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Terry Carroll Bench Mark, pg. 26
Terry Carroll is a six-year member of the Kimball Office team who serves as a market-intelligence manager focused on external market trends, end-user evaluations, competitive intelligence and industry technologies.
JoAnne Dunec Crumbling Edifice, pg. 14 JoAnne Dunec is a shareholder with real estate law firm Miller Starr Regalia in Walnut Creek where she specializes in real property transactions and land-use regulation and development, with a particular emphasis on public-private partnership transactions. Her work with developers and governmental entities includes adaptive reuse of under-performing assets, mixed-use development, military base reuse and rehabilitation and preservation of historic properties. Recent projects include the Mercado del Barrio in San Diego, Contra Costa Centre Transit Village adjacent to the Pleasant Hill BART Station, Bayport Alameda and Cavallo Point–The Lodge at the Golden Gate in Golden Gate National Recreation Area.
Peter Ingersoll Sober Truth, pg. 28 Peter Ingersoll is chief executive of East Bay investment advisory Safe Harbour Equity Inc. and a serial entrepreneur. He has an economics degree from the University of Pennsylvania Wharton School and several advanced degrees from the School of Hard Knocks earned while working in the construction, development, site acquisition, private banking & trust, investment banking, securities and, most recently, the Northern California commercial real estate industries.
Ted Klaassen Row on the Row, pg. 30 Ted Klaassen is senior counsel in the San Francisco office of Holme Roberts & Owen LLP. As a member of the firm’s real estate group, he represents developer, investor, corporate and institutional clients in a broad spectrum of real estate transaction and litigation matters.
Rob La Eace The Spanish Dream, pg. 32 Responding to emergencies as a firefighter in a variety of uncertain situations and diverse neighborhoods taught Rob La Eace a lot about how people should be treated, not only during a crisis, but also every day. Today, these same skills are an asset to those who work with this San Francisco native in his career as a broker associate with Paragon Real Estate Group. The tools he puts to work as a firefighter are what makes the difference to the clients La Eace works with as an agent. While it may help that La Eace is the type of guy with a warm smile and a friendly attitude, his professionalism, organization and drive to succeed are what make him stand out in his career. Working in his sixth year in the industry, La Eace is in touch with his clients’ needs and with the city—putting a local’s perspective to work.
John McNellis Lies, Damn Lies and the IRR, pg. 24 John McNellis is a Palo Alto-based retail developer and investor. Since its inception nearly 30 years ago, McNellis Partners has developed more than 50 projects in Northern California, primarily shopping centers ranging from 30,000 square feet to 200,000 square feet. McNellis serves on the national board of trustees for the Urban Land Institute and is a ULI governor. He is a member of the International Council of Shopping Centers and serves on the Policy Advisory Board for the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley. He also serves on the national board of directors for Outward Bound USA and the board of Rebuilding Together Peninsula, a volunteer partnership to rehabilitate homes and community facilities. He is a former board member of Lambda Alpha International (Golden Gate Chapter), an honorary society for the discussion of land-use and economics. On occasion, he lectures for the ULI, the ICSC and Stanford University’s schools of business and law.
Tim Murray Sharing the Love, pg. 9 Tim Murray manages the San Francisco and Napa offices of Alain Pinel Realtors and is responsible for the day-to-day operations at both locations. He was a member of the Board of Directors of the San Francisco Association of Realtors and serves on the advisory council for the Board of Regents, Bay Area Chapter, of Who’s Who in Luxury Real Estate.
Scott Rogers Row on the Row, pg. 30 Scott Rogers is a partner with Holme Roberts & Owen LLP in San Francisco, where he specializes in real estate finance, equity and lease transactions and real estate litigation for private and institutional investors and governmental agencies. He is a director of the Marin County Bar Association and the former Chair of the Real Property Section of the State Bar of California.
Bill Shiber Crumbling Edifice, pg. 14 Bill Shiber is a shareholder with real estate law firm Miller Starr Regalia in Walnut Creek, representing private and public clients in a variety of landuse, development and redevelopment matters. He is a former co-chair and present adviser to the Executive Committee of the Real Estate Section of the California Bar. He regularly speaks and writes on topics related to his area of practice and does work for community organizations such as the Alameda Development Corp. and Habitat for Humanity.
Lynda Ward Bench Mark, pg. 26 Lynda Ward is market sales manager for Kimball Office in San Francisco. She has more than 25 years’ experience in aligning business development strategies with workplace design and change. Strategies include an integrated approach between organizational practices, work processes, technologies and the physical workplace. Projects ensure employee productivity, increased collaboration and support innovation. Representative companies include Cisco Systems Inc., Hewlett-Packard Co., Kaiser Permanente, KLA-Tencor Corp., Logitech International and the McKesson Corp. n S E P T E M B E R 201 1
Letter from the Publisher Dear Reader, Composing this letter takes some effort on my part, and I generally like to see all the content of the magazine before I start because it helps me to formulate ideas and to set the tone for the stories that follow. I try to make a connection to a contemporary and relevant topic, and our goal has always been to provide timely content to the industry in everything we do—including this letter. I am unsure if my effort is clearly visible in my writing, but I like to think that I have my moments. As I was considering ideas for this month, I wanted to introduce a new and important topic to the “green” discussion, the subject of our feature-story package this month. It hit me when I read the completed version of this month’s Final Offer with Steven Zornetzer, the associate center director for the NASA’s Ames Research Center at Moffett Field, also known as Sustainability Base. Learning about the building’s conception and amazing capabilities made me wonder about manmade structures worldwide that have survived the ages—have proven themselves sustainable in the most literal sense of that word—and the people behind them. I think most of us could agree based on that criteria that the Egyptian pharaohs were amazing real estate developers, and the pyramids eminently sustainable. The pyramids have survived for thousands of years, providing residual benefits to humankind for centuries. Similar observations could be made about Notre Dame, completed in the early 1300s; Peru’s Machu Picchu, believed to have been completed in the 15th century; Roman aqueducts and amphitheaters; and the Great Wall of China, parts of which were begun in the third century B.C. As I survey the landscape today, the question arises: Where have all the pharaohs gone? All joking aside (and not in any way to dismiss the real human suffering that accompanied construction of the pyramids and other massive public works such as the Great Wall), it is worth pondering how many— if any—of the bridges, roads, buildings and other manmade structures that dot the Bay Area today will be here hundreds of years from now, not to mention thousands. Whatever the modern technical definition of “sustainable” architecture, according to the U.S. Green Building Council and other official arbiters, common sense tells us that the ultimate measures are how long something lasts and remains functional. I don’t know if NASA’s Ames Research Center will be here a
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hundred years or a thousand years from now, but to my mind it represents a turning point in the development of commercial buildings and a leap toward injecting sustainability into ever more of our edifices. Not only does it produce enough energy to run itself, it returns power to the electrical grid to run other buildings, and according to Zornetzer, the extra cost should be recovered in operational efficiencies in less than a decade. In the last ten years, the green movement has achieved a stronghold in the Bay Area real estate industry. According to new research from Cassidy Turley BT Commercial, 31.1 million square feet of Bay Area offices and research and development buildings are now certified at some level by the USGBC. That compares to approximately a million square feet in 2006. The current total remains a fraction—6.4 percent—of the 488 million square-foot inventory—but the pace of certification in the last two years has undeniably accelerated. NASA’s new Sustainability Base sets the tone for the next five years and for the rest of the region, country and world. To me it is the most remarkable commercial building in the world. I am not sure if it will maintain that lofty position when Google and Apple complete their new campuses in a few years. Google has instructed Germany’s Ingenhoven Architects International and Gensler to create the greenest building on Earth, surpassing the performance of LEED Platinum. Apple’s Steve Jobs told the Cupertino City Council that its new campus has “a shot” at being “the best office building in the world.” While Jobs did not specifically cite LEED certification in his remarks, he noted the dramatic increase in green space that would accompany the site’s redevelopment, including 6,000 trees and a proposed apricot orchard. I hope that these examples inspire other companies and real estate developers to view their efforts not only through the lens of profitability—though I certainly understand the need for such a measure—but also through the lens of time and posterity. Few private individuals have the command of resources available to them that the pharaohs did. But Steve Jobs, Sergey Brin and Larry Page didn’t start as rock-star entrepreneurs, and progress always requires us to envision and then achieve goals we never thought we could. Best regards, Vladimir Bosanac
Editorial Boards Board members of The Registry serve without expectation of recompense or reward. They advise the magazine’s executive team on matters of relevance to the region’s commercial and residential real estate community. The board’s makeup reflects the wide readership of the magazine including attorneys, architects, interior designers, residential and commercial real estate brokers, investors, lenders, general contractors and subcontractors, engineers and other professionals.
Marc Cunningham President AllWest
Partner, Real Estate Practice Group Leader Wendel, Rosen, Black & Dean LLP
Principal Thompson | Dorfman Partners, LLC
Daniel Huntsman, LEED AP
President & Founding Principal Huntsman Architectural Group
President & Chief Executive Officer The Swig Company
Phil Williams, P.E., LEED AP Vice President Webcor Builders
Partner Luce Forward
Jesshill E. Love III Partner Ropers, Majeski, Kohn & Bentley
Principal TRI Commercial
Principal, President & CEO Pacific Marketing Associates
Jennifer Dizon, CPA Audit & Advisory Partner Hood & Strong, LLP
Norman C. Hulberg, MAI
President Hulberg & Associates, Inc.
Erik W. Doyle
Executive Managing Director Newmark Knight Frank Cornish & Carey Commercial
Regional Manager DPR Construction, Inc.
Geoffrey C. Etnire
Co-Chair, Real Estate Group Hoge, Fenton, Jones & Appel, Inc.
Vice President of Public Policy & Communications San Jose Silicon Valley Chamber of Commerce
Michael W. Field
Director, Commercial Real Estate The Sobrato Organization
Jeffrey A. Weidell
Executive Vice President NorthMarq Capital
Huge Apartment REIT Scours Bay Area for Opportunity Market sources identified three large institutional players as the likely buyers of the 1,815-unit apartment portfolio in East Palo Alto once owned by David Taran’s Page Mill Properties and taken back by the bank. They are real estate investment trust Equity Residential, AREA Property Partners and San Francisco’s Prime Residential. Chicago-based Equity Residential is a large publicly traded owner of multifamily properties. Excluding not quite 5,000 apartments classified as military housing, Equity owned nearly 116,000 apartments at mid-year, mostly concentrated in 15 major U.S. markets including the Bay Area. At June’s end, it had 33 Bay Area properties with nearly 6,200 units. But it is clear why the company wants more. While details were slim, David Neithercut, Equity president and chief executive, told analysts on its second-quarter conference call that it had two projects under contract in the Bay Area, “one of which is a broken condo deal that would require a total lease up, similar to what we’ve done in a couple of properties already this year.” The company also may accelerate the construction start of a San Jose project, executives said, moving it from next year to later in 2011. “Boston and the Bay Area are leading all of the markets right now in base-rent growth with doubledigit growth and no real slowing in sight,” said Frederick Tuomi, executive vice president of property management. The company expects to complete acquisitions of $1.15 billion this year and dispositions of $1.5 billion. That level of acquisition activity would require nearly $600 million of additional acquisitions in the second half of 2011, Neithercut said. “We have $325 million that we’ve identified today, but we will also need to find new deals to hit that goal.” Executives made no mention of the East Palo Alto transaction.
Biotech Incubator Has Rare Vacancy
It’s worth noting that the so-called lien date for re-assessment is Jan. 1 each year. That means all of the expansion that both companies have experienced this year is not reflected in those figures. Facebook has nearly $180 million in business personal property, making it the 11th-largest payer. Cisco Inc. is the largest business personal property taxpayer in Santa Clara County with more than $2 billion in equipment. At the same time, 26 companies among the 40 largest business personal property taxpayers in 2001 do not even appear on this year’s list of the top 40. They include Sun Microsystems Inc., Exodus Communications Inc. and Agilent Technologies Inc., according to the assessor.
Warehouse Fundamentals Improving Industrial real estate, including warehouse and distribution centers, outperformed the national economy in the second quarter, led by California’s Inland Empire, centered around Riverside and San Bernardino. The region was the most active industrial market nationally with 7.5 million square feet of positive net absorption, according to new numbers from brokerage Grubb & Ellis. Northern California has not been left behind, and at least one local market player is looking to cash in on the trend. Bay Area-based Orchard Partners has acquired four West Coast industrial properties with 1.5 million square feet. They include the Huntwood Logistics Center in Hayward, with 323,000 square feet, and the Dowe Industrial Center with not quite 200,000 square feet in Union City. Industry sources put the Union City buy at around $65 a square foot and the Hayward purchase at $70 a foot. Orchard acquired the Hayward property with Morgan Stanley Real Estate Investing and the Union City property with The James Campbell Co.
For the first time in more than a year, the San Jose BioCenter, a life-science and clean technology incubator and accelerator near the Edenvale and Silver Creek districts of the city, has vacancy.
