2007 and has since become a major presence in the city’s central business district (CBD). Over the past decade, the firm has carefully curated its regional assets, and in 2019 spent approximately $310 million of its own equity in four months to acquire interests in 55 Market Street and Market Center, growing to be one of San Francisco’s largest office landlords. The Registry spoke with Paramount Group’s Chairman, CEO and President Albert Behler on the firm’s outlook for the Bay Area moving forward. Paramount has now made San Francisco one of its key strategic locations. How did the company become interested in doing work on the West Coast, and how has the Bay Area’s rise played a role in that decision? Our strategy has always been focused on owning, operating and managing high-quality, Class A office properties in select central business districts. We acquired our first property in San Francisco in 2007 by purchasing a 50 percent interest in One Market Plaza, a two-tower Class A office complex. Over the years, we have redeveloped this asset into one of the most desirable and coveted corporate addresses in Northern California and arguably the entire West Coast. While the asset boasts an iconic status today, it took us a great deal of effort to get there. The timing of this acquisition was not ideal as shortly thereafter we found ourselves in what is now dubbed as the “Great Recession.” Despite the uncertainty that lay ahead, we believed in the asset and its location and embarked on a value creation strategy that would ultimately pay off. We could have easily handed over the keys to the lender, and I’m proud that we are one of the few office REITs that holds the distinction to this day of never giving back an asset to our lender. I was also very proud of our team and our accomplishments during that tumultuous period. We learned a lot about ourselves, our capabilities and the market. It took us a while to acquire our second asset in the Bay Area, and it wasn’t until 2014 that we acquired 50 Beale Street, which

today is referred to as 300 Mission Street. We watched the market closely and saw trends and fundamentals developing that made the Bay Area the financial center of the West Coast and home to the technology industry. We further increased our presence with One Front Street and made investments in three additional assets (111 Sutter Street, 55 Second Street and Market Center) last year. We are now the second largest office landlord in San Francisco’s CBD. In addition, we are constructing the most desirable residential project in San Francisco, One Steuart Lane! Construction is underway, and we are ramping our marketing efforts. We remain very excited for the potential at that asset given its positioning and limited comparable options throughout the city. As both a property owner and landlord, what is your current perception of the Bay Area commercial real estate market? Our focus in San Francisco has been and continues to remain in the CBD. We believe the market will remain attractive in both the near- and long-term. Specifically, demand remains robust while the market remains tight and continues to be very supplyconstrained. Much of the new space being developed has already been spoken for, leaving few options for tenants who need space in the near-term. This is great for existing landlords like Paramount. It is our expectation that under these conditions rents will increase further, especially for large blocks of space, which we tend to focus on. Today, you are the second largest office landlord in San Francisco. Has the market been a successful priority for you, and does it mean that you will look more closely at assets outside of the city and throughout the region? The San Francisco market is very important to us as demonstrated by our recent acquisition activity and move towards being a bi-coastal REIT. Since our IPO, we have taken that market up from representing just about 8 percent of annualized rent to over 25 percent as of 4Q 2019, and over the same period, it has delivered the best leasing and growth statistics in our portfolio. So overall it has been very successful.

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economy, is heading? Are there certain indexes that you follow that are more meaningful than others? We pay very close attention to a number of data points including office-using job growth, population growth and interest rate movements. We also keep close track of office cap rate spreads relative to Treasuries and corporate bonds. At this point, we haven’t seen cap rates move significantly as interest rates have declined to historic lows, which all else the same leaves office real estate much more attractive as an investment option. And then more anecdotally, we speak frequently with and listen to our tenants as well as tenants in the market seeking space, who are often the largest and most influential companies in the world. This provides us with real-time information on the economy, as well as what the most important tenants are looking for in space and where they prefer to be.

