2: 2015 A PUBLICATION BY
COMMERCIAL & RESIDENTIAL REAL ESTATE
UBIQUITOUS TECH | PG. 28 THE MODERN DAY DEVELOPER DOWRY | PG. 9
THE DOWNSIDE OF SURGING TECH DEMAND | PG. 34
APPROACHING THE PEAK | PG. 48
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Silicon Valley
San Francisco
Sacramento
BOTTOM LEFT
TOP
Rendering courtesy of BIG & Heatherwick Studios Photograph courtesy of Jay Mantri BOTTOM RIGHT Photograph courtesy of Ryan Gobuty
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This Issue OPINION:HOUSING 6
Quality of Life vs. Quality of Life
TECH BATTLEGROUND 9
The Modern Day Developer Dowry
Google and LinkedIn focus on community benefits to woo Mountain View development approval
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TECH IN REAL ESTATE 14
36 DIVERSITY OF TECH 28
There’s a Platform Ready For You
Ubiquitous Tech
THE RISING COMPETITION 22
The Downside of Surging Tech Demand
Technology finally gains a foothold in an industry that had resisted gains made in other sectors
Is the restructured tech industry downturn resistant? Maybe, but worries are mounting LEASING IN TECH 34
Endless Summer is Just Starting When jobs leave the Bay Area, in larger numbers they are leaving for southern California USING TECH 26
Real Time Real Estate Professionals in the industry are finding technology an indispensible tool
How the unique pressures of one sector have largely defined a market WELLNESS 38
Promising Wellness Adoption grows, and the new standard becomes more mainstream
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GAME ON REDWOOD CITY
CA
Centrally located in the Peninsula, Redwood City is a mecca of the gaming industry. And just like the game companies that have flocked here, we focus on strategy and outdoing the competition. At Colliers, our commercial real estate professionals are used to teaming up with one another to level up their knowledge and coming up with the best game plan for success. In the end, it’s our clients who win. And that’s a high score for everyone.
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This Issue INDUSTRIAL DEVELOPMENT 44
The SMART Way
A rail line reinvigorates the North Bay’s industrial product
WORD ON THE STREET 56 The Registry’s media partners speak about their most important goals for this year INVESTMENT 60
MULTIFAMILY 48
Approaching the Peak
Landscape changes for San Francisco’s multifamily market, but the main drivers stay mostly the same SENIOR LIVING 52
Fostering Growth
A community on the Peninsula transforms itself into a Boomer amenity
Land banking the Silicon Valley Way
Just as in the cycles before, so too in this one tech firms are taking land as fast it becomes available FINAL OFFER 64
Sandy Heistand
Director of Facilities & Real Estate at Advent Software 2015 President of the Northern California chapter of CoreNet
PUBLISHER
Vladimir Bosanac (415) 738-6434 vlad@theregistrysf.com
PRESIDENT
Heather Bosanac (415) 738-6434 heather@theregistrysf.com
DESIGN
Grizzles Creates
PHOTOGRAPHY
Contributors
Laura Kudritzki
ADVERTISING
Denise Franklin (408) 366-1984 df@theregistrysf.com
NEWS
news@theregistrysf.com
FEEDBACK
letters@theregistrysf.com
ETHICS POLICY
SONJA TRAUSS
GREG FOGG
Sonja Trauss is the founder of the SF Bay Area Renters’ Federation. After living in Philadelphia and St. Louis, where housing supply is not an issue, Sonja was surprised and distressed to discover the political pessimism around solving the Bay Area’s housing crisis. Drawing on her experience working for her neighborhood association in Philadelphia, Sonja began organizing renters to speak in favor of any and all large projects seeking approval before the planning commission in San Francisco. SFBARF is the ‘Increase Capacity’ arm of antidisplacement organizing in San Francisco and Oakland.
An avid marathon runner, golfer and fly fisherman, Greg Fogg has spent the best part of 25 years advising clients on a broad range of office lease transactions, from large headquarters to smaller, regional and local office leases. After graduating from Lake Forest College in suburban Chicago, Greg spent the early part of his career advising Bay Area landlords before deciding to focus his expertise on tenant advisory. Today, he is a leader within JLL’s tenant representation practice in San Francisco, where he also lives with his family. Greg speaks Spanish and is learning Mandarin. He is a member of San Francisco’s Olympic Club and sits on the real estate advisory board of City of Hope.
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The Registry embraces a strict ethics policy for its staff and contributing writers, including columnists and freelance reporters. No person employed by or affiliated with The Registry has accepted or will accept any compensation, monetary or otherwise, in exchange for editorial content. All information that appears in the magazine is selected solely for its informational value to readers. The Registry is a registered trademark of Mighty Dot Media, Inc. ©2015 Mighty Dot Media, Inc. All rights reserved. This publication and/or its contents may not be copied, reproduced or republished in whole or in part without the written consent of Mighty Dot Media, Inc.
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FROM THE PUBLISHER Welcome
I
have been attending more city council meetings lately. I’m not an insomniac, and I don’t live by myself—it’s just that these days there’s a lot of activity inside city chambers. Projects are reviewed, and for once the developers have to spill their beans about their plans. One of these meetings lasted until 6 a.m., and I just had to leave at 5 a.m. Missing dinner was hard enough, pulling an all-nighter in my forties was a step too far. The Cupertino City Council was allotting a limited amount of square feet and residential units to developers, and this particular meeting lasted for nine hours. If you think nine hours is an inefficient amount of time to spend on a meeting, consider that just a couple of weeks later the council scrapped all decisions made in that nine-hour session and started anew. Inefficiency is frustrating. It is an especially heightened issue in the Bay Area. It causes missed deadlines, which causes missed product launches, which causes missed market share, which causes missed revenue. You get the picture. Patience is thin here, and people will lose jobs. So, if actions in one inefficient city council chamber spread across the region, which they are starting to do, jobs move, and they move really fast. Do you remember how the ascension of San Francisco as a tech hub surprised almost everyone in the region? Employees wanted to live there, they wanted a gritty urban setting, so companies followed them and started hiring there. As a result, San Francisco today is squarely at the center of Silicon Valley, a concept that has evolved as quickly as companies had decided to open offices there. Now, some of our broader local inefficiencies are making companies rethink their growth in the region. It should be noted that I am in full support of other regions in the country growing. That rising tide will lift all the economic boats throughout our nation. But I live in the Bay Area, and my observation, albeit anecdotal, is that employment growth will slow down in our region, while it will pick up elsewhere, and this will be mostly because of our doing. Part of the companies’ consideration is driven by pure economics (an employee costs Salesforce.com half in Portland
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than it does here, according to a statement the company made about a year ago), but part of it is also driven by inefficiencies of our local decision makers. So, this is why we devoted part of this magazine to that exact issue. If you have not heard of Sonja Trauss, I hope that her edgy opinion piece on page 6 will make you more aware of your own personal stance of the residential supply. The SF Bay Renters’ Federation, an organization that she founded, may not be part of the everyday vernacular, but it represents the voice of a large silent group in this issue. That silence could be helping the development opponents increase our regional inefficiency. In our article titled Endless Summer is Just Starting, we look at the growth that Bay Area companies are exporting to Los Angeles and Phoenix. (Spoiler alert: Housing is also more plentiful there, and the two cities are happy to build more.) To me this is just one example of where growth will be concentrated and it illustrates the speed at which corporate decisions are made. I realize all our inefficiencies cannot be resolved quickly, but having attended city council meetings throughout the region over the past few months I am left to wonder why are we making large, regional policy decisions on a very small and granular scale in city chambers. Why is the city of Palo Alto evaluating a development cap in an effort to somehow magically insulate itself from the rest of the Bay Area? This is a rhetorical question, but the rhetoric at these meetings is very inefficient, as well.