Tyler Higgins, managing partner for Orchard, said his investment philosophy is to focus on West Coast “infill submarkets near ports.” Higgins’ industrialproperty expertise was honed by 16 years at San Francisco-based AMB Property Corp. (now known as Prologis Inc. after the two companies’ merger).
Established in 2004, the 40,000 square-foot facility is premised on the notion that giving early-stage companies access to big company infrastructure and operational support can reduce investment risk and bring products and therapies to market faster.
Jeff Starkovich, a managing partner for Cassidy Turley BT Commercial in Oakland, and Jay Hagglund, a CTBT partner in Oakland, represented Orchard on the Hayward deal.
Lease terms can be as short as 90 days, said Melinda Richter, executive director and chief executive officer of Prescience International, the center’s parent company. “We make it so life-science and cleantech companies can get started for as little as $1,000 a month, and venture capitalists can get to proof of concept for thousands of dollars versus millions,” Richter said. The $15 million research facility has 16,000 square feet of shared-equipment laboratories including more than $5 million in capital equipment and onsite operations and business staff. It handles all purchasing and licensing for occupant companies. It also offers membership access to its laboratories and equipment for companies and scientists not located within the center itself. Richter says she is expanding the concept to Chicago, southeast Wisconsin, San Diego and Seattle after fine-tuning her operation in San Jose. The for-profit Prescience partners with real estate developers, companies and government agencies and is currently exploring a partnership with a real estate investment trust in the health care sector.
Numbers Reflect Silicon Valley Churn New data from the Santa Clara County assessor’s office shines light on how much rising companies like Google Inc., Facebook Inc. and Apple Inc. are investing in their Silicon Valley operations even as stalwarts such as Intel Corp. and Applied Materials Inc. are letting go. It also illustrates how fast Silicon Valley fortunes change. Unlike real estate in California, business personal property—computers, manufacturing equipment, laboratory apparatus and the like—is re-assessed every year for property-tax purposes. That means that its value on the tax roll is supposed to reflect current market worth. The annual reassessment takes into account depreciation, so the aggregate value of business personal property can only rise when companies are re-investing faster than their business equipment is depreciating. Some equipment can lose 75 percent of its value in only a few years, according to the assessor. Google and Apple, neither of which cracked the list of the 40 largest business-property taxpayers a decade ago, now rank as the third- and fourthlargest business property taxpayers in the county. Google’s business property as of Jan. 1 was worth just more than $651 million, and Apple’s was not quite $480 million.
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The warehouse market has taken a turn for the better since the second half of last year after a pretty good pounding in the previous two years. “We had one of our best quarters in quite some time with vacancy down to 9.5 percent from 10.2 percent” in the second quarter, Starkovich said.
Real Capital Analytics: Investment Sales Rise In Second Quarter San Francisco saw a nearly 150 percent increase in sales across all property types during the first half of the year compared to the same period in 2010, hitting not quite $3 billion, according to Real Capital Analytics. Office buildings and apartments led the way followed by hotels then retail properties. Alexandria Real Estate Equities’ sale of 499 Illinois St. in Mission Bay ranked among the 25 largest property sales in the period at $293 million, or $646 a square foot. The East Bay saw a 77 percent rise, hitting $1.8 billion. Apartments and retail properties each accounted for more than $600 million of the total. San Jose was the laggard with $1.3 billion, up only 15 percent from the first half of 2010. More than $480 million in office properties sold; $353 million of industrial properties sold. All three markets were in the top 40 markets nationally measured by the dollar volume of all property sold. Manhattan was the hands-down favorite with nearly $10 billion in property sales. Los Angeles was second with not quite $6 billion. San Francisco ranked fifth, the East Bay 16th and San Jose, 20th. All sales nationwide totaled $55.6 billion in the second quarter, better than the first quarter but just shy of the level hit in the last quarter of 2010.
Real Estate Investment Surges Worldwide Global direct real estate investment reached more than $101 billion in the second quarter, up 47 percent compared to the second quarter of last year, according to new research from Jones Lang LaSalle. “The upswing in activity continues, with exceptional gains in North America, which was late to the recovery, driving that region to the top spot in terms of volumes,” said Arthur de Haast, head of the International Capital Group at Jones Lang. “Looking ahead, debt concerns in some advanced economies and the risk of overheating in some emerging markets will induce caution and careful asset selection.” n
PEOPLE on the move Two Join Sares Regis Commercial Real Estate Division Jeff Holzman (pictured) and Meris Ota have joined Sares Regis Group of Northern California’s commercial real estate division as vice president and project manager, respectively. Holzman’s duties as vice president for the Commercial Division will include site selection, feasibility analysis, underwriting, entitlements, financing, due diligence, contract negotiations and construction oversight. He has more than 12 years of experience in handling complex real estate, finance and banking. Holzman has recently worked in leadership roles in sustainable commercial development and co-founded a private real estate investment fund focused on distressed acquisitions and senior debt. Ota has seven years of structural engineering experience in real estate development. Prior to joining Sares Regis, Ota worked as a project engineer at KPFF Consulting Engineers and assisted clients throughout all project phases. Her project experience includes commercial, retail, health care, educational and institutional buildings.
Broker Adds to Hayward Office Scott Fair has joined Cornish & Carey Commercial Newmark Knight Frank’s Hayward office as a sales associate. Fair specializes in the industrial real estate market along the Interstate 880 corridor in the East Bay. Most recently, Fair was an industrial agent with Townsend Commercial Real Estate in San Francisco where he completed recent transactions for Excel Moving Services, Galant Foods and New Age Pet. Prior to Townsend Commercial Real Estate, Fair was a residential real estate broker with Century 21 in Tahoe.
Architect’s Principal Named Interior Design Fellow Collin Burry, a design principal focused on corporate interiors at San Francisco’s Gensler office, was inducted into the International Interior Design Association’s College of Fellows, the highest honor bestowed to its members. Burry, who provides regional design leadership, has been working on workplace environments for technology, professional service, energy, media and manufacturing companies. He just completed his term as the president for the Northern California chapter of the IIDA. Burry joined Gensler in 1997, and his world-class client roster now includes: Nokia Corp., Apple Inc., Pixar Animation Studios Inc., Chemoil Energy Ltd., Encana Corp., Nike Inc. and San Francisco advertising agency Venables Bell & Partners. He was also the design principal for Gensler’s own corporate headquarters in San Francisco.
Appraiser Joins East Bay Management Company Ron Simmons has joined San Rafael-based Axis Appraisal Management Solutions as its chief appraiser and director of valuation services. Simmons is a certified residential appraiser who operated an appraisal practice for more than a decade. Before becoming an appraiser, he worked for Levi Strauss & Co. among other firms. Axis is a national appraisal-management company.
Shorenstein Hires Former Eastdil Executive Russell M. Cooper has joined San Francisco-based Shorenstein Properties LLC as senior vice president with its Capital Transactions team. Cooper will help to source, evaluate, negotiate and close capital transactions in the Western United States, working with Managing Director Andrew R. Friedman. Shorenstein’s investment funds hold properties in major metro markets such as Silicon Valley, San Francisco, Houston, Los Angeles, Portland and Seattle. He joins Shorenstein from the San Francisco office of real estate investment bank Eastdil Secured where, for the past seven and a half years, he executed 52 transactions in the office sector totaling more than $11 billion. Previously, he was an investment manager with Hines, working with the National Office Partners fund, a joint venture with the California Public Employees’ Retirement System. Shorenstein is currently rounding out investments for its ninth investment fund and earlier this year announced it had completed the $1.232 billion fundraising for ShorensteinRealty Investors Ten, L.P. n
RESIDENTIAL MARKET REPORT
Palo Alto’s median home price has hit a 10-year high. By Janis Mara
hile Silicon Valley companies are showing strong signs of recovery following the worst economic recession since the Great Depression, the rebirth is by no means translating to a universal rise in housing values. Even as prices tick up in towns with thriving high-tech and social-media firms, they are still stagnating or dropping in less-blessed communities with a lower proportion of technology jobs and employees. In Palo Alto—the epicenter of the valley’s tech economy—the median home price in the second quarter hit $1.57 million, a 10-year high, according to research by Steve TenBroeck and Jeff Stricker, brokers for Alain Pinel Realtors. Sellers on average received more than 103 percent of their list price. In tony Los Altos Hills, housing values overall grew 3.8 percent in 2010, according to the Santa Clara County Assessor. In neighboring Los Altos, values climbed 3.6 percent. The trend has continued in 2011. Thirty-seven percent of the homes sold in Los Altos in the first half of the year sold for more than list price compared to 14 percent in the first six months of 2010, according to Stricker and TenBroeck research. The median Los Altos price is up 7 percent to $1.6 million. Meanwhile, higher-priced Los Altos Hills has seen its average time on market drop 13 percent on a year-over-year basis to 103 days. Average prices are up 11 percent to $2.75 million. Both Los Altos and Los Altos Hills are served by elementary, middle and high schools considered some of the best in the state and even the country. Both suburbs also are adjacent to Palo Alto and very near the famed Stanford Research Park. Indeed, Los Altos Hills abuts the former Roche campus that VMware Inc. agreed to occupy this spring. Values also jumped 3.3 percent in 2010 in Mountain View, where Google Inc. and LinkedIn Corp. are headquartered, according to the assessor. On the other hand, Milpitas—often one of the last Silicon Valley commercial property markets to recover after a bust—saw its home values drop 3.5 percent last year and unincorporated areas countywide saw a 4.6 percent drop, the assessor said. In East Palo Alto, which has a dearth of high-tech firms, the median home price in the second quarter was not quite $250,000, down nearly 60 percent from a median of $610,000 in the second quarter of 2006, according to Trulia Inc. “Sunnyvale, Mountain View, Los Altos, Palo Alto and higher-end communities like Cupertino—they are doing so much better than other portions of Santa Clara County because of the technology industry,” said Janis A. Lassner of San Jose-based appraisal company Hulberg & Associates Inc. Lassner is a senior residential appraiser certified by the Appraisal Institute, a Chicago-based professional organization whose members specialize in valuation and market analysis.