Albert Behler, Paramount Group

Office leasing fundamentals continue to strengthen, and we continue to capitalize by securing long-term deals with best in class tenants. At the same time, we have a lot of work to do in integrating and executing our business plans with respect to the recently acquired assets. Therefore, at this time we are not looking to purchase properties outside of our target submarkets. We’re going to stay true to our strategy of sticking within the CBD, where we’ve been able to successfully execute, and where we consider ourselves to be “sharpshooters.” What surprised you about 2019, and how is 2020 looking from that vantage point? We were pleasantly surprised by the degree to which rents accelerated in 2019, especially early on in the year. We knew there would be rent growth, but I think a mid-teens increase was what really surprised us. For example, last year we executed three leases at 300 Mission Street comprising approximately 262,000 square feet, and the spreads approached 50 percent versus prior rents. Those rents had moved up in the mid-teens percentage range versus just 6 to 9 months earlier, so obviously a huge move and a very favorable outcome for the company. Moreover, I think it’s fair to say going into 2019 that we didn’t anticipate being able to acquire two additional properties in addition to 111 Suter, which was under contract at that time, namely Market Center and 55 Second Street. In 2020, we expect rents to continue to grow in the market, but at a more moderate pace. To date, our San Francisco assets are actually outperforming our pro forma projections. As an investor and asset manager, what do you look for to help you see where the industry, and for that matter, the

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All things considered, while it’s impossible to predict what will occur over the next few months, we generally believe that the current environment bodes well for real estate. During times of market volatility and periods of low interest rates, real estate has proven to be an asset class where long-term investors can still find yield without exposing themselves to excessive risk. If the economy were to enter a soft patch, we believe it would likely be transitory and that tenant demand will remain robust. And in the end, we have constructed our company to be resilient in any economic environment both from a tenant profile and balance sheet perspective. Do you feel that there is currently enough product on the market to trade? To lease? Why or why not? From an investment perspective, we continue to see deal flow and take pride in understanding and underwriting everything that trades in the market. Paramount is somewhat unique in that, in addition to our asset ownership business, we manage a series of third-party real estate debt funds. So, whether it be purchasing an equity interest or providing financing for a transaction, we see incredible value in understanding all the trades in the market, and those efforts tend to cross-pollinate. We closed on Market Center in December 2019 and have continued to see a healthy level of deal flow. On the leasing side, I think we and other landlords wish we had slightly more available space to lease right now. Rents have moved higher so significantly in recent years and availability remains so tight, that in many cases the embedded mark-to-market on older leases is huge. It’s a high-class problem to have. And at the same time, there are essentially no large blocks of space available today, tenants have already locked up space under development, and the recently-passed Prop E will likely make new space that much more scarce. It is a great time to be an existing landlord in the market.

Do you believe buildings with certain tenants will sell better than others? Why or why not?

a temporary deceleration. We are not overly concerned about this dynamic, as the sublet availability rate is not out of line with historical levels.

Having high-credit quality tenants is typically a good thing when it comes to real estate, because they typically lease space at higher rents for longer lease terms and also have higher average retention rates and greater prospects for growth. This, in turn, generally results in premium cap rates for those assets. Our portfolio is supported by a diverse collection of high-credit quality tenants, which provides investors with a level of confidence and predictability when it comes to rent streams. In the market, we see investors becoming more discerning in the quality of the assets they seek to acquire, creating wider buyer pools for Class A and Trophy assets of the highest quality, which all else the same leaves these assets easier to sell.

Then, of course, most recently there is the economic impact from the coronavirus, which has created a lot of uncertainty, and everyone is attempting to come to terms with what it means for not just the economy, but also the country and the world. We at Paramount are optimists, however, and believe that the best minds in the world are currently working to address the problem and find treatments. Many of those people work right here in San Francisco and the broader Bay Area, so we are proud to be a part of the community. So far for us it has been business as usual, but at the same time we are committed to continue working in the best interest of our tenants, employees and the broader community.

Has leasing in your properties met your proformas, and do you anticipate a slowdown in the rent growth anywhere?

What unexpected opportunities may emerge in the years ahead?