VLADIMIR BOSANAC
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OPINION: HOUSING
Quality of Life vs. Quality of Life In March I had coffee with a San Francisco Planning Commissioner who preferred to remain anonymous. He is a 25-year San Franciscan and a homeowner. Our conversation turned to the conflict between preserving neighborhood character and building to accommodate population growth. WORDS
Sonja Trauss Laura Kudritzki
PHOTOGRAPH
“Ok, build 100,000 units, but where?” “Anywhere. Everywhere they are proposed. Whatever can be financed.” “Ok, build, build, build, but that’s really not good. Toronto did that, and now their quality of life is ruined.” “Toronto? Toronto has a reputation as a very nice city. It’s ruined? How many people live there?” “uh …” [it’s 2.5 million] “Do they have a problem with high vacancy rates? A lot of empty housing units? Falling population to evidence a low quality of life?” “Well no they have immigrants coming in all the time.” “Oh, so people are moving there, that must mean their quality of life is better in Toronto than it was where they came from.” “Well, yeah, where they lived before they were persecuted, or at an economic disadvantage, but, you’re missing the point, it’s about quality of life.”… I realized for a San Francisco home owner, the concerns of
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renters are theoretical. For people who already have housing security, the conflict raised by development is between the visceral, lived experience of their cute neighborhoods, on the one hand, vs. their empathetic imaginings of housing insecurity and unaffordable rent, on the other hand. It is very normal for people to make up their minds on issues based on their lived experiences. I shouldn’t be surprised to find a homeowner favoring his neighborhood's status quo. Later in the day I looked up rents in Toronto. I read that San Francisco is 149 percent more expensive than Toronto, and browsing craigslist made Toronto look even cheaper. I couldn’t resist emailing the commissioner, “Your comments about quality of life and Toronto reinforce my suspicion that "quality of life" and "neighborhood character" are enemies of elasticity and therefore affordability. Rent in San Francisco is 150 percent of rent in Toronto. A 30 percent rent decrease would add quality to a lot of people's lives.” His response:
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It is very normal for people to make up their minds on issues based on their lived experiences. I shouldn’t be surprised to find a homeowner favoring his neighborhood’s status quo. Sonja Trauss "Housing people is not just about price, which is where we mainly differ. If you take that argument to the extreme, we should be building warehouses for people in San Francisco like they have in Tokyo in some areas for travelers. We could build everybody who wants to live here one of those quickly and cheaply, but how many people do you think (yourself included) would want to live like that?" It’s not just about cost of housing in my philosophy or many of my fellow San Franciscans (both renters and property owners). I feel that it is too simple an argument to make. It’s about what life feels like here as well that also matters. What does “life feel like here?” For renters—people who couldn’t buy houses in 1990—what is our experience of that carefully preserved San Francisco character? Earlier in March The Bold Italic, an online magazine and events organization that works to advance San Francisco’s artistic spirit, published an essay by local writer and TV personality Broke Ass Stuart titled: San Francisco is Slowly Shifting Away From Being Our Neverland bit.ly/SF-shift, answering that question: "I am terrified of being evicted. ...if I lose my rent control, I pretty much have to move out of the city… I have always been a motherfucking hustler, but right now I’m hustling harder than I’ve ever had to in my life. The fear of losing my apartment and
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the torment of having been so successful artistically yet so broke, is pushing me to work 12-hour days most weeks. …faced with the reality that San Francisco now only seems to support your dreams if you dream in code, I’m grinding doubly hard, trying to make my projects profitable instead of just cool. Because I’m not ready to leave." The commissioner asked, “We could build everybody who wants to live here one of those quickly and cheaply, but how many people do you think (yourself included) would want to live like that?” Live with housing security? A rent rate that lets people work ordinary 40-hour work weeks? Rent levels that let me save money, plan for the future, protect myself from illness and one day maybe retire? Rent levels that allow me to have neighbors who can afford to pursue interesting, but not particularly lucrative projects? How many people want to live like that? Millions of people, I promise you, myself included. SONJA TRAUSS is the founder of SF Bay Area Renters' Federation. SFBARF are people who believe San Francisco's housing crisis can be mitigated by increasing the housing supply. The group organizes renters to testify in favor of new building projects at neighborhood meetings and hearings.
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TECH BATTLEGROUND
THE
MODERN DAY DEVELOPER DOWRY GOOGLE AND LINKEDIN FOCUS ON COMMUNITY BENEFITS TO WOO MOUNTAIN VIEW DEVELOPMENT APPROVAL WORDS NEIL GONZALES
TECH BATTLEGROUND
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An aerial view of Google’s North Bayshore campus proposal.
T
wo tech titans are headed for a showdown in their hometown of Mountain View—a land battle in the northern part of the city many consider the epicenter of Silicon Valley. Internet giant Google seeks to build a futuristic new headquarters measuring 3.4 million square feet while professional-networking leader LinkedIn wants to construct a regional destination hot spot that mixes office, entertainment and retail venues totaling 1.9 million square feet. Five other developers are also eyeing commercial projects in the same North Bayshore neighborhood. But Mountain View has only so much room to give. The city offers only 2.5 million square feet for commercial building based on its North Bayshore Precise Plan, which guides future growth and development in the area. “There’s X amount of space that the city will allow, and both companies want all of it,” said Andres Claure, Santa Clara-based senior vice president for the commercial real estate services firm Newmark Cornish & Carey. “It’s a tough play for either side.” The city asked applicants for their best proposal that produces enhanced community benefits, particularly transportation improvements. Google and LinkedIn are dangling some hefty carrots. Google’s community-benefits package provides pedestrian-bike bridges, expanded commuter shuttle service, a public safety building, a science center, wildlife habitat enhancements and other amenities in North Bayshore—a value of $200 million. On top of all that, Google would build affordable housing across town on land it owns at 800 E. Middlefield Road.
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It’s an unprecedented time now. We’ve received quite a number of proposals, and many of them are outstanding. Martin Alkire Principal planner for the city of Mountain View
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Rendering courtesy BIG & Heatherwick Studios, Rendering courtesy of Studios Architecture, Rendering courtesy BIG & Heatherwick Studios CLOCKWISE FROM LEFT
LinkedIn’s package is substantial as well. Worth an estimated $40 million, it features various transportation enhancements. While those are the two biggest contenders, they aren't the only ones. “It’s an unprecedented time now. We’ve received quite a number of proposals, and many of them are outstanding,” said Martin Alkire, principal planner for the city. The amount of public benefits offered by those looking to build in North Bayshore is “quite extensive,” he added. A major consideration for the city is what transportation measures the applicants can provide. “The precise plan lists priority transportation improvements,” Alkire said. “So one key of our review is what transportation improvements might be implemented by those proposals.” City staff members were still sifting through the proposals in March but expected to take the discussion to the City Council in late April or early May. At that point, Alkire said, the council could signal which proposal or proposals qualify. Whichever project is ultimately picked can then apply for a planning permit—a process that can take about a year, he said. After that, a project could be deemed approved for construction. Google’s proposal dwarfs the others in size and vision, featuring undulating domed mini-cities bubbling up from amid lush vegetation, trails and creeks. “We are proposing to redevelop four sites in the North Bayshore area of Mountain View—places where we already have offices but hope to significantly increase our square footage,” Google said in its plan summary submitted to the city. “Instead of constructing immovable concrete buildings, our plan creates climate-controlled enclosures around flexible ‘building blocks’ that can be moved around easily to create workspaces of different sizes. “Large, translucent canopies regulate climate, air quality and sound, and are made of lightweight ‘skin’ with solar sensors that track the sun. These canopies blur the boundaries between inside and out, and free indoor spaces from traditional architectural limitations like walls, windows and roofs.” This sci-fi-ish corporate campus would be ultra eco-friendly, exceeding LEED
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READ ABOUT MORE PROPOSED MOUNTAIN VIEW PROJECTS
bit.ly/registry-battlefield
Shoreline Commons will offer approximately 30,000-50,000 square feet specifically identified for small, local retail businesses including opportunities for existing business on-site to remain.
Google wants to transform its Silicon Valley headquarters by replacing static, concrete structures with flexible blocks of metal and glass arranged within giant greenhouses.