From late 2008 through 2010, home sellers had to make price concessions and agree to make upgrades at no cost to buyers to entice people to move. Not anymore. 8 theregistrysf.com
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From late 2008 through 2010, sellers had to make price concessions and agree to make upgrades at no cost to buyers to entice people to move, Lassner said. Now, in the higher-end cities, such inducements are not necessary. “Stocks are going up; there are a lot of IPOs in the works. The techies are making good money, and their salaries are substantial,” the appraiser said. “Some [buyers] are putting 10, 20, 35 percent down.” In surveying some of the new housing subdivisions in the county’s more upscale markets, so many buyers are wellqualified that selling is not as much of a struggle any more. But in East San Jose and South San Jose, where the tech industry is more thin, markets continue to see higher percentages of bank-owned properties and distressed property sales, Lassner said. Santa Clara County Assessor Larry Stone agrees. “East San Jose, Gilroy, Milpitas, Morgan Hill—that’s where the bloodbath is,” he said. Moreover, condominiums and townhome values have been proportionally harder hit because their financing was more often provided by sub-prime loans compared to the single-family housing sector. This divergence in appreciation and depreciation patterns is by no means an anomaly. There is a history of this kind of spotty price movement in Santa Clara County, dating back to at least the dot-com boom. It all depends on economic conditions and the source of buyer financing and optimism, experts say. “In 1999, home values in high-end cities like Palo Alto, Atherton and Woodside were swinging up. There was a lot of IPO money,” said Ethel Green, a Peninsula Realtor with three decades of experience selling in Palo Alto, Los Altos, Los Altos Hills and other nearby communities. Demand from newly rich techies was behind the high-end home price gains, she said. More moderate homes’ prices were rising, too. When the dot-com bust hit in 2001, high-end homes costing in the millions of dollars tanked, taking as much as a 20 percent hit. When the local economy finally started to recover in 2003, home prices on the low end led the recovery. Easy and cheap debt—not initial public stock offerings—drove the market’s swing. Buyers of more modestly priced homes went on a buying spree, but it wasn’t until 2004 that higher-end house prices started to rise, Green said. Still, while the beneficiaries of the recovery—the haves, if you will—are surely relieved to see the market’s about-face, they’re still far outnumbered by the have-nots. Nearly 125,000 Santa Clara properties, most of them homes, are worth less today than their purchase price, according to the assessor. Twenty-seven percent of single-family detached homes in the county are assessed below their purchase price. Nearly half of all condos and townhomes in the county are assessed below their purchase price. For these homeowners, the long-established practice of trading up to a more expensive home with time and income gains may never become reality. Santa Clara County has proved a persistent bellwether for Bay Area property values, assessor Stone said. “I tell my fellow assessors, ‘Just watch what’s happening in Santa Clara because it will get to you sooner or later.’ We start going into the toilet before anyone else and get out of it sooner.” n 500
Median Home Sales Prices in Palo Alto Second Quarter 2002 to Second Quarter 2011 400 $2,000 $1,750 300 $1,500
200 $1,250 $1,000 100 $750 $5000 In 000’s
2007 162 104.5%
2008 124 101.4%
2002 *159 **102.7%
2003 148 97.0%
2004 199 105.3%
2005 162 107.2%
2006 185 102.1%
*Total Sales Q2 **Average Percentage of List Price Received
2009 114 97.7%
2010 123 99.6%
2011 166 103.1%
DATA Source: Alain Pinel Realtors
Housing Haves and Have-Nots
Sharing the Love Pacific Rim and Silicon Valley techies are driving luxury condo sales in the city. By Tim Murray
PHOTO by chad ziemendorf
an Francisco housing prices are stabilizing and starting to go up. According to the S&P/Case-Shiller Home Price Index, which is based on closed sales prices, San Francisco home values overall climbed by 1.8 percent from April to May. That followed a 1.7 percent increase from March to April. This is good news for San Francisco real estate, and the news is even better in the high-rise oasis South of Market. The Millennium Tower, familiarly known as the miracle on Mission Street within the real estate community, highlights a large part of the story. Rich Baumert, a managing director for Millennium Partners, says that in the first six months of this year, the Millennium has sold 60 condominiums totaling more than $78 million in sales. That means the average price was well over $1 million. “We have one penthouse remaining for approximately $10 million, and we are beginning negotiations with a buyer who owns several condominiums in the building,” Baumert said. More than 25 percent of the buyers at the Millennium have come from the Pacific Rim. Many of these buyers are entrepreneurial and want a newly constructed, full-service address with all the amenities. With China’s GDP growing by more than 9 percent a year to more than $10 trillion on a purchasing-power-parity basis, and the relatively inexpensive prices in San Francisco compared to locations like Hong Kong, the young, gifted and rich are flocking to San Francisco from overseas. Another large part of the buyer pool at the Millennium has come from Silicon Valley. The future rise of residential property values at the Millennium and other high-rise condominium buildings may very well be tied to the wealth created by the rise of the Net Generation, those kids of the baby boomers who are also known as the millennials. This is also true on Spear Street, where The Infinity sold its 650-unit inventory in record time over the last few years. A case in point is this recent noteworthy sale: Marsha Williams of Alain Pinel Realtors listed 338 Spear Street, #15H, a stunning two-bedroom condominium with city views, for $999,000. An hour after the property was placed on the multiple listing service, Mark Choey, a senior sales associate and top producer at Climb Real Estate, brought an offer that was accepted by the seller. Much like at the Millennium Tower, “nearly half of the buyers for The Infinity are coming from the Peninsula and Silicon Valley,” said Choey. “We see this trend continuing into the foreseeable future.” In 2009 and 2010, the highest price per square foot at San Francisco’s Four Seasons condominium development on Market Street was $1,800 a square foot. This was post-Lehman Brothers Holdings Inc. and the meltdown of the financial markets. In May, we saw one of the highest-priced condo sales in San Francisco history for $2,170 a square foot. That was $370 or more a square foot higher than any sale at the Four Seasons in the previous two years. Realtor Esty Lawrie at the Four Seasons says, “Our strong sales are driven by the strong brand of our development and lifestyle choices that only our development fulfills in this market.” In most residential neighborhoods on the north side of San Francisco, you will hear seasoned real estate brokers discuss contributing factors to valuation, and the mantra continues to be location, location, location.
Above: The Millennium Tower, San Francisco
More than 25 percent of the buyers at the Millennium have come from the Pacific Rim. In the high-rise land South of Market, however, real estate brokers talk about address, amenities and status. Today, there is a limited supply and increasing demand for these luxury quarters, which in the mind of this real estate veteran leads to only one outcome: more appreciation. n Tim Murray can be reached at 415.923.9700 or TMurray@APR.com.
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COMMERCIAL MARKET REPORT
oogle Inc. has something in common with William Shakespeare: It is the owner of a theater. But what might have ended in tragedy, with the players being kicked out, instead seems on a successful run—at least for now. After the giant Internet company bought the building housing the 40-seat Pear Avenue Theatre in 2008, many feared the popular playhouse would have to find new quarters. But, said Diane Tasca, Pear Avenue founder, “They ended up extending our lease and actually reducing our rent.” The lease expires in December 2013, and Tasca has high hopes that the company will give them another term. We shall see. It may seem hard to believe today, but two years ago, Google—yes, Google— was reducing its employee count. From the end of 2008 until the end of 2009, the company’s worldwide workforce (much of it in Mountain View) shrank by nearly 400 people. That was after nearly doubling from 2005 to 2006 then nearly doubling again by 2008. From the end of 2009, until the beginning of this year, very little seems to have changed in the company’s Bay Area real estate profile, according to public disclosures. The company owned 2.6 million square feet of office space and seven acres near its Mountain View headquarters at the end of last year—exactly what it owned at the end of 2009. It leased another 1.7 million square feet of offices and approximately 56 acres, also in Mountain View, at the end of 2010. That, too, was practically unchanged from the year before. The company is back on its hiring binge. Its quarterly revenue in the spring was a record $9 billion. Head count rose by approximately 2,450 in the second quarter, about the same as in the first, Chief Financial Officer Patrick Pichette told analysts. At the current pace, hiring would far exceed the 6,200 new Googlers predicted by The Associated Press in January. New noses translate to demand for offices and housing, as anyone in real estate knows. The truth of that correlation is being borne out strongly in the neigborhoods and business parks across Mountain View. Downtown office vacancy is nearly zero. Apartment rents are climbing. “I’m happy with the investments we’ve made in people, but we’re probably even a little ahead of where we need to be with head-count growth at the edge of what’s manageable now,” Google Chief Larry Page said. 600
GOOGLE GOES GAGA Since 500the end of 2005, Google Inc. has increased its worldwide head-count by more than 400 percent, according to its public filings with the Securities and Exchange Commission. 400 30,000
200 15,000 10,000 100 5,000
YE 2005 YE 2006 YE 2007 YE 2008 YE 2009 YE 2010
Source: Google Inc.
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31 Mar 2011
30 Jun 2011
Search Party Google is again on an expansion tear, leasing, buying and building new space. By Doug Caldwell and Sharon Simonson
According to Securities and Exchange Commission filings, Bay Area brokers and Mountain View planning staff, the company has leased and bought properties with a total of nearly a million square feet in Mountain View in 2011. Moreover, it is pursuing new development capacity at multiple Mountain View sites, not only on property it is ground leasing from the city and the federal government, but on property it has acquired. Two of the company’s landlords also are seeking building permits for thousands of square feet more. (The search-engine company did buy a 2.9 million square-foot New York office building in 2010, paying not quite $1.8 billion. It was the largest singleasset sale that year worldwide, according to Real Capital Analytics. Google also has offices in nearly two dozen other U.S. cities including Palo Alto, San Bruno and San Francisco, plus 55 international offices. But it discloses nothing about their size in the SEC filings.) This spring, the company bought eight buildings at 1200 to 1390 Villa St. in Mountain View with about 170,000 square feet. It paid $74 million, according to Jones Lang LaSalle. Google is now asking the city for permission to develop the same amount of square footage again on 12 acres at the same location, according to a city planner. The request involves a near doubling of the allowable density. Google also leased not quite 450,000 square feet from Keenan Lovewell Ventures at The Quad, a multi-building Class A complex west of U.S. 101. The Quad has an onsite data center, fitness center, basketball court and dining facilities within walking distance of light rail. Keenan Lovewell is now seeking to build another two buildings with 181,000 square feet. The request is expected to go to the Mountain View council this fall, the project planner said. The company also has leased 136,000 square feet at 313-323 Fairchild Drive, and not quite 125,000 square feet at 2011 Stierlin Court and 2021 Stierlin Court. The Stierlin properties are owned by HCP Inc., a real estate investment trust. HCP in May gained city approvals to build another 70,000 square feet on a site at the same campus, a city planner said. Google also has occupied 1674 Shoreline and 1808 Shoreline with roughly 35,000 square feet and is expected to fill the property left behind when Siemens Inc. leaves the Shoreline district to occupy property on East Middlefield Road, also in Mountain View. “They are just going nuts. It’s pretty amazing,” said a senior vice president for a major brokerage house who specializes in Mountain View. “In Shoreline Park, where Google is based, the vacancy rate is under 3 percent, and it has been for well over a year.” No broker interviewed for this story agreed to be identified. Google has issued stern warnings to all about speaking to the press regarding its business. Google began its love affair with Mountain View in earnest in 2006 when it bought 1600 Amphitheatre Parkway (its headquarters address) and 1200-1500 Crittenden Lane for $319 million. Together they total not quite a million square feet, according to SEC filings.
“I’m happy with the investments we’ve made in people, but we’re probably even a little ahead of where we need to be with head-count growth at the edge of what’s manageable now.” Google Chief Executive Larry Page
In 2008, Google and NASA announced an agreement that would allow the search-engine company to develop 1.2 million square feet of R&D and office space on the NASA Ames Research Center, just north of its current campus. The site is close enough to Google headquarters that the Internet company is considering building an elevated walkway to connect the locations. Now, it has signed a 53-year ground lease with the city of Mountain View for a 9.4-acre parcel at Shoreline Boulevard and Charleston Road. (Google wrote a check for $30 million to pay the lease up front.) In 2007, Google leased the other half of the total 18-acre square site, agreeing to pay $1.1 million a year for 55 years, with four renewal options. The earlier lease will become co-terminus with the newer one upon the first renewal, said Ellis Berns, economic development manager for the city of Mountain View. The 18 acres are separated from the company’s main campus only by a park, and the company is expected to construct its new headquarters on the property, where it is permitted to build up to 595,000 square feet. It has hired Germany’s Ingenhoven Architects International as well as Gensler architects, and engineering and sustainability firm Glumac to design it. The project is to surpass LEED Platinum sustainability standards and to house as many as 3,000 workers, according to Ingenhoven. In the competition among architects for the commission, Google’s direction was simple, Ingenhoven said: “It should be the best and greenest building in the world.” (Apple Inc.’s Steve Jobs told the Cupertino City Council in June that he also expected to build the best office building in the world, so we will have to see who wins.) Google declines to comment on specifics about its expansion, but a spokesman said it would soon file its plans for the headquarters with the city of Mountain View. A city planner said in late July that nothing had yet arrived. Google’s expansion is impacting the entire community. Michael Pierce, president of Prodesse Property Group, a property management and multifamily investor, told a gathering at the Peninsula Investment Forum in late July that the Mountain View apartment market “is like 2000 all over again.” He attributed demand to the roaring success of companies such as Google and Facebook. Pierce bought the 24-unit, all-studio complex at 630 Taylor Court in Mountain View a year ago for $101,333 a door; the cap rate was 5.0 percent, he said. It was the company’s second Mountain View purchase. It owns 105 units in four Bay Area complexes. But medical equipment maker NeuroPace Inc., at 1201 Charleston Road in Mountain View, will be leaving its current digs in October 2012, after it could not work a deal with Google, which owns the building. “We’re kind of like in the middle of ‘Googletown,’” said Rebecca Kuhn, chief financial officer of NeuroPace. The company is currently negotiating a lease on a new location elsewhere but still in Mountain View. “We were hoping to stay here, but Google had other ideas,” she said. “So we have to move.” n
HOT LOT | SAN FRANCISCO
San Francisco Film Society Takes One A Japantown theater is the new home for the film society. By Sasha Vasilyuk
Below: Steven Jenkins, acting executive director of the San Francisco Film Society
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he San Francisco Film Society, which for years rented theater venues around town for its festivals and screenings, has found what it hopes will be a permanent home in Japantown. Beginning this month, the film society is settling into the sleek, fourstory building at 1746 Post St., which houses one of the most modern and technically advanced theaters in the city. The move will bring daily showings to the 143-seat theater, which features top-of-theline analog and digital equipment, perfect sight lines and immersive THX-certified surround sound. It also means a potential increase of thousands of annual visitors to Japantown, a three-square-block area one mile west of Union Square that, despite its numerous shops, eateries, entertainment and parking for an impressive 920 cars, has been mostly a nighttime and weekend destination that stays quiet during the day. “SFFS, despite being in existence and succeeding for 54 years, has never had a theater of its own. We’ve been itinerant and long had a goal of securing our own space,” said acting Executive Director Steven Jenkins. “We rented the theater as one of the venues for the International Film Festival and had nothing but positive feedback from our audience, so it occurred to us that this could be the home we were looking for.” The year-round programming will be a first for the film society, which organizes seven festivals in the fall and the annual International Film Festival in the spring, in addition to individual screenings and teaching programs. Besides Japanese cinema, the society features independent, international and documentary films. The daily shows also are expected to provide a needed economic boost to the New People Inc. complex, which houses a café and several stores in addition to the theater. Built in 2009 as a center for Japanese pop culture, New People was never able to fill the theater on its own, so it became a venue for occasional screenings. Seiji Horibuchi, founder and chief executive for New People, which is a Japanese film distributor in addition to selling art, fashion and retail brands from Japan, said that renting the theater often required complicated arrangements, like catering and additional staff, but did not provide a huge boost for the neighborhood.