In San Francisco, leasing fundamentals continue to strengthen, and we continue to capitalize by securing deals with best-in-class tenants at very attractive terms. Net absorption in San Francisco remains positive and average asking rents continue to increase, up in the mid-teens percentage range year-over-year for Class A product in the CBD. So far we have been exceeding the proformas for our most recent acquisitions as a result of these factors. With our recent acquisitions, we underwrote no rental growth in 2020 as we expected a natural deceleration from the break-neck growth in recent years, but also just to be prudent and conservative. Even a deceleration in rent growth would represent upside to the way we underwrote those transactions.

It is difficult to predict when a building will be placed on the market. As I mentioned earlier, coming into 2019 we did not think that we would have the opportunity to purchase such great valueadd opportunities in San Francisco. While we donâ&#x20AC;&#x2122;t see specific opportunities on our radar at the moment, you never know what will become available and when. This is why we always like to be in a position to act swiftly. Unlike many of our peers, we have experienced leasing and operating teams on the ground, which allows us to take on leasing risk that others either cannot or are unwilling to assume. We view this differentiator as a sustainable competitive advantage.

Do you believe the Bay Area is well-positioned to withstand any market correction that may come along in the future? Why or why not? We believe the market is better positioned this cycle to withstand a correction, as many of the largest technology companies who have leased the most space are actually making money this cycle. The largest aggregators of office space like Apple, Google and Facebook are all among the most profitable companies in the world, which obviously makes them more stable and attractive from a credit perspective. And these are the tenants we have focused on. The office space that is being absorbed in the market is more secure than in the past, which gives us confidence that we can manage through challenging periods. What challenges do you anticipate may occur in 2020? We believe that we and the market are in good shape. However, thereâ&#x20AC;&#x2122;s slightly over 1.6 million square feet of sublet space on the market in the North and South Financial Districts, and roughly 3.2 million square feet across all of San Francisco. This space needs to be absorbed, and in the interim it could result in

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TRANSIT ORIENTED DEVELOPMENT

NO LONGER JUST TRANSPORTATION WITH SPACE AT A PREMIUM, BART LOOKS TO ACCELERATE DEVELOPMENT AROUND ITS STATIONS “We have to pick up the pace a bit.”

s the Bay Area’s employment market has exploded so too has demand for transportation, as well as residential and commercial development. For those at Bay Area Rapid Transit, or BART, the evolution of real estate development around transit hugs—known as transitoriented development (TOD)—has become paramount to the success of the regional industry. According to Abby Thorne-Lyman, BART’S manager of transit-oriented development, the organization first dipped its toes into TODs some 25 years ago, when BART and BRIDGE Housing repurposed a piece of property and an adjacent historic building next door as affordable housing. Since then, BART has taken on larger initiatives, including planning for the Fruitvale Transit Village in 1991 and more recently, the West Oakland BART TOD Project, which will include about 762 residential units and 380,000 square feet of office space. Now, BART is looking to ramp up development--of both its transportation and built assets-- even more to keep up with the market.

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The San Francisco Bay Area is expected to have more than two million new residents by 2040, with total population projections reaching 9 million people. What does such rapid population growth mean for BART and its future? During the peak commute hour in the peak direction, BART is nearing capacity, so we are working on ways to expand the number of passengers we can carry. First, we are working to maximize the capacity with our existing tracks. We are doing this by increasing the number of train cars in our fleet, upgrading our train control system to a more modern technology, so that we can offer more frequent train service and expand our storage and maintenance facilities. We anticipate this will result in a 40 percent increase in capacity. From a transportation perspective, what is BART doing to ensure better, safer public transportation for current and future residents?