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Google and LinkedIn did not immediately respond to a request for further comment. Other applicants say their plans are significant, as well. Silicon Valley real estate icon The Sobrato Organization, for instance, is offering community benefits and transportation elements worth $24 million for a 703,148-square-foot high-tech office and research-and-development campus. The public benefits from Mountain View-based Rees Properties, which is looking to build a 190,876-square-foot office building, are valued at $8.9 million and include habitat restoration, toxic remediation and public-access improvements. “ … our submittal is powerful in its own right,” Rees Properties President Tom Rees said in an email. But Louise Mozingo, professor and chair of the Department of Landscape Architecture & Environmental Planning at University of California, Berkeley, described what’s happening in North Bayshore as going beyond companies competing for development rights. “Everyone is going to lose—the companies, public jurisdictions and environmental advocates—if they do not sit down and develop a coordinated water and energy efficient plan for densification, land use diversification and public transportation across the Silicon Valley from San Francisco to San Jose and beyond,” Mozingo said in an email. “This is a dead-serious regional metropolitan planning issue that, if not addressed, will not be able to cope with expected population and job growth and a post-peak water and oil future,” she said. “And the post-peak water future is already here.”
Rendering courtesy of Studios Architecture BOTTOM Rendering courtesy BIG & Heatherwick Studios
A southward view of the Retail Promenade, part of LinkedIn’s Shoreline Common’s proposed development.
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Platinum certification. Public benefits in this proposal include a new pedestrian-bike bridge from Leghorn Avenue on the south side of Highway 101 to one of the canopied structures, flood protection and an enhanced trail system along Permanente Creek, the expansion of an existing community commuter shuttle system from within the city into North Bayshore and Shoreline Regional Park, a police or emergency-services station, and a habitat for the burrowing owl. To sweeten the deal with the city even further, Google would build 150 housing units at its East Middlefield property if granted 1.5 million square feet of new net development in North Bayshore. But for every 10,000 square feet given above this level, the company would tack on an additional unit. Most of these units would be below market rate. “We are committed to working with the community to study potential areas for housing development in North Bayshore and the broader Mountain View area,” Google said in its plan. “While we remain committed to housing in North Bayshore, there is also a need for new residential units in Mountain View, more broadly. A higher level of allowable square footage makes it feasible for us to develop residential units at our 800 East Middlefield site, located a half-mile walk to the (Santa Clara Valley Transportation Authority) light rail line.” LinkedIn’s proposal is also ambitious, aiming to create a vibrant gateway village dubbed Shoreline Commons and anchored by a new company headquarters. It calls for a multiscreen movie theater, an athletic center, cafes, stores, offices and public open spaces, and buildings that achieve at least LEED Platinum standing. LinkedIn’s public-benefits package includes a pedestrian-bike bridge over Highway 101, other transportation upgrades and even a remodel of the city public library. “Shoreline Commons is not only about creating a new destination but also about creating new connections,” LinkedIn said in its proposal to the city. “With its pedestrian-bicycle access from the south, including a new bike-pedestrian bridge over Highway 101, broad sidewalks and ‘human scaled’ streetscapes, it will provide Mountain View residents and visitors a remarkable new link to the rich and complex habitats of the San Francisco Bay.”
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TECHNOLOGY FINALLY GAINS A FOOTHOLD IN AN INDUSTRY THAT HAD RESISTED GAINS MADE IN OTHER SECTORS
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TECH IN REAL ESTATE
There’s a Platform Ready For You In the heart of Midtown Manhattan, more than 350 leaders of an emerging market assembled in a bare commercial space amid exposed ducts, foil-wrapped insulation, and cold concrete columns and floors this past November. They came to talk and learn about the latest technology innovations for brokers, developers, landlords, tenants and others doing business in commercial real estate. WORDS
Neil Gonzales Jay Mantri
PHOTOGRAPH
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Commercial real estate is still “a lagging industry” when it comes to adopting technology, said Pierce Neinken, a veteran real estate professional who founded the symposium in 2012. “But we’re already seeing some key trends that are changing the way our business is done,” Neinken said. “The industry will look very different in five years, and it will be completely different in 10 years” given that technology can influence every stage of the CRE process. Whereas residential real estate has embraced technology with the likes of Zillow, Realtor.com, RedFin, and other Internet-based house hunting and brokerage services, the estimated $15 trillion commercial real estate industry has largely stuck to long-established tools and techniques such as fax machines, printouts, cold calling and poring over spreadsheets. The industry has been slow to incorporate innovations partly because big corporations have invested in old systems that
are costly to update, said David Mandell, CEO of Colorado-based PivotDesk, whose programs help brokers and startups find office space by connecting them with large firms that have surplus room. Until recent years, CoStar and its subsidiary LoopNet have been the predominant purveyors of technology on the commercial side, providing online information, analytics and listings on offices, apartments and other properties. But now a new and diverse generation of CRE tech firms has burst online in a post-recession boom economy. Over the past four years, tech has gained traction in commercial real estate as evidenced by the increasing number of firms entering this market space and the investment they are pouring into it. The attempt is to show how commercial real estate deals can be transparent and efficient, rather than the obscured, long-winded process that has been the norm for decades. “There’s a whole new group of people
out there trying to solve problems in our industry,” said Brandon Sedloff, senior vice president and head of global corporate development at the Urban Land Institute, a nonprofit real estate and land use research and education organization based in Washington, D.C. “There are so many new technology platforms. It went from zero to a bunch.” Among the rising companies are PivotDesk (shared office space), Auction. com (connecting buyers, sellers and brokers), Fundrise (real estate crowd funding), 42Floors (brokerage), Hightower (mobile commercial leasing platform), LiquidSpace (short term office rental), Procore Technologies (cloud based construction management) and VTS (leasing and asset management). These innovative companies are making strong inroads in such areas as crowdfunding, asset management, office sharing, data analytics, mobile applications and listings. They also are drawing prominent clients,
PHOTOGRAPH
courtesy of CRE//Tech Intersect
The office tower on the Avenue of the Americas held the biannual CRE// Tech Intersect symposium. The first of the two 2014 gatherings was held in San Francisco. The event returns to San Francisco on June 18.
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There are so many new technology platforms. It went from zero to a bunch. Brandon Sedloff Senior vice president and head of global corporate development at the Urban Land Institute
Omnipresent WORDS
Neil Gonzales
New technology has had such an impact on commercial real estate in recent years that the brokers are formally taking stock of tech's emergence and momentum. The CRE//Tech State of the Market Report 2014 is the brainchild of veteran industry professional Pierce Neinken and sponsored by commercial real estate services firm CBRE, National Real Estate Investor, DMG Information, The Durst Organization and other companies. The report is a byproduct of the CRE// Tech Intersect symposium that Neinken founded three years ago and features 51 firms representing innovations that target brokers, developers, landlords, tenants and investors in an estimated $15 trillion industry.