“We’re going to see how it goes the first year. If everything goes well, they’ll have it for a long time.” Seiji Horibuchi, founder and chief executive, New People Inc.
San Francisco’s Japantown was the first Japanese-American community in the United States and is one of only three in California to remain; the others are in San Jose and Los Angeles, according to California Japantowns. The first Japanese immigrants arrived in San Francisco in the early 1860s. Following the 1906 earthquake and fire, many resettled from areas south of Market Street and elsewhere in the city to the current location. Today, not quite 5,000 Japanese citizens live in San Francisco and not quite 40,000 Japanese citizens live in Northern and Central California and Nevada, according to the Consulate General of Japan in San Francisco. Those counts do not include residents of Japanese descent who are American citizens, a consulate spokeswoman said. Tak Matsuba, who owns the trendy Japanese-French fusion restaurant Bushi-tei down the block from the Post Street building, said he hopes the film society is successful in drawing more visitors to the area. “As much as we had hoped the New People building would bring a lot of people, it has not had the kind of impact we anticipated,” he said. “It does take a little more than one fabulous, modern building sitting in the middle of a block.” The film society’s programming currently attracts 130,000 people a year, the bulk of them drawn by the International Film Festival. The society estimates the daily programming at the new Post Street location will increase its visitor count by 18,000 people in the first year alone. The society plans to continue holding its larger events in bigger theaters, including the nearby Sundance Kabuki Cinema at 1881 Post St. “Sundance Cinemas is thrilled that the San Francisco Film Society has found a permanent home to exhibit their finely curated programming at the New People theatre,” said Nancy Klasky Gribler, an executive at the Sundance Cinemas. “We’re now not just friends and partners, but neighbors, too.” The film society’s Jenkins said there is room for two successful theaters on the block. “The nature of our programming is quite distinct. We won’t be booking Hollywood blockbusters, which is the core of their programming at Kabuki,” he said. “I think success in one begets success in all, as it means people are going out and seeing films more. We hope to draw more traffic to the building and that area in general by us having more of a presence there.” The New People building itself and its other tenants are attractions, too, Jenkins said. The building has no theater marquis outside, but “it has a very modern feel to it that we feel a kinship to,” he said. “The café in the building has tasty snacks and full meals—it’s not a popcorn stand—and we like the fact that these things set the theater apart from the rest.” Previous to signing this lease, the film society considered opening a complex in the proposed Fisher Art Museum in San Francisco’s Presidio (the complex never materialized) and then attempted to buy the single-screen Clay Theater on Fillmore Street, but the negotiations failed. The society’s lease with New People is only for one year, though it has renewal provisions. “We both want to make sure that every operation works smoothly,” said New People’s Horibuchi. “We’re going to see how it goes the first year. If everything goes well, they’ll have it for a long time.” With the area’s plentiful parking, many hope more visitors will mean increased business activity. “Any new business in Japantown promotes cultural well-being around here, which will invite visitors and hometown people into the neighborhood,” said Colette Chooey, manager at the nearby Kabuki Springs & Spa. “I really think it’s great for the neighborhood and the businesses.” n
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Crumbling Edifice California redevelopment agencies face an uncertain future. By JoAnne Dunec and Bill Shiber
ue to new legislation enacted in conjunction with California’s 2010-2011 budget, the state’s 400 redevelopment agencies are faced with a difficult choice: either operating by agreeing to make substantial annual financial contributions to local school and special districts, or going out of business before the end of the year. The legislation affects both existing and future real estate transactions involving redevelopment agencies. As of June 29, the continuing activities of all California RDAs were severely restricted. Agencies cannot issue new bonds, incur new debt, enter into new agreements, amend existing agreements, adopt or amend redevelopment plans, acquire or convey property or commence eminentdomain proceedings. The laws, ABX1 26 and ABX1 27, are trailer bills passed by the California Senate and Assembly and intended to help implement the state budget bill by reallocating tax revenue that would otherwise go to redevelopment. The legislature estimates that redevelopment agencies will divert about $5 billion in property tax revenue from other taxing entities in the 2011-2012 fiscal year and wants to retain some of that revenue to fund education and other local government. In short, ABX1 26 dissolves current redevelopment agencies as of Oct. 1, but ABX1 27 provides a mechanism for them to reinstate operations if the local jurisdiction adopts an ordinance requiring the jurisdiction to make specified payments for education and other local government. Redevelopment agencies view the required payments as a strong-arm attempt to contribute redevelopment revenue to fund other government agencies. Unless and until a local jurisdiction adopts an ordinance pursuant to ABX1 27, referred to as a “continuation ordinance,” there is a great deal of doubt as to the legality and enforceability of real estate transactions involving redevelopment agencies. While ABX1 26 permits RDAs to make payments due, enforce existing covenants and obligations, and otherwise perform “enforceable obligations” existing before June 29, it is far from
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clear what this means for real estate transactions, especially those involving ongoing or phased-development activities. Importantly from a real estate perspective “enforceable obligations” include typical redevelopment agreements, such as exclusive negotiation agreements, owner participation agreements and disposition and development agreements. Redevelopment agencies have 60 days from June 29 to prepare a list of enforceable obligations. But the determination of what that constitutes may not be easy. If, for example, the sole purpose of an existing ENA is to negotiate in good faith to achieve a mutually satisfactory DDA, the redevelopment agency has no authority to execute the DDA because it would be a new agreement. Thus, while the ENA is an “enforceable obligation” its reason for being—that is, negotiation and execution of a future DDA—is not achievable. Other difficulties will likely arise. OPAs and DDAs that were executed years ago and intended to implement long-term phased development can no longer be amended to address changing market conditions or subsequent phases of development. Arguably, absent a need for modification, existing DDAs that contractually obligate a redevelopment agency to convey land to a private developer, for example, would be enforceable. Other development obstacles may occur. For example, a redevelopment agency may have entered into a design contract with an architectural firm with the intention that the next step would be to enter into a construction contract with a general contractor to build the project. Absent any existing agreement that obligates the agency to enter into the construction contract, the new legislation prohibits the agency from entering into the agreement because it would be new. Similarly, redevelopment agencies have the power of eminent domain to eliminate blight and accomplish redevelopment. The recent legislation withdraws all such powers unless the continuation ordinance is adopted. If a redevelopment agency is involved in a project in which eminent domain were contemplated, that tool is now taken away, potentially jeop-
Redevelopment agencies view the required payments as a strong-arm attempt to contribute redevelopment revenue to fund other government agencies. ardizing the ability to proceed with the redevelopment or complete it in a coherent manner. If a redevelopment agency does not elect to opt in by adopting a continuation ordinance and making the requisite payments, it will be eliminated as of Oct.1 and a successor agency will take over and wind down the agency’s affairs. Presumably, such successor agencies would have the requisite power and authority to implement existing “enforceable obligations,” such as DDAs and OPAs. But the legislation is unclear. Even if a local jurisdiction adopts a continuation ordinance, the future remains tenuous. Should a jurisdiction fail to make a required annual payment, for instance, the redevelopment agency would presumably again be subject to ABX1 26 and eliminated. The payments are substantial and local jurisdictions are evaluating their financial capacity as part of their determination whether to opt in by adopting a continuation ordinance. The California Redevelopment Association, the California League of Cities and the cities of San Jose and Union City have filed a lawsuit in the state’s Supreme Court seeking to overturn the legislation. They allege that it improperly diverts funds from redevelopment agencies to other government entities and functions. Redevelopment agencies with ongoing capital improvement projects or that are in the midst of negotiating new agreements or modifications to existing agreements with private developers may not be able to delay their decision to opt in. This fiscal year, RDAs are expected to pay $1.7 billion; $400 million would be due annually thereafter, according to the lawsuit. San Jose’s RDA, already under extreme financial duress, estimates it will have to pay as much as $53 million in the first fiscal year and up to $13 million a year thereafter. “Dissolving RDAs unilaterally and suddenly will stop many important, half completed redevelopment projects dead in their tracks and expose cities and counties to legal liability for the obligations of their now dissolved RDAs,” the petition says. The best option may be to adopt the continuation ordinance for now, until there is greater clarity as to the ultimate status of this legislation. Presumably, the ordinance could be rescinded, and the position taken that activities undertaken in the interim were valid because the ordinance was in effect at that time. These complex and ambiguous bills significantly affect past, present and future real estate transactions with redevelopment agencies. It is critical that anyone who is dealing with an agency understand and prepare for the impact while we all wait to see what the court decides. n JoAnne Dunec can be reached at 925-941-3250 or Joanne.firstname.lastname@example.org. Bill Shiber can be reached at 925-935-9400 or Basil.Shiber@msrlegal.com.
What’s a Wozab? Regardless of the outcome of a scheduled Aug. 17 for closure sale, the developer intends to press forward with his claim that the bank has behaved illegally. By Sharon Simonson
Pau’s attorneys are now on a mission to force Wells Fargo & Co. to swallow close to $190 million in financial losses and to lose its claim to the Sunnyvale Town Center to boot. 22 theregistrysf.com
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and Hill Property Co.’s Peter Pau could be forgiven for gloating— though he is definitely not the gloating type. In a stunner of a court victory, the Menlo Park developer and native of Shanghai in June improbably beat back an attempt by Wells Fargo & Co.—a bank with $1.3 trillion in assets—to sell the Sunnyvale Town Center against Pau’s will. But the surprises do not stop there. Pau’s attorneys—Ron Rossi of San Jose’s Rossi, Hamerslough, Reischl and Chuck, and Charles Hansen of Oakland’s Wendel, Rosen, Black & Dean—are now on a mission to force Wells to swallow close to $190 million in financial losses and to lose its claim to the Town Center to boot. It all has to do with what some might call an arcane segment of California’s Code of Civil Procedure and what real estate lawyers call a Wozab warning. The label and statutory interpretation are based on a 1990 state Supreme Court ruling involving business borrowers Anton and Dorothea Wozab. The law and the ruling define how banks and other creditors must go about trying to recover their loses when a debt has been secured by real estate and the borrower has defaulted. Under the California code, a bank that accepts a deed of trust to secure a loan must look first to the real property to try to recover its losses in the event of the borrower’s default. This provision is called “security first.” The bank can foreclose through a court and seek a deficiency judgment for any sum owed above the property’s worth. Or it can go straight to a trustee sale, accepting as final payment whatever sum it can raise through the property’s disposition. What a bank cannot do when a debt is secured by real estate is pursue foreclosure on the property while also going after the borrower’s assets that were never declared as security for the loan. Doing so violates the state’s so-called “one-form-of-action” rule. The principle, according to the Wozab opinion, is that banks should not be allowed to use their power to grind borrowers by hitting them on multiple fronts at once. But here is where the law gets interesting. If a bank accepts a deed of trust as security for its loan, but in the event of default turns to the borrower’s other assets, it may lose both its right to the real estate and its right to be repaid the balance of the loan. In the Wozab case, the couple’s business owed a bank more than $1 million. When the bank became alarmed about the company’s finances, the couple pledged their home as collateral. The bank’s concern escalated, and it seized more than $110,000 from their business and personal bank accounts. The California Supreme Court held that despite the vast disparity between what was owed and what was in the accounts, the bank lost its right to go after their home when it went after the money in the accounts. Further, though the facts of the Wozab case took the court majority in a different direction, a dissent makes clear that a creditor that violates the security-first rule can also lose its right to collect the balance of the debt. That, the dissent said, is “the classic sanction” under California law. The majority of the court held that this could happen only if the bank ignored
a warning. Either way, the purpose is to keep creditors from violating the security-first and one-form-of-action rules. In the Sunnyvale Town Center case, Wachovia Bank and Bank of America lent $108.8 million to a corporation in which RREEF LLC and Pau were co-owners. When RREEF stopped servicing the debt in 2009, the bank filed a notice of default and secured a court-appointed receiver to oversee the Town Center. The bank and the receiver ultimately moved to sell the Town Center, but the bank never sought to foreclose through the courts or to sell the property at a trustee sale. Rossi told Wells in a May 16 letter that he labeled a Wozab warning that the bank was violating California law by seeking to sell the property without foreclosing first. Rossi told the bank that it was at risk of losing not only its right to have the Town Center but also its right to have the debt repaid. At a June 6 hearing, the bank continued to push the receiver’s sale but was overruled by Santa Clara County Superior Court Judge Peter Kirwan at Hansen’s and Rossi’s urging. “Lenders around the state have been running these receiver’s sales, and I have been saying and writing that you can’t do them under California law,” Hansen said after the hearing. “I got calls from a lot of bank lawyers when the [Kirwan ruling] was published, and it was striking to me how shocked they were. They said, ‘We need these receivers sales,’ and I said to them, ‘The law is the law.’” Hansen is co-author of a primary guide for attorneys, California Mortgage, Deed of Trust and Foreclosure Practice. He has studied and taught the law in question for more than two decades at the University of California, Berkeley Boalt Hall School of Law. The bank’s continued intransigence may in the end prove to be fatal, despite the bank’s decision to take the Town Center to foreclosure sale on Aug. 17. In a separate but related action, Pau also is challenging the bank’s contention that it is legally owed the full amount it now claims, $187.5 million. When the receiver took control of the Town Center in October 2009, the development was mid-way through construction. Wachovia, by now a part of Wells Fargo, plowed another nearly $80 million into the center. The bank said it needed to stabilize the property to prevent a loss in value and for public-safety purposes. But Pau’s attorneys say that it is unclear how much of that spending was related to stabilizing the center as opposed to preparing it for receiver’s sale. Given that the court has now ruled that the receiver is not legally allowed to sell the property, it is improper that sums spent to prepare the center for sale be added to the cost of paying the debt and freeing the center of the mortgage lien, they say. In a July 21 letter to the bank’s attorney, Katherine Ritchey of Jones Day in San Francisco, Rossi said, “The liens that have been filed recently are highly suspect.” From April 18 through June 16, approximately $40 million of additional liens were recorded against the property, Rossi noted. On July 28, Rossi successfully persuaded Judge Kirwan to allow him to depose receiver Jerry Hunt before the foreclosure auction to determine how much of the $80 million was related to stabilization and how much to preparation for the receiver’s improper sale. In his letter to Ritchey, Rossi reminded her that Pau planned to continue his suit regardless of the auction’s outcome. He also underlined the threat that the bank stood to lose everything. “Your continued violation of [California law] despite two warnings clearly announce the bank’s chosen tactic to make it as expensive and frustrating as possible for our clients,” Rossi wrote. Through a spokeswoman, Wells and its attorneys declined comment for this story. n
Lies, Damn Lies and the IRR Caveat emptor. By John McNellis
A buyer would have more fun— and get just as reliable information— consulting a fortune teller.