Longer-term, we are working with project partners on a second bay rail crossing that would include BART tracks and conventional train tracks. This project could transform the Northern California megaregion’s transportation network by increasing the number of BART trains across the Bay and creating a direct regional rail link that connects the East Bay, Central Valley and Sacramento with the San Francisco Peninsula. On a broader note and looking forward into the year ahead, what are some of BART’s primary goals for its TOD projects in the Bay Area? BART’s goals for TOD are: • To create complete communities by establishing a mix of uses supporting livability, but also offer public improvements such as paseos (Editor’s Note: a paseo is defined as a plaza or walkway for pedestrian activity), and increased green space designed to improve the sense of place.

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TRANSIT ORIENTED DEVELOPMENT

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• To reduce greenhouse gas emissions and regional congestion by focusing on housing and jobs next to BART, where it is proven that people drive less. • To grow BART’s own ridership, especially where we have capacity, by adding both housing and jobs near stations. This in turn enhances BART’s revenue base to create a more sustainable budget. • To increase property values and leverage that increase for other public benefits. • To offer residents and workers more transportation choices overall. People who live within a half mile of a BART station are twice as likely to walk, bike and take transit to work, and own about half as many cars. BART is targeting to build 20,000 homes and 4.5 million square feet of commercial space on 250 acres. When is BART aiming for completion of these development goals? Is BART on track?

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We have to pick up the pace a bit, which we knew when the Board adopted that goal. We set an interim 2025 target to track our pace, which we assume will accelerate. We’ve lined up enough commercial projects to exceed our 2025 target, and we are falling a bit short on the residential size, especially for affordable housing. What has been BART’s approach to development? Looking into 2020, how does BART plan to determine which of its sites are best poised for redevelopment, and how will it determine what mix of uses are best for each site? BART makes a point of only working with partner jurisdictions that are supportive. When AB 2923 (Editor’s Note: Passed in 2018, AB 2923 gave the BART Board of Directors the authority to build housing on land currently used as BART parking.) was signed by the governor in 2018, we made a point to meet with every affected jurisdiction where BART owns land to ask for their view of development on BART

property. We found that the majority of jurisdictions support the notion of development, and that there is local interest in development in the next five years at 14 stations. We are currently completing a 10-year work plan as part of our AB 2923 implementation process so we can be very clear and up front with cities and developers about the properties we own, our desired mix of uses and affordability levels, our parking replacement needs and our top priority locations. The first draft was released to the public at the beginning of March for comment. Is there a project that BART is currently pursuing that it would like to highlight? Why? El Cerrito Plaza is the next station where we plan to advance transit-oriented development. The project is aligned with the City of El Cerrito’s San Pablo Avenue Specific Plan Update (ongoing), El Cerrito’s

Strategic and Economic Development Action Plans and BART’s own strategic plan and TOD Policy. El Cerrito has long been supportive of sustainable development and is one of the few cities in the region that has met its regional housing requirements. We have a great partnership with the City, and we are excited to see what we can build together. What are some of the challenges that BART has faced pursuing developments that are unique to the organization itself? How does BART work to overcome these challenges? BART’s transit capacity issues are important for us. Fortunately, our core capacity plans will enable us to accommodate more riders. There is some data that suggests

residents near BART tend to ride later. Still, this is why it is important for BART to pursue growing job centers in the East Bay and to encourage employees in those job centers to take BART. This is why many of our recently proposed projects have been mixed-use with a large office component. Second, the tension between alleviating the housing crisis and providing parking for BART customers is ongoing. BART has tried to address this in a balanced way, replacing less parking in areas where people already mostly walk and bike to BART, and replacing more parking in areas where walking, biking and connecting transit aren’t really an option. Our work on this will always be very important and a top priority for our TOD Program.

What is BART looking forward to most in 2020? Why? The extension to Silicon Valley is going to be exciting for BART’s TOD Program. BART has been in discussions with the City of Fremont about the Warm Springs Innovation District for many years, and when the Warm Springs/South Fremont Station is no longer the end of the system, we will be excited to see what opportunities might arise to create a new, vibrant job center at that station once it is connected by BART to San Jose. We are anticipating an exciting shift in the market, and we are looking forward to capitalizing on that opportunity.

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