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PHOTOGRAPH
These firms and many more across the country as well as abroad cover every facet of the commercial real estate process with services ranging from crowdfunding to asset management and office sharing. “There is no area off bounds for these companies,” Neinken said. “These new tech companies are helping expedite the process and making it efficient.” But two areas in this burgeoning field are especially taking off, based on the number of new companies and amount of investment flowing in: crowdfunding and property management. Crowdfunding companies such as Fundrise and Realty Mogul link accredited investors directly to potential property deals. Property management firms such as VTS provide a platform to track transactions, manage space and access detailed real estate information. “We saw that the real estate capital market could benefit from efficiency and transparency,” said Benjamin Miller, who co-founded Washington, D.C.-based
courtesy of CRE//Tech Intersect
Fundrise in 2012 and serves as the CEO. “We thought there had to be an alternative to Wall Street.” Now a slew of companies have popped up in the crowdfunding sector. “I definitely see a lot of people jumping in,” Miller said. “The space is getting bigger.” Right now, Fundrise remains clearly at the front of the pack. In 2014, it raised more than $31 million in financing from a consortium of real estate, technology and financial institutions led by Chinese social networking company Renren Inc. and New York-based developer Silverstein Properties. Another major commercial real estate tech investment last year came from Google Capital. It put $50 million into Auction.com, which provides an online auction platform to market and transact real estate assets. It was through Auction.com that the Detroit Free Press building sold for more than $4 million to a group of Chinese investors last year. “We are absolutely seeing more and more tech come into the market” from online
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including from real estate investment trust giant Boston Properties. Sedloff noted that among the biggest trends in CRE right now is crowd funding, in which companies such as Fundrise and Realty Mogul link accredited investors directly to potential property deals. Another big trend is asset management, in which companies like VTS provide commercial real estate professionals with a platform to track deals, manage space and access detailed real estate information, he said. One prominent sector involves companies such as Hightower giving brokers mobile access to real-time data. “Traditionally, real estate data has not been updated, and you have to dig deep into a spreadsheet,” Mandell said. So the ability to have the latest information literally at your fingertips at any time is “a huge step forward.” Even large companies not traditionally
associated with commercial real estate are taking notice of these tech firms and using their services. Mass media corporation AOL, for instance, used PivotDesk to offer vacant space across the country to tech companies. “AOL wasn’t interested in driving extra revenue but wanted to improve relationships with innovative startups,” Mandell said. VTS lists Boston Properties, owner of the Embarcadero Center mixed-use complex in San Francisco, among its notable clients. Other CRE tech companies have worked with leading real estate services firms such as CBRE and DTZ, top developers like Tishman Speyer, and major financial institutions including Bank of America. Perhaps even more significantly, investors are pumping capital into CRE tech. In 2013, more than $45 million in investment flowed into this field,
according to Neinken. But in 2014 through early 2015, he said, about $180 million was raised. Earlier this year, VTS announced a $3.3 million partnership with investment firm Blackstone. “The commercial real estate industry has long relied on static information,” Jacob Werner, managing director at Blackstone, said in a news release. “VTS has been the driving force behind the industry’s much needed shift toward real-time data and has quickly become the clear leader in the marketplace. We are excited to partner with the team at VTS to grow the business and accelerate the shift toward a single industry standard.” Such investment backing in CRE tech indicates a growing eagerness in the traditional real estate establishment “to change how they have done things,” Sedloff said. “The more money is invested, the more companies there will be.”
We are absolutely seeing more and more tech come into the market.
information distribution to the processing of all the steps in a transaction, said Rick Sharga, executive vice president of Auction. com, which has headquarters in both Silicon Valley and Irvine. “I predict that 10 to 15 years from now the majority of transactions will be online.” But that doesn’t mean brokers will become obsolete. “Brokers are very important in securing listings from sellers, how to effectively stage properties for sale and being available to show properties for inspection,” Sharga said. “Brokers have that local market expertise and can add that beneficial context to the sale. Blended with what we do, that’s a powerful combination.” While the San Francisco-Silicon Valley region is considered the innovation hub of the world, it hasn't developed much commercial real estate tech. To be sure, there are some significant names here. The Bay Area is home to commercial real estate information pioneer LoopNet, and new firms such as Auction.com, 42Floors,
Motionloft and Monetarex. But most other companies in this field are based in the East Coast, particularly New York. Nearly half of the companies featured in the CRE//Tech report are headquartered in New York. That may not be a big surprise, considering the long-ingrained culture of real estate in the Big Apple. “If you’re the best and the brightest in New York, you go into real estate or finance,” Miller said. “If you’re the best and the brightest in San Francisco, you go tech.” Sharga had a similar take. “New York City has been the epicenter of the commercial real estate market forever,” he said. “Manhattan real estate is virtually 100 percent commercial real estate. So there’s an incredibly high concentration of brokers and financial institutions who lend money for commercial real estate purchases there.” Moreover, the West Coast has a different investment focus. “Money that in other markets might go into real estate is going toward future Facebooks here,” he said.
Rick Sharga, executive vice president of Auction.com, which has headquarters in both Silicon Valley and Irvine
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$1.4M average value of Bay Area small to mid-size projects in 2014 M average value of Bay Area small to mid-size projects in 2014 $1.4M $1.4M average average valuevalue of Bay of Bay Area Area smallsmall to mid-size to mid-size projects projects in 2014 in 2014
12/17/2014 9:52:42 AM
GROWING ELSEWHERE Tech firms are looking for growth in markets outside of the Bay Area, some spurred by difficulties posted by our region WORDS
Nancy Amdur Jing Chen
ILLUSTRATION
A
s Bay Area technology firms outgrow their existing office space, Scottsdale, Arizona, is emerging as a destination of choice for expansion. San Francisco-based Yelp, Weebly and Zenefits are among the tech companies that have debuted Scottsdale offices in recent years. “It started with Yelp a few years ago,” said Bryan Taute, a senior vice president with commercial real estate brokerage CBRE Group Inc. in Phoenix. In 2010, business-review company Yelp announced plans to move into downtown Scottsdale’s Galleria Corporate Centre, a converted shopping mall at 4301 and 4343 N. Scottsdale Road. The Galleria is now fully leased with firms including Zenefits and Weebly also occupying space there, said Taute, who worked on leasing the 537,110-square-foot property owned by Los Angeles-based Stockdale Capital Partners and Oaktree Capital Management, L.P. Tech companies were drawn to the Galleria in part because it offers the creative office space they typically crave, with high ceilings and large floorplates, Taute said. It also is located near amenities such as restaurants, bars and the upscale Fashion Square mall. Stockdale Capital Partners is offering more creative office space with a new 250,700-square-foot property dubbed Marquee at the District, slated to break ground in the third quarter this year and open by the end of 2016, said Dan Michaels, the managing director at Stockdale. The property will be Scottsdale’s first new office property built in about 15 years, Michaels said. The Marquee is being designed with tech companies in mind and will offer features such as large floor plates, Michaels said. Employers in Scottsdale can draw from a deep talent pool of graduates from local universities such as nearby Arizona State University—many of whom live in downtown Scottsdale. Labor also is less expensive in the market, Taute and Michaels said. “The attraction [to Scottsdale] is it is not as competitive a
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labor market and there is a lower cost of labor for certain types of jobs,” Taute said. “Real estate costs are [lower], too, and when you add up those cost savings, it’s a pretty impactful savings to the bottom line.” “San Francisco has gotten incredibly expensive, and in the meantime, startups are growing and looking to figure out how to grow smartly,” Michaels said. “What most people have thought about [Scottsdale] is, ‘That’s where my grandparents live,’ or ‘That’s where I go to golf.’ But it’s really transformed into [having] a very young vibrant educated workforce, and the kinds of downtown urbanization that you’ve seen across multiple cities is happening in Scottsdale.”
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THE RISING COMPETITION
When jobs leave the Bay Area, in larger numbers they are leaving for southern California WORDS
Nancy Amdur Jay Mantri
PHOTOGRAPH
22
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hile Silicon Valley has a worldwide reputation for its high-technology industry, another California tech hub is also thriving: Los Angeles’ Silicon Beach. Silicon Beach, an approximately three-mile span that takes in Santa Monica and Venice on the city’s Westside, is home to hundreds of tech companies. The roster includes high-profile brands such as Hulu, game publisher Riot Games Inc. and start-up photo messaging app Snapchat Inc. It also has large outposts of Google, Netflix, Amazon and Pandora Media. “Silicon Beach has become more established,” said Henry Gjestrum, a Los Angeles-based senior analyst for office research at real estate and investment management firm Jones Lang LaSalle Inc. It makes sense that Los Angeles and environs would attract tech firms, local real estate brokers said. “L.A. has always been a hotbed for innovation,” said Gary Baragona, director of research and analysis for CBRE Global Research and Consulting in Los Angeles. Aerospace, media and entertainment have historically had a large L.A. tech presence, but now social media, gaming, Internet, e-commerce and fashion design tech firms are in the mix, he said. “We like to say that we have the ‘sexy tech’ down here,” said Carl Muhlstein, a managing director in Jones Lang LaSalle’s downtown Los Angeles office. “That’s content related—we don’t make routers, we don’t make driverless cars… there seems to be more content related, social media and new media activity down here.” Already Silicon Beach office space is filling up and getting pricier, so tech companies are beginning to spread south into Playa Vista, El Segundo, Culver City and downtown Los Angeles, local real estate brokers said. Burbank and Pasadena also are seeing more tech activity. “The boundaries have been expanding,” Muhlstein said. “There’s no one submarket that can hold all of these [companies]. They’re becoming too large.”