utright fraud in sales packages is about as rare as total amnesia. However negligently prepared offerings may be, they seldom contain jawdropping lies. If one says a property’s current gross income is $1 million, it usually is. And simple offerings—say a flyer pasted together by a residential broker selling a gas station— are seldom far off track. Why? Purported facts about the present are subject to verification, painful lawsuits spawn in the waters of outright deception, and the shallow-end players are careful. So, too, are the sophisticates swimming in real estate’s deep end, but they can achieve depths smaller fish can only dream of. Through the magic of the internal rate of return, the big sharks can claim to be able to foretell the future. And while facts about the present are subject to door-pounding process servers, gilt-edged projections about the future are not. An IRR calculation is simple in theory: One takes the projected annual cash flow an investor hopes to receive from a property for a given holding period—usually 10 years—and adds to that the property’s estimated sale value in the 10th year, and then uses the combined sum to calculate the total return on investment (or IRR) over that 10-year period. So, if a property pays 5 percent in annual cash flow over 10 years and then sells at the end of that 10th year for twice what the investor originally paid, the IRR would be not quite 11 percent. This plays a lot better in a prospectus than a measly 5 percent return. It’s worth pointing out that if one assumes that rents and expenses remain constant during the 10-year period (this assumption will often prove wildly optimistic) and that the selling cap rate 10 years out will be the same as the buying cap rate today (more optimism), the IRR will be identical to the cap rate paid today; i.e. if you bought it at a 6 cap and received a 6 percent yield for the 10 years you owned it, then sold it for exactly what you paid for it, your IRR would be 6 percent, the same as your initial cap rate. The breathtaking fallacy behind every IRR analysis ever prepared is obvious: It assumes one can predict highly complex and interrelated financial conditions—interest rates, capitalization rates, tenant demand, new competition, population growth, personal income shifts, etc.—10 years hence. A mere handful of people predicted the crash of 2008-9, and they did so only a year or two in advance. Two
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years ago, absolutely no one predicted that apartment prices would be soaring in 2011 or that A-quality commercialbuilding prices would equal their all-time highs. Predicting how real estate will price in 10 years is, simply put, impossible. It’s akin to accurately predicting rainfall totals in 2021. But, that they’d have as much luck picking the 2021 Super Bowl winner as in nailing long-range prices deters almost no one in real estate’s upper echelons. Glossy highend sales brochures and investment committee reports routinely contain impressive-looking Argus spreadsheets that magically produce the IRR the buyer or investment committee desires. The magic is easier than voodoo—you just keep raising the anticipated 10th-year sales price until the desired IRR is hit. Who is going to be around in 10 years to tell the analyst he or she was wrong? Commissions and careers will be made and remade and bonuses paid many times over before the truth will out. A buyer would have more fun—and get just as reliable information—consulting a fortune teller. Alternate interpretations of the IRR acronym such as “inflated rate of return” or “I rationalize risk” should come to the mind of anyone confronted with reams of spreadsheets predicting rising rents, falling expenses, zero vacancy factors and impressively low cap rates. That the old-school return on investment, or ROI, calculation is a much more precise measurement of financial performance means it’s of no value to large swaths of the real estate community. Its accuracy renders it too dismal a tool to be helpful to anyone selling the sizzle. A proper ROI calculation ignores cap rates and interest rates (by assuming a property is held free and clear, it deprives one of the funhouse-mirror distortions created by leverage) and looks only at what a property’s net operating income will be upon construction completion and full lease-up. If one has a fair bit of pre-leasing and a construction contract in hand when solving for ROI, this calculation can be quite accurate. For those selling the future as a far rosier place than today, this is devastating. We all have our self-delusions. However, having them about numbers and the future values of our acquisitions is much more expensive than thinking we can actually carry a tune or that anyone really likes our whistling. n
Bench Mark Cost and competition for workers and revenue are pushing companies of all stripes to consider benching. By Lynda Ward and Terry Carroll
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easy access to power, data and work tools. Users may sit face-to-face or side-by-side with minimal visual barriers. A benching arrangement may be comprised of one long work surface or individual surfaces ganged together that are height-adjustable or fixed height. They are flexible, easy to reconfigure, can have a clean simple appearance and support mobile workers. An alternative form of benching uses a low cubicle panel as a spine-wall to carry power and data. Work surfaces are hung from the panel, or tables may be inserted in and around the panel. Increased cost pressures and the need for more collaborative work environments are two primary factors driving benching. Secondary factors include flexibility, sustainability, mobility, ease of reconfiguration, simplicity and employee retention. Benching has proven to be a sustainable solution for many organizations. It allows daylight to easily filter through the workspace, accommodates more people within a smaller footprint and requires fewer materials. But little research is available to evaluate how—and if—these attributes support employee retention and improved worker performance. Based on our survey, key worker concerns include physical stability, the delivery of power and technology and privacy. Work surface stability is critical. If the unit shakes, it’s over. Many Bay Area workers have more than one monitor on their desks; two to four is not unusual. Support requirements vary based on industry, whether software, entertainment, retail or a wireless communications company. It isn’t unusual for workers to use both a Mac and a PC on any given day as well as two wireless telephones and other personal devices that require recharging. Frequent requirements include two to four monitors, two to four electrical receptacles at the work surface, two receptacles below and three data ports at the work-surface level.
P hotos C ourtes y of K i mball O ff i c e
or as much as has been said about the rise of the open-plan office with its dearth of partitions and emphasis on worker collaboration, its adoption remains in the early stages, even in progressive and experimental Northern California. In a new survey of 38 Bay Area architectural design firms, technology companies and retailers, Kimball Office has found that many employers still allocate as much as 20 percent of their workplace to private offices and spaces. This is particularly surprising in view of the fact that many technology firms are speeding ahead with open plans. Still, there is every indication that we are at the beginning of a workplace revolution, led by companies’ desire to squeeze ever more utility from their real estate and ever more productivity and profit from employees. As a part of its new global standard, mobile-headset maker Nokia Inc.’s goal is 100 percent shared space (no private offices), a standard it has adopted for its new Sunnyvale digs. San Jose’s eBay Inc. and Sunnyvale’s NetApp Inc. are also on board, seeking ways to balance open office with shared and mixed-use spaces. Safeway Inc., retailer Blackhawk and SCAN Health Plan are developing measures to evaluate the effectiveness of nontraditional work environments. Yet, as the survey revealed, companies are still struggling to understand the basics, such as how many square feet it takes for each person to be successful, what kind of office design and furniture best promotes employee performance effectiveness and efficiency. Which comes first, decreasing costs and optimizing space or effective work environments that support work processes? At the core of companies’ goals is finding how best to promote innovation and improved performance, all with an eye on speed to market. Perhaps the most obvious symbol of the workplace change is the rise of benching. Still in the early phases of development and adoption, it is a solution that has expanded beyond technology companies and is taking shape in the entertainment, marketing, retail, venture-capital and higher-education worlds. The Bay Area tends to be further along in the benching life cycle and is approaching the early stages of maturity. The Business and Institutional Furniture Manufacturer’s Association predicts a more than 20 percent increase in dollars spent on benching products from 2010 through 2012. Every major office-furniture manufacturer has introduced a benching solution. Indeed, Kimball Office undertook this survey, which involved a formal questionnaire as well as in-person meetings and focus groups, to better understand how workers felt about benching, where it is failing them and how better product design can address their concerns. Benching is commonly defined as work surfaces that run parallel to one another with a central technology infrastructure that provides
There is every indication that we are at the beginning of a workplace revolution.
Probably one of the most common fears among companies considering an open plan is the loss of privacy, both acoustical and physical. But the overwhelming feedback from research participants is that as panels come down, so does the noise level. High panels and even private offices offer only an illusion of acoustical privacy. Moreover, providing a range of work settings often addresses this issue. On the physical front, although many people wear pants in the workplace, workers still want modesty panels under their work surface and along the trough; it serves as boundary control and offers a perception of stability. Benching in an open plan also begs the question of how to create neighborhoods and obvious circulation patterns. Although benching and open plans may seem new, the basic elements have been integrated into office planning for more than a century. Frank Lloyd Wrightâ€™s most notable first workplace effort in 1904 was at the Larkin Administration Building in Buffalo, N.Y., in which managers and clerks worked together in a single large space. In the 1950s, management consultants developed a radical office concept that included furniture scattered in large, structurally undivided spaces. The
goal was to create a non-hierarchal environment to increase communication and flexibility. But workers felt the arrangement was chaotic. The office landscape has retained one constant dilemma since the early 20th centuryâ€”the balance between the direct cost of ownership (the cost of technology, furniture, facility management) and the value attributed to employee performance. It is generally accepted that the cost to recruit, train and integrate an employee is about $150,000. With recruitment wars raging in the Bay Area, the tension between balancing the indirect costs of attracting and retaining new employees with the direct costs of the workplace is greater than ever. No one is predicting the extinction of panel systems, but the high panels of the 1970s and 1980s are quickly being replaced. Today, so many projects are cost-driven that if designers and manufacturers can provide effective solutions, benching will continue to replace panels. n Lynda Ward can be reached at 415.613.2735 or Lynda.Ward@Kimball.com. Terry Carroll can be reached at 800-482-1818 or Terry.Carroll@Kimball.com.
