JULY 18, 2019|ANTHONY EDELSTEINEMAILPRINT Investment Firm Sells Off Office Building in Walnut Creek, California, for $8.3 Million 7-18-2019
Firefighting Supply Company to Move Into Centre Pointe Business Park
Firefighting supply company LN Curtis & Sons has purchased an office building in Walnut Creek, California’s Centre Pointe Business Park.
The building’s previous owner, investment firm Angelo, Gordon & Co., sold the property at 165 Lennon Lane for $8.3 million, or about $203 per square foot. It’s one of six similarly sized buildings at the office park that Angelo, Gordon & Co. purchased last year for a total of $21 million, or $102 per square foot.
The 37-year-old, 40,857-square-foot building at 165 Lennon Lane sits on a 12.36-acre lot and was vacant at the time of sale. The new owners have since moved into the second floor, taking up 20,428 square feet of space.
Eugene McGrane and Drew Hyjer of Cushman & Wakefield represented the seller, while Phil Damaschino of CBRE represented the buyer in the deal.
Exclusive: Per-Unit Price Reflects 55% Markup Over Average Area Sales in the Past Year
A New York City fund shop just paid a whopping half-million dollars per unit for an apartment building in the East Bay region outside San Francisco.
About 30 miles north from the heart of housing-starved Silicon Valley, Artist Walk Apartments’ greatest asset may be its location. Both the Valley and San Francisco are among the tightest housing markets in the country, and renters are increasingly looking to the southern peninsula and the East Bay for apartment homes.
Clarion Partners has agreed to pay $92.2 million for the 185-unit complex at 3888 Artist Walk Common in Fremont, California, according to CoStar data. That’s about $498,000 per apartment. Per-unit prices in the East Bay have been averaging $321,000 a unit in the past year, with only a handful of sales topping the Artist Walk price in the past 12 months.
The complex was just finished last year and has great bells and whistles: 12-foot ceilings, washers and dryers, stainless steel appliances, a swimming pool, yoga studio, barbecue areas and bike storage.
Clarion is also buying the 30,000-square-foot retail section of the property for another $18 million, making the deal worth a total of $110.5 million.
Interest in the East Bay has accelerated during the economic expansion of the past decade, with more national and institutional investors giving the once-run-down market a new look.
For the Record: Cushman & Wakefield’s team led by Seth Siegel and Marc Renard brokered the deal for Blake Griggs, the Danville, California-based apartment development firm.
Development Cap Means Demand From Tech Firms May Spill Into Nearby Oakland
The massive growth of the tech industry in San Francisco is facing its biggest office space hurdle in almost two decades, and that could mean more demand and higher prices for the nearby city of Oakland.
The city of San Francisco has effectively cut off construction on any new office space for the rest of the year, following the city planning commission’s approval of three projects that use all the office space allocation under the city’s limit on the amount of offices that can be built. It’s the first time since 2000 that the allotment has been used up.
The three office projects approved by the San Francisco Planning Commission total almost 2.9 million square feet, taking almost all of the capacity for new offices under the city’s cap, imposed by a decades-old ballot measure known as Proposition M. About 20,000 square feet remain unallocated under the cap, according to Corey Teague, zoning administrator for the city of San Francisco. That space will be rolled over into 2020’s total allocation.
That’s a sudden change of pace for a city that expects more than 4 million square feet of completed development this year, according to CoStar. It could make Oakland, across the San Francisco Bay, the biggest beneficiary of spillover demand from the booming tech industry as expanding companies seek more space.
In San Francisco, the office development annual limitation program dictates that for buildings larger than 25,000 square feet, a total of 875,000 square feet can be developed in a given year. In times when development is slower, unused allocations can be rolled over to the next year. Since the end of the recession, the city has been working its way through a large pool of unused square footage built up from when there were few, if any, requests for development.
This year, that bank of space finally ran dry, and the planning commission granted only about one-third of the office space developers requested, leaving demand for office space development far outpacing supply.
“Office demand in San Francisco continues to be as strong as ever,” Christopher Roeder, international director at brokerage JLL in San Francisco, said in an email. “Companies of all sizes, start ups, Silicon Valley-based or what we call ‘new age SF headquarter companies’ continue to expand, hire, and increase their presence in the city to differentiate themselves from other employers and recruit and retain talent.”
Almost 9 million square feet of new office projects are in various stages of the development planning pipeline, but only about 2.9 million square feet were available for city approval. Developers of those projects not selected can either wait for next year’s allocation, and hope for a better outcome, or try to seek rezoning to develop land they own for another use, though doing so is difficult and rare. In 2020, the allocation will be about 895,000 square feet, including the yearly allowance and 20,000 square feet remaining from this year.
The projects that have been selected are The Flower Mart, a 2.3 million-square-foot project by developer Kilroy Realty, with an initial phase totaling 1.4 million square feet; 88 Bluxome St., a mixed-use building with 775,000 square feet of office space planned by developers Alexandria Real Estate Equities and TMG Partners; and 598 Brannan St., a mixed-use project with 711,136 square feet of office space by developer Tishman Speyer.
All three projects are located in the city’s South of Market neighborhood, where average annual rents top out at about $80 per square foot, according to CoStar data.
In 2015, San Francisco had more than 5 million square feet of construction underway, according to CoStar data. Among those projects are skyline-altering buildings, such as the 61-story, 1.4 million-square-foot Salesforce Tower that opened last year at 415 Mission St. and is mostly occupied by the tech company that shares its name.