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courtesy of JLL MAP
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Several companies have expanded their space by three to 10 times in the past few years, Muhlstein said. As an example, content delivery network Verizon/EdgeCast this year signed a 135,000-square-foot lease in Playa Vista after vacating 50,000 square feet in Santa Monica, he said. In West L.A., eight of the top 10 office deals in 2014 were technology or media/entertainment companies, Baragona said. These include a 134,000-square-foot Santa Monica lease inked by automotive research company Edmunds.com and Yahoo Inc.’s 130,000-square-foot lease in Playa Vista. Playa Vista’s emergence as a tech zone was underscored in December when Google scooped up about 12 acres there, next to the historic hangar where aviator Howard Hughes built his “Spruce Goose” airplane. The land carries entitlements for approximately 900,000 square feet of commercial development, said company spokeswoman Meghan Casserly. Google also “remains committed” to its 69,000-square-foot office in Venice, Casserly said. Facebook Inc., Microsoft Corp. and broadcaster TMZ also occupy space in Playa Vista. In 2013, the high-tech industry accounted for 9 percent of all employment in Los Angeles County and employed more than 368,500 people, more than any other metropolitan region in the nation, according to an October 2014 report by the L.A. Economic Development Corp. That beats Silicon Valley’s Santa Clara County, which employed 313,260 in the tech industry. Light rail already connects downtown Los Angeles with Culver City. The Metro system's Expo Line should have service all the way to Santa Monica early next year, according to Rick Jager, a Metro spokesman. Los Angeles housing is expanding to accommodate some of this industry growth. For example, Muhlstein noted that 2,500 residential units are under construction in Playa Vista and another 10,000 units are slated for downtown Los Angeles. A new transit line connecting downtown to the Westside also is in place, he said. As far as tech culture, Silicon Beach’s and Silicon Valley’s geography creates a notable difference. “In San Francisco, you feel like you’re very aware of all the different companies there, because it’s very easy to get around,” said Tara Tiger Brown, who moved to Los Angeles in 2008 after working in San Francisco at music startup Topspin Media, which was later purchased by Beats Music and then by Apple.
We like to say that we have the ‘sexy tech’ down here. Carl Muhlstein A managing director in Jones Lang LaSalle’s downtown Los Angeles office “When I first got to L.A., I was struggling to find out where startups were,” said Brown, who is a co-founder of KitHub and L.A. Makerspace. “You don’t necessarily walk to your local coffee shop and it’s all about tech, tech, tech like it is in San Francisco.” Meanwhile, Brown also is noticing tech companies leaving Silicon Beach for other nearby districts. She recently moved her office to Culver City from Santa Monica because the beach town “is incredibly expensive,” she said. Also, Culver City was more centrally located for employees. The average asking office rent in West L.A. was $3.70 per square foot for the fourth quarter 2014, according to a report by commercial real estate firm Colliers International. Silicon Valley’s average rent totaled $3.35 during that same period, reported real estate brokerage DTZ. However, average office rents in Silicon Valley’s Highway 101 Tech Corridor soared to $6.44 per square foot. Though price is important, tech companies also want access to talent and proximity to other tech firms, local real estate brokers said. Los Angeles tech companies can recruit from many area colleges, such as the University of California Los Angeles and the California Institute of Technology. Signals of sustainable tech growth in Los Angeles include increased interest from funding sources and tech talent nationwide seeking local jobs, said Robert Lambert, who founded Silicon Beach L.A. in 2011 to help connect the area’s startup tech community and whose company also hosts a tech industry job board. “We see a substantial number of individuals starting to look and make the move from [areas including] New York, San Francisco, Seattle and Boston,” Lambert said. “L.A. is firing on all cylinders.”
INDUSTRY BREAKDOWN INDUSTRY BREAKDOWN OUT OF MAP AREA OUT OF MAP AREA HEALTHCARE
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HEALTHCARE
RELOCATED TO PLAYA VISTARELOCATED TO PLAYA VISTA
PROFESSIONAL SERVICES PROFESSIONAL SERVICES
YOUTUBE
YOUTUBE
HOSPITALITY
HOSPITALITY
GENZYME
GENZYME
ARCHITECTURE
ARCHITECTURE
GAMEFLY
GAMEFLY
ENTERTAINMENT
ENTERTAINMENT
REGUS BUSINESS CENTER REGUS BUSINESS CENTER
FASHION
FASHION
ADVERTISING
ADVERTISING
ZYNGA GAMES NETWORK ZYNGA GAMES NETWORK
TECHNOLOGY & MEDIA
TECHNOLOGY & MEDIA
SILICON STORAGE TECHNOLOGIES SILICON STORAGE TECHNOLOGIES
EDUCATION
EDUCATION
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USING TECH
Real Time Real Estate Professionals in the industry are finding technology an indispensible tool WORDS
Joe Gose JesĂşs Sanz
ILLUSTRATION
26
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There’s not a moment of my existence that I’m not focused on technology. It permeates everything we do now. Thomas Poser A senior vice president in JLL’s San Francisco office
F
or years, the real estate industry was largely considered a laggard when it came to adopting technology. But that reputation is changing, especially with the millennial generation now launching careers in the brokerage business. This new generation came of age at a time marked by rapid technical innovation. Millennials embraced technology early and apply it much more willingly than real estate professionals who navigated the “dark age” of fax machines and hard-wired phones, said Dominik Slonek, principal and managing director for Avison Young in San Francisco. “The business has completely changed with Twitter, Facebook, LinkedIn, and even Snapchat and Instagram,” he said. “All of these things are being used in business, for business, by business. In the past you left a voicemail or sent a fax; now transmitting pictures or documents is instantaneous.” Toronto-based Avison Young has been in an aggressive expansion mode after it entered the U.S. market in 2009. Since opening its San Francisco office in 2012, the firm has expanded to Sacramento, San Mateo and Oakland, and its Bay Area roster has grown to 70 from six. The brokerage is aiming to add offices in the Silicon Valley and Walnut Creek, among others. “We’d like to have eight to 10 dots on the map in the Bay Area,” Slonek said. Like other brokerages, Avison Young has fully adopted technology. The firm uses applications like Dropbox for document storage and sharing, for example, which has allowed it to forego costs associated with servers and other infrastructure while accessing the information from just about anywhere, Slonek said. Avison Young also is adopting customer relationship management software, he added. Meanwhile, Austin, Texas-based startup RealMassive, an online provider of “real-time” information about commercial property listings, lists Avison Young alongside Jones Lang LaSalle, Colliers International, and other brokerages and landlords among its clients. RealMassive recently added Oakland and Silicon Valley to its marketplace, which now exceeds 4 billion square feet. From using smart phones to snap and immediately send property images to clients, to “blasting” content from a blog to Twitter or Facebook, technology’s integration in commercial real estate has all but consumed the industry, suggested Thomas Poser, a senior vice president in JLL’s San Francisco office.
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“There’s not a moment of my existence that I’m not focused on technology,” he said. “It permeates everything we do now.” Among other technologies, Bay Area JLL offices midway through 2014 began using Blackbird, a proprietary, three-dimensional visualization tool developed by the national brokerage. It allows potential tenants to virtually tour buildings and walk around surrounding neighborhoods when searching for space. “We’re used to vetting buildings on paper before hitting the streets,” said Steffen Kammerer, a vice president in JLL’s Palo Alto office. “Now people can get a sense for the surroundings without getting into a car.” That provides a nice boost to efficiency when covering territory stretching from South San Jose to Fremont to San Francisco, he added. Blackbird also can provide prospective tenants with an idea as to what their working lives will be like in buildings that are still on the drawing board or under construction, Poser said. Similarly, condominium marketing and sales company Polaris Pacific has started using three-dimensional cameras developed my Mountain View-based Matterport. The technology maps rooms in a home and “stitches” them together, allowing potential buyers to walk through the properties. The technology is especially going to be useful to program design concepts into large luxury penthouse shells that are coming online, said Kathryn Baker, head of design services for the company. “It’s definitely a huge enhancement from my perspective,” she said. “It enables my design team to share the link even with overseas buyers so that they can virtually experience the space.” Despite technology’s pervasiveness, real estate remains a relationship business and requires professionals to adhere to timeless fundamental principles like conducting due diligence by physically walking neighborhoods and inspecting properties, Poser said. Additionally, transacting business at the speed of light sometimes presents challenges when it comes to allowing too much information out into the public, added Slonek. “There’s a lot of transparency in technology, and sometimes it can get in the way of your fiduciary duty to the client,” he said. “Even though you have a Facebook page, you don’t want to put something on it that you wouldn’t want to see on the front page of the newspaper.”