S E P T E M B E R 201 1
Sober Truth The Bay Area and select other America metros are recovering, but that doesn’t translate to wider prosperity. By Peter Ingersoll
wake every morning and thank my lucky stars that I live in the Bay Area, one of the few bright spots in an otherwise gloomy national economy. Never mind that we are also struggling with more than 9 percent unemployment, we are creating jobs and freshly-minted millionaires, some of whom have even begun to shave. But is our recovery a false dawn? Beneath the shiny exterior of the Bay Area’s economic surge is a soft and fermenting core. Because misery loves company it’s only fair that I share my findings with you, so we can commiserate with a virtual bartender and forge a bond of commonality— a convergence of reluctant awareness. How bad is the job market? Would you believe that in a poll conducted by Newsweek, some Americans were willing to work for 25 cents an hour? That’s right–twenty five cents! In a survey conducted by Mechanical Turk on behalf of Newsweek, American freelancers were willing to accept the lowest pay in the world. Lower than the Philippines, Romania and Egypt; lower than Australia, Canada and India. What are other economic indicators telling us? Here are some recent markers that may make you want to start your cocktail hour early. Cheers! From your buddy, Peter. In June, a mere 18,000 jobs were created. On a base of 131 million jobs, this is the equivalent of zero and the second month in a row where job creation was naught. The Bureau of Labor Statistics’ broadest measure of unemployment tracks discouraged workers and underemployed workers (part-time and/or underpaid based on education) at 16 percent. The first sip is the best! According to San Francisco-based American Business Analytics, including an estimate of longterm discouraged workers in the calculation puts the real unemployment rate north of 22 percent. The second sip isn’t bad either! The average time being unemployed has skyrocketed to 40 months, double the average of the last three recessions, and it shows no signs of decreasing. These same unemployed workers will have their unemployment benefits expire between now and the end of the year. Expect foreclosures and bankruptcies to continue to climb. A toast to the legal system! According to Moody’s Analytics as reported by The New York Times, close to $2 of every $10 that went into Americans’ wallets last year were pay-
S E P T E M B E R 201 1
ments like jobless benefits, food stamps, Social Security and disability. Mark Zandi, the chief economist for Moody’s Analytics, notes, “Unemployment benefits, including emergency and extended benefits, are more than three times their pre-recession level. The nearly 20 percent of personal income now provided by the government is close to a record high.” By 2011’s end, those payments will disappear. Let’s have another drink while we ponder the impact of those disappearing checks on consumer spending. According to Bloomberg, the Thomson Reuters/ University of Michigan preliminary index of consumer sentiment decreased in June to 63.8, the weakest reading since March 2009 and a 12 percent drop in 30 days. Consumers may be gloomy, but they’re not dumb; they know times are tough. Bartender! Social Security rolls are exploding due to baby boomers taking early retirement in lieu of finding gainful employment. This adds to the deficit and national debt because outflows for Social Security payments have exceeded the inflows since March 2010. This crossover was not projected to occur until 2017. Its early arrival reflects the fact that baby boomers who lost their jobs by and large were near the top of the pay scale and have not been able to find jobs at close to their historic salaries. Middle management is the first to be axed in a downturn and the last to be hired back. Because mergers and acquisitions remain strong and consolidation in various industries continues, middle managers will continue to be under siege. Given baby boomers’ ages, they are competing against younger and more tech-savvy workers who are asking far cheaper salaries. Additionally, ageism is rearing its ugly head. It’s unlikely that a majority of baby boomers will be able to secure high-paying jobs to take them into a cozy retirement. Let’s have another round! As reported in The Wall Street Journal, the dollar stores—Dollar General, Family Dollar and Dollar Tree—which sell steeply discounted food and household staples to working-class families, have reported that their gross margins shrank due to “shoppers’ inability to afford more discretionary items.” In other words, work-class families’ budget are so tight that they can’t even afford a $5 toy for the kids. Criminy, that’s sad! There is 37 percent more consumer debt today than 10 years ago and more residential mortgage
debt than five years ago—a total of $9.9 trillion, according to a recent report in The Wall Street Journal. Let’s not forget that 23 percent of this residential home debt is underwater because there is negative equity in 23 percent of all homes with a mortgage. That’s roughly $2.25 trillion dollars in bad loans. Not all of this will evaporate, but given a modest 20 percent haircut to face value, this equates to approximately $445 billion of potential losses that banks and other financial institutions will have to bear. From whence will income flow to pay for this debt load? Barkeep, please put this on my tab! I could go on, but the bartender has signaled that enough is enough. As real estate investors, let’s not fool ourselves into believing that the underlying fundamentals support the lofty prices now being paid for many assets. It’s true that big investors are driving up prices of trophy assets in major gateway markets like Manhattan, Boston, Washington, D.C., Chicago and San Francisco, but this is a race to quality using super-cheap OPM (other people’s money) from the stock market. A rebound in Main Street commercial real estate, largely the domain of private capital, has yet to materialize. It’s also true that the Bay Area is seeing strong job growth compared to the national economy. But even here, much of the leasing and sales activity is related to lofty stock valuations and initial public offerings floating on the liquidity of the stock market. This liquidity has created a minibubble in Silicon Valley, but Stockton still struggles. High levels of debt and consumer distress are twins, each exacerbating the other. Simultaneously, inflation and high unemployment are taking a significant toll on the earning capacity of the middle class, a middle class that is being handed the check for the costs of the financial crisis and that is increasingly vulnerable to minor economic shocks. Without a viable middle class, the economic recovery and our country are in serious trouble. Real estate investors should re-examine any belief that the middle class will whip out its wallet and start spending to support demand for commercial real estate. From all indications, demand for commercial property beyond San Francisco, Silicon Valley and major gateway markets will likely remain soft for years. n
Row on the Row How to spend nearly $16 million and not acquire a property.
t’s just another day at the office. You are presented with a signed single-page document captioned “Final Proposal” containing 11 sentences that you can read in less than 60 seconds. The proposal says your company will pay $100,000 a month for a ground lease, with 3 percent annual increases. It contains a 10-year put option that would force your company to buy the property at a 9 percent cap rate at the then-current annual rent. The last sentence says the noted terms are accepted by the parties, subject only to approval of the terms and conditions of a formal agreement. The proposal has been signed by the proposed lessor and seller, and there is a blank for you to sign as the proposed lessee and buyer. It sounds like an interesting deal that might be worth pursuing. Do you sign the Final Proposal and attempt to work out a formal agreement? If you do, are you on the hook even if you never come to terms on a formal agreement? According to a federal appellate court ruling, the answer is yes, as Federal Realty Investment Trust, a Maryland-based REIT with extensive Bay Area holdings, has learned. The owner of retail properties across the Bay Area from San Jose’s Santana Row and Westgate Mall, to Crow Canyon Commons in San Ramon, to Los Gatos’ Kings Court and Old Town Center, to a 100,000 square-foot Post Street building in San Francisco, Federal Realty faced this scenario and has learned that “Final Proposal” can in fact mean binding agreement. The real estate investment trust and First National Mortgage Co., a national residential mortgage broker, entered into the Final Proposal described above in August 2000, while the dot-com boom remained in full swing. The agreement was signed by Steve Guttman, Federal Realty’s chairman and chief executive until he left in late 2002, and Hal Dryan, who had majority ownership of First National and D&R Partnership, which owned the property in question. Federal Realty was in the midst of developing Santana Row, one of the nation’s largest mixed-use projects. It sought to acquire the multi-story South Winchester Boulevard building, which sat along the western edge of the Santana Row development. First National refused to sell the building for less than $15 million. The Final Proposal did not state an express term for the ground lease, but it did give First National a 10-year put option that would require Federal Realty to purchase the property at a 9 percent cap rate on the then-annual rent at any time during the proposal’s 10-year term. It also gave Federal Realty a call option that would require First National to sell Federal Realty the property at the end of 10 years, also at a 9 percent cap rate. Other terms of the Final Proposal included a $75,000 reimbursement
to First National for buying out the current tenant on the property and that Federal Realty was to prepare a legal agreement for First National’s review. After the Final Proposal was signed, First National gave its tenants notice to vacate the premises. The parties engaged in extensive, but ultimately unsuccessful, negotiations toward a formal agreement. When First National demanded reimbursement for its buyout of the current tenant, Federal Realty told First National in May 2001 that because the parties had a number of unresolved business issues, there was no binding agreement. First National sued for anticipatory breach of the Final Proposal. A jury found the Final Proposal to be an enforceable agreement and that the put and call options could be interpreted to set a ground lease term of 10 years. The trial court awarded First National damages of almost $16 million—$10.6 million for lost rent for the ground lease, plus interest, and $5.2 million for Federal Realty’s breach of the put option. Federal Realty appealed, but the appeals court agreed that the Final Proposal was a binding agreement. The court stated that an agreement is not unenforceable merely because it is subject to the approval of a formal contract. According to the court, calling something a proposal, instead of a contract or a lease, does not necessarily mean it was not meant to be binding, especially where the circumstances suggest otherwise. The court distinguished a case from one in which the document at issue was called a letter of intent and pointed out that the Final Proposal in this case specifically omitted Federal Realty’s standard non-binding clause, which it had inserted in earlier drafts. The court also noted First National had made an announcement to employees that an agreement had been reached and highlighted that Federal Realty had included the property in its internal cost reports. The critical lesson from the case is that until you are absolutely certain you are ready to be bound to a deal (whether for a lease, loan or sale) make sure that any document containing deal terms that precedes a formal written agreement is clearly labeled as being only a letter of intent and includes obvious, non-binding language. Letters of intent and proposals in real estate deals provide great tools for relatively low-cost negotiations of major deal points, but if handled incorrectly, they can trap the unwary. In Federal Realty’s case, that meant a nearly $16 million liability with no property to show for its efforts. n Scott Rogers can be reached at 415.268.1990 or at email@example.com. Ted Klaassen can be reached at 415.268.1969 or at firstname.lastname@example.org.
A jury found a “Final Proposal” to be an enforceable agreement. 30 theregistrysf.com
S E P T E M B E R 201 1
P hoto B Y S t e fan A rm i jo
By Scott Rogers and Theodore Klaassen
The Spanish Dream
R s ’ ob
y t i l ea
Pondering Spain’s evolution from renters to owners, I wondered how things could change for San Francisco— both in the short term and long term. 32 theregistrysf.com
S E P T E M B E R 201 1
Rising apartment rents and the expectation of more may push tenants to become owners. By Rob La Eace
ut on the town, lately, even on evenings when the weather was nice, the bars were still relatively empty. Folks are traveling—a good sign for our local economy. I just returned from Spain a few weeks ago myself. There’s a lot to be said for the Spanish lifestyle: sun, history, art, culture, good food, good wine and great friends.A long time Hemingway fan, I’ve now seen first hand how this passionate country manages to enchant its visitors—converting them to expatriates. In talking with an old amigo from my school days in San Francisco, who now lives in Madrid, I was surprised to discover that an overwhelming number of Spaniards are homeowners. Sources estimate the percentage of Spanish citizens who own a home to be near 85 percent. According to U.S. Census Bureau numbers released at the end of July, our home ownership numbers in America have declined for six years in a row and currently rest at not quite 66 percent. What is the reason for Spain’s exceptionally high home ownership rate (one of the highest in Europe)? A work published by the Centre d’Estudis Demogràfics, or CED, in Barcelona says that following the Spanish Civil War in the late 1930s, the government instituted new law regulating eviction and rent increases. With rents lagging inflation, landlords and builders lost motivation to own or construct rental properties. In the late 1950s legislation created opportunity for long-term tenants to buy their flats. This began to change the Spanish housing paradigm from a tenantbased model to an owner-occupied one. As young couples moved from rural areas to cities, inflation motivated more of these new city residents to buy, and an absence of land-use regulation made it easier for landowners and developers to sell. Meanwhile, middle-aged couples hit the eject button leaving the older city centers in pursuit of more newly-constructed homes with more square footage. In 1985, new legislation removed price controls on rental property. Subsequent rising rents, and a tax deduction for mortgage principal and interest sealed the deal. The Spaniards became deeply entrenched in home ownership. A quote from the CED’s report sums up its findings: “High homeownership rates in Spain are not the result of tradition; they are the product of rapid
social and economic changes that took place during the second half of the twentieth century.” Worth noting about Spain is that the percentage of homeowners does not vary by region. Across the country, numbers are consistently high and they remain so regardless of social status. U.S. owner occupancy levels vary wildly by state. West Virginia leads the nation, with 79 percent of residents owning homes. Washington, D.C., New York, California and Hawaii have the lowest homeownership rates—between 45 percent and 55 percent. In San Francisco, only about 30 percent of our housing is owner-occupied. One could say that our renter-toowner ratio is basically the inverse of Spain’s. Pondering Spain’s evolution from renters to owners, I wondered how things could change for San Francisco—both in the short term and long term. In San Francisco, our rental prices are up nearly 5 percent from a year ago. With limited inventory of rental units and few projects in the construction pipeline, increased demand expected from job growth and the America’s Cup, and a good portion of our populace that can’t or won’t purchase, we can expect rents to rise over the next several years. Furthermore, all the new construction projects over the last decade have added thousands of units to our city rental inventory and will not be subject to rent control. These buildings are popular with the renting public and will command higher market-rate rents in perpetuity. As rents rise and sales prices stagnate, the age-old rent-versus-own question becomes a hot topic once again. Using my brokerage’s rent-versus-own analyzer, I ran a comparison of renting a two-bedroom/ two-bath apartment in the city for a conservative rent of $3,350 a month compared to an $850,000 home purchase for a comparable property. After 2.8 years of owning, you would break even when compared to renting (analysis performed on Paragon’s Web calculator located on this site: http://www.paragon-re. com/Calculators/RentvsBuy.aspx). This calculation includes a very conservative appreciation rate of 2.5 percent a year and even includes the 5 percent commission you would likely pay upon the sale of said property. It also includes $450 a month for association and maintenance fees. For the person that can even make a short-term commitment to staying put here, buying makes a lot of sense. continued on page 33
january february march april may june july august september october november december
BOMA Silicon Valley will host a membership luncheon from 11:30 a.m. – 1:30 p.m. at Convention Plaza Hotel, 282 Almaden Blvd., San Jose. Visit www.boma-sv.org for more information. BOMA Silicon Valley will host a Technologies for Facilities Management course from 5:30 p.m. – 9:30 p.m. at Equity Office, 1740 Technology Dr., Ste. 150, San Jose. This course will run Tuesdays: Sept 6, 13, 20, 27, Oct 4, 11, 18 and 25. Visit www.boma-sv.org for more information.
SPUR will host the 2011 Piero N. Patri Fellowship presentation starting at 6 p.m. at 654 Mission St., San Francisco. Members $0 and non-members $10. Visit www.spur.org for more information. BOMA Young Professionals will host the 4th Annual Boat Cruise from 5:15 p.m. – 8:15 p.m. at South Beach Harbor, Pier 40, San Francisco. This is a members-only event and the cost is $40.