The amount of new construction in the city has dropped off this year, which is expected to exacerbate the supply-demand balance that exists in the city as tech companies grow and snap up what new real estate that is developed as soon as its completed, and sometimes even sooner.
Competition for new space has reached such an intensity that social media company Pinterest signed on for one of San Francisco’s largest leases in its history at 88 Bluxome St. before the project was even approved.
The level of demand is illustrated by the fact that vacancies in the city fell even as new developments took root, with the vacancy rate in San Francisco dropping to 5.5% today from 8.3% in the third quarter of 2013 before the building boom began in earnest.
“In total, roughly 76% of the market’s under-construction inventory has been pre-leased, ahead of the US national average and ranking San Francisco among the strongest markets in the country for preleasing,” reads a CoStar Market Analytics report about San Francisco. “Less than 2 million square feet of office space currently under construction throughout the metro is available for lease.”
While the change in development isn’t expected to stop companies from expanding or moving in to the city, or trying to at least, companies seeking ample new space are left only a few options. Some are looking to buy buildings, such as e-cigarette marker Juul, which acquired 123 Mission St. this year, while others may wait until next year in hopes of scooping up newly allocated developments.
“We’re seeing tenants employ a variety of tactics to ensure their ability to grow in the city amid tightening market conditions,” said Roeder.
But now that the allocation is used up, developers may start looking east, further boosting the profile of Oakland, which has already benefited from the slow creep of San Francisco’s real estate activity across the Bay Bridge.
A Train Ride Away
“The outflow based on demand is going to be to the Oakland central business district rather than Silicon Valley, mainly because it’s a 15-minute [Bay Area Rapid Transit] ride and Silicon Valley is harder to get to,” said Jesse Gundersheim, CoStar’s director of market analytics for the San Francisco Bay Area.
Colin Yasukochi, director of western region research at Los Angeles-based commercial real estate firm CBRE, agreed.
“Oakland is the biggest beneficiary of lack of capacity in San Francisco,” he said in an interview. And increasingly companies that are heading to Oakland are tech companies, he said, such as Square, the digital payment company that said in January it would lease a 350,000-square-foot building in downtown Oakland.
And while some may look to Silicon Valley south of San Francisco as an alternative to develop, most of the projects underway there are a result of organic growth from companies and developers who want to be in the smaller cities that make up the nation’s tech capital rather than those that simply can’t find a way into San Francisco, Yasukochi said.
Development in Oakland has been more measured than in San Francisco.
Office building development in the greater East Bay area today is equivalent to about 1.5% of the market’s total existing inventory at about 1.4 million square feet, according to CoStar. About half of that has been preleased. It’s helping developers feel optimistic about building in cities such as Oakland, which only had about 18 downtown properties listing space to accommodate a tenant seeking 20,000 square feet in April.
“The majority of this space under construction speculatively is concentrated in downtown Oakland, where two new skyscraper office buildings are helping redefine the city’s skyline, along with a multitude of multifamily buildings,” reads a CoStar Market Analytics report. “The office buildings under development secured anchor tenants prior to breaking ground, but still contain available space as delivery approaches. Several buildings in Oakland have been completely renovated into creative office spaces, breathing new life into the growing city.”
Real Estate Investment Firm Buys Grand Lake District Property
The Vermont Apartments in the Grand Lake District of Oakland, California, has sold to a real estate investment firm.
Veritas Investment purchased 888 Vermont St. from Estopinal Family Partners for $14 million, or about $365 per square foot, in an all-cash deal.
Built in 1968, the three-story, 38,405-square-foot building is located on nearly half an acre of land. The building comprises a mix of studio, one- and two-bedroom apartments and was 98% leased at the time of sale, according to CoStar data.
The deal was part of a 1031 exchange for Estopinal Family Partners. The other half of the deal was not disclosed.
Timothy Warren, Alex Lin, Randell Silva and Kent Mitchell of NAI Northern California in Oakland represented the buyer and the seller in the Vermont Apartments transaction.
Market Stat: Construction Set to Outpace All Bay Area Neighbors
Oakland, California, is on the verge of a housing renaissance.
Apartment completions in Oakland are now set to outpace rival cities throughout the Bay Area in 2019, and most likely in 2020 and 2021 as well based on the construction pipeline.
It’s another sign that the commercial real estate industry is looking east now amid complaints the San Francisco market has become overcrowded and overpriced.
Nearly 1,800 units have already been completed so far this year in the Oakland metropolitan area, and CoStar research is currently tracking 5,375 apartment units under construction now. That’s more than San Francisco’s 4,373, San Jose’s 3,557, Santa Clara’s 2,398 and Fremont’s 1,424.
And with more than 10 projects in excess of 200 units in Oakland, most downtown, the new properties in the pipeline will redefine the city’s skyline.
The most prevalent developers in the East Bay city include: Holland Partner Group, the Hanover Company, Lennar Corporation and San Francisco-based Carmel Partners.
Development in Oakland reached a cyclical peak in mid-2018, when more than 7,400 units were under construction. More than 1,300 units were completed that year.
Construction levels are expected to fall moving forward, as the current crop of developments reach completion.
Due to rising construction costs, and perhaps cognizant of the vast amount of apartments reaching completion simultaneously, developers have recently shown signs of restraint. Construction starts were rampant in 2017, but fell dramatically in the second half of 2018 and remain subdued in 2019.
Rental rates at the new properties come at a hefty premium compared to older apartments and currently average: $5,099 for three-bedroom, $4,017 for two-bedroom, $3,177 for one-bedroom, and $2,767 for studio units.