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DIVERSITY OF TECH
SILICON VALLEY TECH TENANT TYPES 53.3%
SOFTWARE & CLOUD
27.9%
HARDWARE & SEMICONDUCTOR
5.4%
NETWORK & IT
4.8%
TELECOM
2.6%
CLEANTECH & SOLAR
2.3%
APPS & GAMES
2.1%
WEBSITES
1.4%
PRODUCT DESIGN
0.3%
SOCIAL MEDIA
2014 TECH TENANT TYPES IN SILICON VALLEY DATA
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Newmark Cornish & Carey
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UBIQUITOUS TECH
F
Is the restructured tech industry downturn resistant? Maybe, but worries are mounting
ifteen years ago, the dot-com frenzy fueled a commercial real estate boom in Silicon Valley. Venture capitalists handed out more than $100 million in funding in 2000 alone. Aware of the largesse, office landlords were fetching rents upward of $50 per square foot a year, and the average vacancy rate hovered around 3 percent as startups aggressively pursued IPOs.
But when the dot-com bubble popped, so did the heady fundamentals. Some 200,000 jobs vanished, the average office vacancy ballooned to around 35 percent to 40 percent when including sublease space, and the rental rate plunged some 60 percent. Now, with the Nasdaq Composite index flirting with its early 2000 historical high of nearly 5,049 and venture capital funding hitting $48 billion last year—its highest level since 2001—the
debate has resumed over whether a bubble is once again artificially inflating Silicon Valley property fundamentals. In 2014, technology tenants absorbed 17.8 million square feet of office, research and development, industrial and warehouse space in the market, according to Clark Steele, director of research for the Santa Clara office of Newmark Cornish & Carey. That represented about 56 percent of all commercial real estate leased in Silicon Valley over the year.
WORDS
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Joe Gose
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SILICON VALLEY EMPLOYMENT
Detailed Innovation Industries and All Other Industries, Q1 2014
On average, technology tenants absorbed nearly 4.5 million square feet each quarter, with office and research and development space accounting for 1.3 million square feet and 1.7 million square feet of that total, respectively. In 2014, asking rental rates for office space increased 7.6 percent, while the average vacancy rate tumbled some 240 basis points to about 9.8 percent, according to Newmark Cornish & Carey. Despite the hotter fundamentals, Steele and other Silicon Valley analysts say that the market is better equipped to withstand a potential downturn today. “There is a much wider and more stable foundation of technology companies than in the dot-com boom,” said Steele. “It was the dot-com boom because it was Internetbased. But now we’re looking at bridging the gap between technology and different industries. Technology is not just on the Internet, it’s made its way into business, our homes and even our clothes.” Steele has divided technology tenants into nine sectors: software and cloud services, hardware and semiconductors, telecommunications, networking and information technology, clean tech and solar, Web sites, apps and games, social media and product design. Of those, software and cloud services occupy 53.3 percent of the space leased to tech, while hardware and semiconductors occupy about 28 percent. Companies in each of the remaining categories occupy around 5 percent or less. That diversity combined with an expanding biotech sector and established behemoths like Google and Facebook bode well for the overall economy to weather a slowdown, agreed Greg Martin, head of the real estate practice group with accounting and consulting firm Moss Adams in San Francisco. “The Bay Area tech economy has matured over the years, and while there are always economic cycles to business, the diversity of the technology industry here is as wide as the diversity of the U.S. and global economy as a whole,” he said.
ALL OTHER INDUSTRIES 74%
Specialized Innovation Services 8%
ICT Product & Compinent Manufacturing 6%
INNOVATION INDUSTRIES 26%
Share of Total Economy Other High-Tech Production & Manuacturing < 2% Clean Tech < 2% Other Medica & Broadcation < 1% Internet & Information Services < 1% Telecommunication Sevices < 1% Medical Devices < 1% Biotechnology & Pharmecuticals < 1% Aerospace < 1% DATA SOURCE Institute for Exceptional Growth ANALYSIS Collaborative Economics
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Software 6%
Companies
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EVOLUTION OF SILICON VALLEY 1991 Cold War Defense Cuts
1988 Semiconductor Competition Intensifies
1993 Internet Commercialization
2001 Internet Bubble Burst
2008 Recession
1.75
08
01 93
91
88
MILLIONS OF JOBS
13 in 2012, according to New York-based SecondMarket, a private securities trading platform. “Fifteen years ago, a lot of the companies that were launched and supported by substantial amounts of venture capital were really just ideas. They may have had a business plan, but not a real product or service,” said Steve Wright, a senior vice president of the Silicon Valley Leadership Group. “This time around the venture capital community has been much more proactive in making sure there is a
Business Startups Act now allow companies to stay private longer. The JOBS Act increased the number of company shareholders allowed to 2,000 from 500 before requiring registration with the Securities and Exchange Commission. The median age of a tech company conducting an IPO was only four years back in the dot-com boom, according to J.P. Morgan. Now it's more than 10 years. At the same time, the number of venture capital-backed firms valued at more than $1 billion has increased to 75 from
“Plus, technology drives future business improvement and innovation.” The current crop of young tech companies departs from the past in another way: Following a path largely blazed by Google, most companies are content to remain private rather than rush to an IPO, which provides more time for startups to beef up their operations and financial condition. While the IPO market effectively shut out small speculative tech companies after the dot-com bust, changes to securities regulations in the 2012 Jumpstart Our
1.50
1976 Commercialization of the Integrated Circuit
1.25
76
1ST WAVE DEFENSE
2ND WAVE
3RD WAVE
INTEGRATED CIRCUITS
4TH WAVE
PERSONAL COMPUTER
5TH WAVE
INTERNET
SOCIAL MEDIA
1.00 2013
2010
2005
2000
1995
1990
1985
1980
1975
Key Companies/Organizations 1950s-1978 Standford Research Institute, NASA Ames, Lockheed Missile & Space Division, FMC/ United Defense, Stanford Industrial Park: including Varian Associates, Hewlett Packard and others
1979-1986 Shockey Semiconductor, Fairchild Semiconductor, Intel, AMD, National Semiconductor; over the period, more than 50 firms were working to develop or produce semiconductors in Silicon Valley
DATA SOURCE
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1987-1996 Xerox PARC, SRI Homebrew Computer Club, Apple, with at least 15 more computer companies active in the region
1997-2005 Netscape, (Mosaic Communications), Cisco, Google, SRI were key innovators; hundres of companies active in the region
1950s-1978 LinkedIn and Facebook scaled their business in Silicon Valley; joined now by hundreds of social media companies
Employment Development Department, Labor Market Information Division ANALYSIS Collaborative Economics
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The Bay Area tech economy has matured over the years, and while there are always economic cycles to business, the diversity of the technology industry here is as wide as the diversity of the U.S. and global economy. GREG MARTIN, HEAD OF THE REAL ESTATE PRACTICE GROUP WITH ACCOUNTING AND CONSULTING FIRM MOSS ADAMS IN SAN FRANCISCO
worthwhile product or service in which to invest.” Wright and Steele acknowledge that concerns are mounting over multibillion-dollar valuations for some companies, particularly those without revenues that harken to the dot-com days. Yet exit strategies have evolved as well. While some companies have a path to monetization and are striving for an eventual IPO, others are focused on being acquired by established companies
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like Google, Facebook or Hewlett Packard that need the technology or brainpower to move into new markets, Wright said. “Many investors don’t expect the startups to sustain themselves as standalone companies,” he said. “Mergers and acquisitions are a big part of the ecosystem in the valley.” From a real estate perspective, tech companies are also making more rational decisions today, added Steffen Kammerer, a
vice president with JLL in Palo Alto. During the dot-com boom, startups often leased double the amount they initially planned to occupy in anticipation of rapid and substantial business expansions subsequent to an IPO. It wasn’t realistic. “When there was a turn in the economy, the valley was left with a bunch of excess space at inflated pricing,” he said. “And all of a sudden, there was a firestorm to get rid of it.”