3 p.m. at Stopwaste.org, 1537 Webster St., Oakland. The cost is $75 per person. Contact email@example.com for more information. CREW East Bay will host a luncheon called Energy, Water and Natural Resource Conservation from 11:30 a.m. – 1:30 p.m. at Vic Stewarts in Walnut Creek. Visit www.eastbaycrew.org for more information. CoreNet Northern California Chapter will host a chapter meeting regarding New HQ Development in the Bay Area (Google, Apple, Twitter and more) from 3:30 p.m. – 7 p.m. at Oracle Conference Center, Redwood Shores. Contact Ashley Burke at aburke@ hp-assoc.com or 415.371.1734 for more information. Appraisal Institute Northern California Chapter will host a workshop, chapter meeting and networking social in Pleasanton. Visit www.norcal-ai.org for more information.
BOMA Oakland/East Bay will host a luncheon called Let’s Talk Trash. Visit www.bomaoeb.org for more information.
SPUR will host an event called The Bay Area’s Modern Landscape Legacy starting at 12:45 p.m. at 654 Mission St., San Francisco. Students $20, SPUR and AIA members $30 and non-members $40. Visit www.spur.org for more information.
IFMA Silicon Valley Chapter will host a Project Management FMP Class from 8 a.m. – 5 p.m. at SAP, 3475 Deer Creek Road, Bldg 7, Palo Alto. Visit www.ifmasv.org for more information.
BOMA San Francisco will host the 57th Annual Elmer Johnson Golf Tournament from 9 a.m. – 9 p.m. at Peninsula Golf and Country Club, 701 Madera Drive, San Mateo. Visit www.bomasf.org for more information.
The Investment Marketing Forum will host its monthly member breakfast and networking meeting starting at 7:30 a.m. at the Orinda Country Club, 315 Camino Sobrante, Orinda. Non-member guests are always welcome for just $25. For more information, contact Richard DiNottia at 925-899-3151, or visit our website at www.imf1.com. CREW Silicon Valley will host a luncheon at SV Capital Club, 50 W. San Fernando, Ste. 1700, San Jose. Visit www.crewsv.org for more information. SPUR will host an event called Regenerative Design starting at 6 p.m. at 654 Mission St., San Francisco. This is a free event that is open to the public. Visit www.spur.org for more information.
ULI San Francisco will host an event called The End of Bay Area Foreclosure Activity? from 12 p.m. – 1:30 p.m. At CB Richard Ellis, 101 California St., 44th Floor, San Francisco. Visit www.ulisf.org for more information.
USGBC Northern California Chapter will host a Greening Existing Buildings: Energy Retrofit Strategies workshop from 9 a.m. –
Appraisal Institute Northern California Chapter will host an Affordable Housing seminar at Wendel Rosen Conference Center in Oakland. Visit www.norcal-ai.org for more information.
BOMA San Francisco will host the 3rd Annual Emergency Preparedness Seminar from 8:30 a.m. – 11 a.m. at The Ferry Building, Port Commission Hearing Room, Second Floor, San Francisco. Members $85 and non-members $105. Visit www.bomasf.org for more information. USGBC Northern California Chapter and SPUR will host Eco Districts: Building Blocks of Sustainable Cities from 5:30 p.m. – 8 p.m. at Spur Urban Center, 654 Mission St., San Francisco. USGBC-NCC and SPUR members $20, and non-members $30. Visit www.usgbc-ncc.org for more information.
SPUR’s Young Urbanists will host Nerd Nite SF starting at 7:30 p.m. at Rickshaw Stop, 155 Fell St., San Francisco. This event is open to the public and the cost is $8 at the door. Visit www.spur.org for more information.
NAIOP San Francisco Bay Area Chapter will host the 8th Annual Capital Markets Outlook from 11:30 a.m. – 1:30 p.m. at Four Seasons Hotel, 757 Market St., San Francisco. Visit www.naiopsfba.org for more information. NAIOP Silicon Valley Chapter will host an annual BBQ. Visit www.naiopsv.org for more information.
CCIM Northern California Chapter will host an Intro to Commercial Real Estate class from 8 a.m. – 5:30 p.m. at Sacramento Assn. of Realtors, 2003 Howe Ave., Sacramento. The cost is $395. Contact NCalCCIM@ccim.net or call 866.588. CCIM for more information. BOMA Silicon Valley presents the Northern California Facilities Expo at the Santa Clara Convention Center. Visit www.boma-sv.org for more information.
Appraisal Institute Northern California Chapter will host a General Appraiser Market Analysis and Highest and Best Use course at University of Phoenix in Oakland. Visit www.norcal-ai.org for more information.
BOMA San Francisco will host a membership luncheon from 11:30 a.m. – 1:30 p.m. at The City Club, Main Dining Room, 155 Sansome St., 11th Floor, San Francisco. Members $55 and non-members $70. Visit www.bomasf.org for more information. USGBC Northern California Chapter will host an event called Green Building Technology and Innovation from 5:15 p.m. – 7:30 p.m. at 555 Mission St., Ste. 1950, San Francisco. Visit www.usgbc-ncc.org for more information.
USGBC Northern California Chapter will host a LEED Green Associate Exam Prep workshop from 8:30 a.m. – 5 p.m. at XL Construction, 851 Buckeye Ct., Training Room A, Milpitas. Visit www.usgbc-ncc.org for more information. Appraisal Institute Northern California Chapter will host a Residential Applications Using Technology to Measure and Support Assignment Results seminar in San Francisco. Visit www.norcal-ai.org for more information.
IIDA Northern California Chapter will host a Leaders Breakfast from 7:30 a.m. – 10 a.m. at the Four Seasons Hotel, 757 Market St., San Francisco. Visit www.iida-nc.org for more information.
BOMA Oakland/East Bay will host an event at the Oakland A’s vs. The Texas Rangers game at the Oakland Coliseum starting at 5 p.m. with a pre-game tailgate party. The cost is $40 which includes ballpark food and beverages and field level seats. Contact Robert at Robert@bomaoeb. org or 510.893.8780 for more information.
ULI San Francisco will host a Job Market Update with Terra Search Partners 12 p.m. – 1:15 p.m. at Allen Matkins, 3 Embarcadero Center, #1200, San Francisco. Visit www.ulisf.org for more information.
IFMA Silicon Valley Chapter will host a meeting regarding Impact of Future Technology Convergence from 5 p.m. – 8 p.m. Visit www.ifmasv.org for more information.
The Spanish Dream continued from page 32
Will the same forces that created a nation of homeowners in Spain eventually act upon our hamlet of San Francisco? Unlikely. As is, our property values are too high for those with lower incomes, and the need exists for a base of affordable housing in this major city. For many, it’s difficult to rent here, let alone buy. And the transient nature of some residents often doesn’t give them reason to put down roots. It sure would be neat to see, though. Even as I type, my mind slips
back to Madrid. My laptop is a Royal typewriter, my office, a small pension—its sun-chapped shutters swung, casting their shadow to the Plaza Mayor below. In my mind’s eye, I suddenly bear a striking resemblance to Hemingway. Tilting my head back, a breeze from the tattered ceiling fan cools the sweat beads on my face, and I gulp the last of the tart Rioja from my ceramic mug. Siesta time. n Rob La Eace can be reached at 415.290.7228 or firstname.lastname@example.org.
J U ly/A ugust 2 0 1 1
Lease Size Sq. Ft.
Name of Tenant/Rep (Brokerage)
Name of Landlord/Rep (Brokerage)
Notes (ie. Lease type and/or lease longevity)
Orchard Industrial Center B, 44400-44540 Osgood Rd
Syncreon NAL/Chris Van Keulen & Jay Hagglund (Cassidy Turley BT, Oakland)
Fremont Industrial Portfolio/Doug Norton & Michael Walker (CB Richard Ellis, Oakland)
Renewal, 37M Term, Warehouse Lease Transaction
Bayside Distribution Center, 3525 Arden Rd
Syncreon NAL/Jay Hagglund & Chris Van Keulen (Cassidy Turley BT, Oakland)
DCT Industrial/Jay Hagglund & Jeff Starkovich (Cassidy Turley BT, Oakland)
67M Term, Warehouse Lease Transaction
Prescolite, 2375 Davis St
Agunsa Logistics/Jay Hagglund (Cassidy Turley BT, Oakland)
Balco Properties LTD/Craig Hagglund (Lee & Associates, Oakland)
36M Term, Industrial Lease Transaction
2748 W Winton Ave
Gruma Corporation/CRA Realty Advisors
UBS Realty Investors, LLC/ Greig Lagomarsino, SIOR & Rick Keely (Colliers International, Oakland)
Davis Distribution Center, 1955-1977 Davis St
Regal Piedmont Plastics, LLC/ Jason Ovadia (Jones Lang LaSalle, WC)
ProLogis/Sam Higgins & Jeff Starkovich (Cassidy Turley BT, Oakland)
62M Term, Warehouse Lease Transaction
Cherry Business Park, 38505 Cherry St
KYO Computer/Michael Spiro (Cornish & Carey Commercial Newmark Knight Frank, Hayward)
DCT-CA 2004 Portfolio L ( LP )/ Jay Hagglund (Cassidy Turley BT, Oakland)
Renewal, 12 Term, Industrial Lease Transaction
Fremont Plaza, 3744 Mowry Ave
Sunflower Farmerâ€™s Market
Sunhill Enterprises/Patrick McGaughey & James Chung (Terranomics)
120M Term, Retail Lease Transaction
555 12th St
Weaver, Austin, Villeneuve & Sampson/ Aileen Dolby (Colliers International, Oakland)
OCC Ventures/CB Richard Ellis
3544 Arden Rd
Pella Windows/Kent Liddell
RREEF/Joe Yamin & Greig Lagomarsino, SIOR (Colliers International, Oakland)
New lease, 38M
Thoroughbred Bldg, 1250 53rd St
Barsoom Pictures, Inc./Tony Beatty (Cassidy Turley BT, Oakland)
60M Term, Office Lease Transaction
Hayward Industrial Park, 23271-23285 Eichler St, Bldg 10
Interior Management Group, Inc./ Dan Tealdi (Townsend Commercial)
UBS Realty Investors/Jay Hagglund & Joe Fabian (Cassidy Turley BT, Oakland)
36M Term, Warehouse Lease Transaction
BCP - Legacy Laurelwood Court, 7180 Koll Center Pkwy
Benesys Inc./Justin Grilli (Cassidy Turley BT, Pleasanton)
Golden Canyon Investment/Adam Ebner & Kirk Beebe (CB Richard Ellis, Pleasanton)
64M Term, Office Lease Transaction
Ford Point, 1400-1438 Harbour Wy, S.
Monvera/Mark Kol/Brian Barden (CB Richard Ellis, Oakland)
Orton Development Inc/Jeff Leenhouts & Gary Fracchia (Cassidy Turley BT, Oakland)
63M Term, Industrial Lease Transaction
Noll Mfg., 1900 7th St
Natsu Corp./Richard Tremante (Commercial Real Estate Investors)
Extended Care/Jeff Leenhouts & Adam Peterson (Cassidy Turley BT, Oakland)
62M Term, Warehouse Lease Transaction
5702 Marsh Dr
Susan Williams/Thomas Caple (Cassidy Turley BT, Walnut Creek)
Howard Properties Pacheco LLC/Thomas Caple (Cassidy Turley BT, Walnut Creek)
12M Term, Industrial Lease Transaction
Salvio Pacheco Square, 2151 Salvio St
Regional Center Of The East Bay
JCM Partners LLC/Chris Baker (Cassidy Turley BT, Walnut Creek)
Renewal, 60M Term, Office Lease Transaction
240 S Garrard Blvd
Harrington Industrial Plastics, LLC/ Gabe Burke & Craig Walsh (Colliers International, Redwood City)
Richmond Development Company/ MSH Group
New lease, 84M
Lakepoint Business Park, 60 Leveroni Ct
Ultragenyx Pharmaceutical/Cornish & Carey Commercial Newmark Knight Frank, Larkspur
Condiotti Enterprises, Inc./Brian Foster & Steven Leonard (Cassidy Turley BT, San Rafael)
60M Term, Office Lease Transaction
DNG Enterprises, Inc. dba Napa Parts/ Matthew Storms (Keegan & Coppin Co., Inc.)
Bob Smith / Matthew Storms (Keegan & Coppin Co., Inc.)