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LEASING IN TECH
F O E D I D S N N A W M E O D D E H C H T ING TE G R SU WO
104%
FOGG G E R RDS G
A SE INCRE
C
B
A
SOURCE
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JLL
1997
1998
1999
2000
2001
2002
2003
2004
2005
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2006
F O S E R SU S E R P UE ARGELY Q I N U HE HAVE L T W O H SECTOR KET ONE ED A MAR DEFIN
SE NCREA 101% I
W
D
DIRECT ASK ING RENT
VACANCY
2007
2008
2009
2010
2011
2012
2013
2014
hile San Francisco has derived many benefits from its current position as a technology hub, the unique dynamics influencing how most tech companies negotiate for office space create challenges for non-tech tenants. Put simply, the tech paradigm is often about getting the space fast, no matter the cost; while non-tech tenants emphasize cost mitigation by employing a more deliberate process. Consequently, non-tech users can find themselves navigating a market environment characterized by dominant tech demand and landlords who have shifted their leasing strategies and expectations to cater to that demand. Despite this fact, there is still leeway for non-tech tenants to leverage their relative stability and reduce costs in an otherwise one-directional, upwardly trending environment. Why is the tech paradigm for procuring office space so different from that of most other tenants? One word: Competition. Everything about the tech sector is hyper competitive, from getting funding to attracting talent to securing office space. The clear objective is to be first to market. Typically, the very next step after the first significant round of funding is securing office space to help in attracting the best talent available. Having cool office space can be a valuable differentiator in the recruitment process. Despite the importance of office space to their overall success, most tech companies are under so much pressure to solve the space
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I believe the San Francisco office market is really two markets; the First Market captures all the headlines and is characterized by high rent and high risk tenancy; and the Second Market consists primarily of non-tech or mature tech tenants. problem that they canâ&#x20AC;&#x2122;t afford the time necessary to design and build new space. Avoiding delays outweighs the benefits of being more disciplined in the space selection process. By default, the approach is all or nothing. This makes sense because whether the company succeeds or fails, the cost of office space is inconsequential. Conversely, the cost of being slower to the market because you took too long securing office space is unforgivable. Not surprisingly, landlords have become adept at leveraging the tech paradigm to
36
maximize leasing profit. They pre-build space to appeal to tech users and they seek to create bidding wars among several parties. Itâ&#x20AC;&#x2122;s a brilliant strategy as it plays into the competitive narrative that fuels the sector. In fact, the only downside to leasing space to young tech companies is the inherent risk of failure. Some landlords hesitate when faced with the uncertainty of a startup tenant. It is this hesitation that provides non-tech tenants their opportunity to impose a more reasonable pace to the negotiation process and to
create leverage to lower costs. Nearly all of our clients outside the tech sector view office space through the primary lens of long-term cost management. They are disciplined about leasing as little space as necessary. Future growth is solved through options and other rights that provide the possibility of expansion space but not the obligation to lease such space. Multiple buildings are evaluated and compared on a host of qualitative and quantitative issues. These companies recognize that a rash real estate decision made by
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them can have significant negative impact on their business, maybe even causing failure. They view the San Francisco office market as a market in which you can get it wrong. In fact, San Francisco is among the most volatile of all global office markets. The chart headlining this article shows the interplay of vacancy rates and rental rates over the period beginning Q2 1997 and ending Q4 2014. In the so called dot-com cycle of the late 1990s and the current cycle, rental rates for San Francisco office space have spiked more than 100 percent due entirely to the tech sector. The rapid decline of the office market in 2000 was also caused entirely by the deflating tech bubble. Today, the San Francisco market has even greater exposure to tech. The sector has steadily increased its overall share of leased office space. Any downturn in tech will result in the introduction of substantial amounts of sublease space to the market, which, in turn, will create competition for landlords and result in a market-wide decline in rents. It is illogical to suggest that a sector that has always been highly volatile is now stable. The San Francisco office market will, once again, experience a sharp downturn caused by a faltering tech sector. The question is when. Stability, profitability and history still matter. I believe the San Francisco office
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market is really two markets functioning on a parallel basis; the First Market captures all the headlines and is characterized by high rent and high risk tenancy; and the Second Market consists primarily of nontech or mature tech tenants and reflects transaction values that are discounted from the First Market. My view is that landlords should be willing to provide good credit, stable tenants a value incentive to lease. Of course, not all landlords will agree. I have directly experienced the interplay of the First and Second Market on numerous occasions during my career. In one instance, my non-tech sector client was assessing a potential site at the same time as a tech tenant represented by a different broker. Before we could even finalize the terms of our first proposal, the tech tenant had agreed to the landlord’s proposed terms. Conversely, I’ve seen landlords “blink” when attempting to leverage demand from a tech user to force my strong credit, non-tech client to pay First Market rent. Second Market transactions are typically discounted by 15 percent to 25 percent over comparable First Market values. To be sure, transacting in the Second Market is a challenge that requires patience, careful planning and a keen understanding of landlord motivations.
We are fortunate to live and work in one of the great innovation centers of the 21st century. However, the tech sector has outsized influence on our local office markets, despite the fact that the majority of San Francisco tenants are non-tech. To survive, these companies must be strategic in selecting a landlord who is otherwise cautious about tech exposure; in this environment, the motivations of the landlord are as important as the quality of the building. The silver lining is that many landlords are careful about committing a large percentage of their project to tech, especially early stage companies. By exercising discipline and remaining skeptical of those who proclaim,"...it's different this time," non-tech companies can avoid being captive to the current trend and survive to see another cycle. GREG FOGG is a Managing Director at JLL and a 25-year industry veteran. Early in his career, Mr. Fogg negotiated on behalf of major bay area landlords. For the past decade, he has brought his unique perspective to tenant clients, advising on a broad range of office lease transactions, from large headquarters to smaller, regional and local office leases. He specializes in helping companies build leverage resulting in lower costs and optimal solutions within the San Francisco Bay Area marketplace.
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WELLNESS
CBREâ&#x20AC;&#x2122;s office in Los Angeles.
38
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PRO MIS ING WELLNESS
Adoption grows, and the new standard becomes more mainstream WORDS
Robert Celaschi Ryan Gobuty
PHOTOGRAPHS
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W
hen introducing a voluntary building standard, it's crucial to get big names on board to attract attention and lend credibility. Delos Living managed to get several well-known companies to explore its Well Building Standard even before formally introducing it in the fall of 2014. So now, even in its infancy, the International Well Building Institute can point to commercial brokerage CBRE and office interiors company Haworth as early adopters, along with the Conrad R. Hilton Foundation and Australian investment banking firm Macquarie Group. While the best-known building standards award points for the way structures are built, the Well Building Standard examines how a building is run. It focuses on human wellness as affected by air, water, nourishment, light, fitness, comfort and the mind. It takes a passing score in all seven categories to earn certification, as measured through an on-site audit after occupancy. In Los Angeles, CBRE Group's global corporate headquarters created the worldâ&#x20AC;&#x2122;s first Well certified pilot office in the top two floors of a 26-story, LEED certified office tower. CBRE already has an internal group that advises clients on how to make the most of spaces they occupy, suggesting ways to increase efficiency and collaboration. In laying the groundwork for its new downtown Los Angeles office, CBRE decided to take its own group's advice.