Industrial Gross Lease
Marina Airport, 3200 Imjin Rd., Hangar 507
Naval Facilities Engineering (CIRPAS)/ Michael Schoeder & Josh Jones (Cassidy Turley BT, Monterey/Salinas)
City Of Marina
113M Term, Warehouse Lease Transaction
Hangar 510, 3240 Imjin Rd
King II-American Fighterspec/Josh Jones & Michael Schoeder (Cassidy Turley BT, Monterey/Salinas)
City Of Marina/Pete Ericksen (Cassidy Turley BT, Monterey/Salinas)
12M Term, Industrial Lease Transaction
Summit Warehouse, 783 Redwood Ave
Double Bay Co, Inc Dba Carmel Stone Imports/Pete Ericksen (Cassidy Turley BT, Monterey/Salinas)
Mitchell/Wick Partnership & Pete Ericksen (Cassidy Turley BT, Monterey/Salinas)
5840 S Watt Ave
BFB Business Consulting/Jay Richter, CCIM & Drew Wheatley (Cassidy Turley BT, Sacramento)
Ethan Conrad Properties/Ethan Conrad (Ethan Conrad Properties)
1895 Howe Ave
Dollar Tree Stores, Inc./Bob Dong & Jared Dong (Terranomics)
1895 Howe LLC/CB Richard Ellis, Sacramento
11270 Sanders Dr
William & Roberta Roth/David Hornbeck (Grubb & Ellis, Sacramento)
Salmeri Brothers/Jay Richter, CCIM & Drew Wheatley (Cassidy Turley BT, Sacramento)
Address Alameda County
Contra Costa County
60M Term, Warehouse Lease Transaction
S E P T E M B E R 201 1
36 M Term, Warehouse Lease Transaction 60 M Term, Office Lease Transaction 49 M Term, Warehouse Lease Transaction
commercial LEASES CONTINUED
Lease Size Sq. Ft.
Name of Tenant/Rep (Brokerage)
Name of Landlord/Rep (Brokerage)
Notes (ie. Lease type and/or lease longevity)
Ride The Ducks International, LLC/ Scott Mason (Cassidy Turley BT, Burlingame)
San Francisco Warehouse Property/ Cliff Company, San Francisco
48M Term, Industrial Lease Transaction
1501 Tennessee St
ProTransit-1, LLC/Touchstone Properties
Ed Berliner/Scott Mason (Cassidy Turley BT, Burlingame)
48M Term, Warehouse Lease Transaction
50-70 Charter Oak Ave
Modern Way Home Supply, Inc./ Scott Mason (Cassidy Turley BT, Burlingame)
Tokyo Express Co/Jay Cahan (HC&M Commercial, San Francisco)
60M Term, Warehouse Lease Transaction
2142 Jerrold Ave
Allied Building Products Corp./ HC&M Commercial, San Francisco
Somar Properties Llc/Scott Mason (Cassidy Turley BT, Burlingame)
62M Term, Warehouse Lease Transaction
615 Bayshore Blvd
Tez Marble, Inc.
Domenica Vassallo/Antoinette S & Scott Mason (Cassidy Turley BT, Burlingame)
125M Term, Warehouse Lease Transaction
Lime International Building, 332 Grand Ave, E.
S San Francisco
Able Freight Services/Jason Cranston (Cassidy Turley BT, Burlingame)
Raymond Ying Ming Chan/Andrew Peceimer (Coldwell Banker Westbay RE Group)
124M Term, Warehouse Lease Transaction
Bayshore Technology Park, 2600 Bridge Pkwy
Proteus Biomedical/ Colliers International, SJ
Prudential Investment Mgmt./Mike Moran & Randy Keller (Cassidy Turley BT, Burlingame)
Renewal, 24M Term, Office Lease Transaction
Caribbean Corporate Center, 1315 Chesapeake Terr
Cepheid/Mike Connor & Mike Courson (Cassidy Turley BT, Palo Alto)
I&G Caribbean, Inc./Jeff Houston & Vincent Scott (CB Richard Ellis, San Jose)
84M Term, R&D Lease Transaction
Gould Plaza, 1001-1091 Capitol Expwy, E.
Bay Area Fitness Centers/Matt Taylor (Terranomics)
H.K.N.IV/Todd Olive & Laurence Blickman (Terranomics)
120M Term, Retail Lease Transaction
746-876 Milpitas Blvd
Andrews Air Corporation/Grubb & Ellis, San Jose
SJ South Milpitas Corporation/Jim Kovaleski & Craig Kovaleski (Cassidy Turley BT, San Jose)
25M Term, Warehouse Lease Transaction
Branham Square, 1114 Branham Ln
Sunflower Market/James Chung & Patrick McGaughey (Terranomics)
Branham Square, LLC/Mark Biagini (Biagini Properties)
120M Term, Retail Lease Transaction
Ames Industrial Park, 1000-1210 Ames / 1053 Sinclair Frontage
Global Packing Solutions, Inc.
Ames Industrial Park/Fred Eder (Cassidy Turley BT, San Jose)
2M Term, Industrial Lease Transaction
Caribbean Corporate Center, 1325-1327 Chesapeake Terr
Cepheid/Mike Connor/Mike Courson (Cassidy Turley BT, Palo Alto)
I&G Caribbean, Inc. (La Salle)
Renewal, 34M Term, R&D Lease Transaction
Caribbean Corporate Center, 1325-1327 Chesapeake Terr
Cepheid/Mike Connor/Mike Courson (Cassidy Turley BT, Palo Alto)
I&G Caribbean, Inc. (La Salle)
Renewal, 36M Term, R&D Lease Transaction
Junction Industrial Park, 1705 Junction Ct
Air Systems Corporate
Prologis/Jim Kovaleski & Craig Kovaleski (Cassidy Turley BT, San Jose)
60M Term, Warehouse Lease Transaction
Commercial Street Bus Ctr, 1030 Commercial St
Creative Plant Design/Drew Arvay (Cassidy Turley BT, San Jose)
Renewal, 60M Term, Warehouse Lease Transaction
Mountain View Research Park, 350-360 Bernardo Ave, N.
Edison Pharmaceuticals/Mike Courson & Mike Connor (Cassidy Turley BT, Palo Alto)
Boston Properties/Colin Feichtmeir & Steve Horton (Cassidy Turley CPS)
Renewal, 74M Term, R&D Lease Transaction
1920-1930 Zanker Rd
Hitachi Metals America, Ltd./ David Yamamoto (Cassidy Turley BT, San Jose)
RREEF/Colin Feichtmeir & Gregory M. Davies (Cassidy Turley CPS)
84M Term, R&D Lease Transaction
Aetna Business Center, 1405-1423 Milpitas Blvd
Fastrak Manufacturing Services/ Derik Benson & Danny Yu (Cassidy Turley BT, San Jose)
Milpitas Station Venture, LLP/Jack Lewis (Cornish & Carey Commerical Newmark Knight Frank, Santa Clara)
12M Term, Industrial Lease Transaction
164 Hamilton Ave
Palantir Technologies Inc./Mike Courson & Mike Connor (Cassidy Turley BT, Palo Alto)
SPI Holdings, LLC/Terry Haught & Randy Gabrielson (Cornish & Carey Commerical Newmark Knight Frank, Palo Alto)
68M Term, Office Lease Transaction
Busch Commerce Center Bldg B, 2485 Courage Dr
Wood Group Field Services, Inc/Eric Rehn, CCIM & Ted Gallagher (Cassidy Turley BT, Walnut Creek)
Buntain Properties LLC/Bret De Martini & Chris Petrini (Grubb & Ellis, WC)
63M Term, Industrial Lease Transaction
395 Industrial Way
Altec Industires, INC./Dave Planting (CB Richard Ellis, Sacramento)
J & A Jeffery, LLC/Jeff Post, SIOR (Cassidy Turley BT, Sacramento)
12 M Term, Industrial Lease Transaction
170 Todd Road
Playland Enterprises, LLC/Jim Sartain, Bill Faherty & Joel Jaman (Keegan & Coppin Co., Inc.)
Todd Associates, LLC/Jim Sartain, Bill Faherty & Joel Jaman (Keegan & Coppin Co., Inc.)
Industrial Gross Lease
South McDowell Landing, 1800 McDowell Blvd, S.
The Gap Inc./Steven Leonard/Cassidy Turley BT, San Rafael
RNM Properties/Steven Leonard & Trevor Buck (Cassidy Turley BT, San Rafael)
120M Term, Office Lease Transaction
5401 Old Redwood Hwy
Enphase Energy/Dave Peterson & Chris Castellucci (Keegan & Coppin Co., Inc.)
Cornerstone Properties SA LLC/Alon Adani (Cornerstone Properties)
Full Service Office Lease
Address San Francisco County
San Mateo County
Santa Clara County
J U ly/A ugust 2 0 1 1
STEVEN F. ZORNETZER, PH.D Associate Center Director, NASA Ames Research Center
The Pharaoh of Sillicon Valey By Sharon Simonson
It is perhaps no coincidence that Steven Zornetzer, a neurobiologist and professor of neuroscience, has embarked on a mission to perfect a human environment. This former academic, interested primarily in how the brain processes information, took the challenge of developing one of the most remarkable structures on the planet—the NASA Ames Research Center. Besides functioning as a typical office building, the $29 million Sustainability Base ($24.5 million if you exclude demolition costs) is intended as a demonstration project and an ongoing test case to explore the limits of what can be achieved today in the way of sustainable development and to find ways to push achievement to new levels.
for the remaining 40 years of the building’s operation after the initial pay-back period of 9 to ten years, the building’s cumulative annual operational savings will far exceed the initial cost premium. The net result is both a major cost savings to the American taxpayer as well as a lower carbon footprint.
NASA likes to refer to its new green building at Ames Research Center at Moffett Field as the “first lunar outpost on planet Earth.” Can you summarize for us what this phrase means and why you use this metaphor?
I first met Bill at NASA’s Johnson Space Center in Houston. Bill was there to talk about his cradle-to-cradle principles, and I was there on agency business and was curious about his talk. It turns out, rather fortuitously, that just the week before I met Bill I had decided that the next new building at NASA Ames would be the greenest building in the federal government. At the time I made this decision, I had no plan in place and no idea how to achieve my goal. Once I met Bill and shared my dream with him, he became just as excited and enthusiastic about the idea as I was. Bill had never designed a building for the federal government. Given the enormous amount of real estate the government owns and operates, Bill realized this is an important sector to embrace high-performance building designs for the future, and he wanted to play a role in that transformation.
SZ ❯ Any future human outpost, whether on the moon or Mars will need to maximize energy and water efficiency, minimize the need for a continuous stream of new raw materials, be optimized to function in the particular environment in which it is located and provide its occupants with a safe and comfortable living environment. All these same features were designed purposefully into our new high performance building, which we call “Sustainability Base.” The structure itself is a magnificent testament to contemporary building technology. This building is net energy positive, and it is one of the greenest on the planet. How did you achieve this? SZ ❯ Net positive energy is achieved by a combination of three elements. First, the building itself is designed to minimize electrical consumption. This is achieved by a combination of active and passive strategies that when taken together result in an extremely high-performance building. Second, the entire roof is covered with high-efficiency photovoltaic panels that generate sufficient energy to offset about 40 percent of the building’s electrical consumption. Third, the building site also has a solid oxide hydrogen fuel cell capable of generating more energy on a 24/7 basis than the building consumes. Combined, the clean on-site energy generation greatly exceeds the building’s energy consumption. The net result is a production of excess electrical power that will supply the NASA Ames electrical grid for use in other buildings on our campus. What were the center’s estimated additional costs to produce these results, and what is the estimated return on investment? SZ ❯ The energy-saving features designed for Sustainability Base did add a small up-front cost premium over the cost of a conventional building of equivalent size (50,000 square feet). We estimate that cost premium to be about 6 percent of total construction costs. We then estimated how long it would take us to recover that cost considering the reduced utility and maintenance costs of operating the building. Our estimates suggest that the costs will be recovered in about nine years. Given that the projected useful life of the building will be 50 years, that means, assuming current economic projections,
S E P T E M B E R 201 1
The building has many firsts, including the first government building designed by the father of sustainable architecture in America, Bill McDonough. Can you give us a glimpse into the process behind it, how it began, and how it materialized? SZ ❯ Bill McDonough and his team were the creative catalysts that made Sustainability Base possible. Bill’s strong commitment to sustainable buildings, including all its materials and contents, coupled with his principles of “native to place” and connecting building occupants to nature, made Sustainability Base.
Sustainability was obviously an important aspect of the design. Can you give us an overview of some of the sustainable elements of the building? SZ ❯ The building is a blend of active and passive energy saving strategies. Some of the active strategies are: the geothermal and solar-thermal cooling and heating subsystems; the high-efficiency operable windows and building skin; the exoskeleton building-support system providing maximum structural strength and stability while at the same time providing a structure to integrate shading elements to reduce glare and solar-heat gain while maximizing natural light penetration; the NASA-developed water-recycling system to clean up building waste water for reuse in toilet and urinal flushing; the NASAdeveloped intelligent, adaptive building-control system to operate the building’s subsystems to optimize the internal environment while minimizing energy consumption. Some of the passive strategies are: the orientation of the building with respect to both the arc of the sun and the prevailing winds; maximizing solar exposure on the roof-mounted solar panels and natural ventilation; the height of the windows to optimize the amount of natural light. The overhead lights inside the building will only have to be turned on the equivalent of 40 days during the course of a year. Additionally, the building itself is constructed from a set of repeating structural steel modules. The steel is largely from recycled stock. The building and its components, both structural as well as all interior furnishings, are made from materials that have been recycled and-or can be recycled at the end of their useful life. Nothing inside the building contains toxic materials. n