The Bay Area tech economy has matured over the years, and while there are here is as wide as the diversity of the U.S. and global economy. GREG MARTIN, HEAD OF THE REAL ESTATE PRACTICE GROUP WITH ACCOUNTING AND CONSULTING FIRM MOSS ADAMS IN SAN FRANCISCO
Haworthâ&#x20AC;&#x2122;s office in LA.
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"They were able to come in and tell us a lot about how we were utilizing our space," said Onno Zwaneveld, executive vice president at CBRE. The old space was laid out much like an old-school law firm, with lots of swagger but not much opportunity for interaction. The new design would have innovations such as 100 percent free addressing. That is, people who have no fixed work space, and technology would allow them to plug into whatever place dovetailed best for their needs that day, or even from hour to hour. But CBRE soon ran into some practical problems during testing. Nobody wanted to be the next person to use a workspace where the previous person had gone home sick, or even sneezed too much, Zwaneveld said. It was about that time that he learned of the work Delos was undertaking, including Well Shield, a coating that can break down bacteria and viruses. CBRE investigated further and liked the fact that Well Building certification requires on-site testing. And because some actions satisfy both LEED and the Well Building standard, it made sense to strive for both, Zwaneveld said. The office opened in the fall of 2013. A post-occupancy survey, while subjective, showed 92 percent of employees saying the new space improved their health and well being, and 94 percent said it helped their business performance. For instance, the main staircase connecting the two floors produces lots of incidental interaction. Well Building certification has not been made mandatory across CBRE, but offices in Vancouver, Madrid and Amsterdam are exploring the idea.
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SPACE TO ACCOMMODATE THE UNEXPECTED. For more information 415.457.4964 warehamdevelopment.com
The perfect space has plenty of room for your people, your clients, and, of course, your breakthroughs. Thatâ&#x20AC;&#x2122;s the Wareham Development philosophy. From cutting-edge startups to Fortune 500 giants, leading innovators have been drawn by our purposeful design, abundant amenities, proximity to colleagues, and our commitment to sustainability. We invite you (and your ideas) to discover what we mean.
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Palo Alto
Sun Valley, ID
"Once you have worked in this type of environment, I think some employees would give consideration to whether they would work in a non-Well certified space," Zwaneveld said. "That creates a little 'stickiness' form an employeeretention standpoint." Haworth, based in Holland, Mich., has earned Well Building certification for its Shanghai office, and is aiming to get certification for its Los Angeles showroom later this year. The company regularly gets bombarded with sustainability proposals, said global sustainability manager Steve Kooy, â&#x20AC;&#x153;but wanted to explore the Well Building Standard in part because it covered ground that LEED doesn't." "Once we explored it more, as someone that supplies architectural interiors, the Well Standard is really well-equipped to have conversations with interior designers," Kooy said. "It gets us into some new questions." Because the standard is based on building performance, not construction, design requires a more collaborative approach, he added. "You really need to bring in the occupants early, the leadership," he said. "This is not just a building change, it's a culture change." So in addition to the construction team he recommends having someone from Human Resources, someone with a lighting background, and someone who understands acoustics. Even leases come under new scrutiny, such as the way janitorial services are performed, and the kinds of chemicals that might be used. This can inflate the construction budget, but it can be earned back, he said. With a healthier, more pleasant place to work, employees will have more reason to stick around, reducing recruiting expenses. Like CBRE, Haworth is making itself something of a guinea pig. As it gets its Los Angeles showroom online, the company also is doing a wellness study on its existing Santa Monica showroom to see how it compares. "We are going to wait and give [ourselves] six months. From a science perspective, we think it is important to do the research," Kooy said. The company already knows the new standard is good; now it aims to discover how much of a difference it really makes.
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INDUSTRIAL DEVELOPMENT
THE SMART WAY A rail line reinvigorates the North Bayâ&#x20AC;&#x2122;s industrial product Robert Celaschi Nicholas Douman RENDERING courtesy of Napa Logistics Park WORDS
PHOTOGRAPH
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mprovements in freight rail service are giving a boost to industrial development in the North Bay. From American Canyon through Napa, and along the Sonoma-Marin Area Rail Transit corridor through Marin and Sonoma counties, freight rail is taking on a higher prominence. Historically, the North Bay has been thin on freight access, with the Golden Gate Bridge and Highway 37 as the main routes. Freight access to the Northwestern Pacific Railroad ended previously in 1999, and even then only minimal portions of the line were in service, noted Jordan Riesenberg, a research analyst for Jones Lang Lasalle. That changed starting in 2011 after repairs to a key element in the system, the Brazos Bridge over the Napa River. At the same time, the Sonoma Marin Area Rail Transit District has been upgrading the rail line from San Rafael to the Sonoma County Airport. While SMART is strictly a passenger line project, it has agreements with the North Coast Rail Authority to run freight along the same tracks. The NCRA owns the continuation of the line from Healdsburg north to Eureka. Freight service on the SMART tracks currently runs about three times a week, said SMART spokesman Matt Stevens. Right now it's mostly to bring in feedstock for dairies in Petaluma and Santa Rosa. But the capacity is there for more. Having the right buildings will be important, said Elliot Williams, Jones Lang LaSalle's research manager for the Northern California Industrial market. Tall, clear height distribution space is
hard to come by all across Northern California, he said, and "users are so constrained with existing inventory that they are looking at new geography." Industrial space in the Oakland-Fremont area is currently renting at about 55 cents a square foot, triple net, about in line with prices in the North Bay. The Central Valley is much cheaper, but also much farther. "If your production is up in the North Bay, it probably doesn't make sense for your distribution to be 90 miles away in the Central Valley," Williams said. "Transportation is really one of the most expensive line items, whereas the cost of real estate is much further down that list. If you are able to optimize your transportation network to have a warehouse closer to your production, you are willing to pay a bit of a premium for that property." Already local wine storage and distribution has pushed down North Bay vacancy rates from 8.4 percent to 7.5 percent in the last 12 months, Riesenberg said. Improved freight rail eventually could help make the submarket a major distribution point for goods coming in from as far away as southwestern Oregon. Developers already are touting their rail access. Lombard Crossings Industrial Park, a project of ICC/Stravinski Development Group and Hess Development, puts rail access at the top of its list of amenities. Napa Logistics Park, being developed in American Canyon by DivcoWest and Orchard Partners, uses a diesel locomotive as the dominant art in its logo. The 218-acre project sits next to the Union
Napa Logistics Park has room for 2.7 million square feet of warehouse and distribution space.
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Entitled and approved land is the key. Once you have it, the market is working for you.
PHOTOGRAPH
Port of Oakland
Pacific tracks less than 40 miles from the Port of Oakland, putting it closer to the port than Tracy. Napa Logistics Park has room for 2.7 million square feet of warehouse and distribution space, though the first phase calls for only one warehouse building totaling about 646,000 square feet. It is expected to be completed in the third quarter this year. Rail access is a big asset said Greig Lagomarsino, executive vice president of Colliers International in Oakland, one of the brokerages handling the property. "It's the difference between making the deal or not," he said. Like a lot of places that once were considered secondary markets, the North Bay is becoming a prime target, he said. But rail is only part of the North Bay equation, said Brooks Pedder, senior managing director with brokerage DTZ in Walnut Creek. The widening of Highway 12 to a four-lane divided highway is also "a big, big deal" for shipping freight, he said. Just having developable land is a big advantage. Wetland permits, onsite improvements and offsite improvements can be big barriers to entry in the market. "Entitled and approved land is the key. Once you have it, the market is working for you," he said. Five years from now, there will be no significant empty land left, he said, and creating new industrial properties will require a bulldozer.
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MULTIFAMILY
A temporary facade at Trinity Plaza Apartments.
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Approaching the Peak Landscape changes for San Francisco’s multifamily market, but the main drivers stay mostly the same WORDS
Robert Celaschi Laura Kudritzki
PHOTOGRAPH
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an Francisco's multifamily market is nearing the top of its cycle, according to at least two commercial real estate market reports. But being San Francisco, it's likely to be a broad top as demand is still slightly exceeding supply. Integra Realty Resources' annual Viewpoint report forecasts San Francisco having net absorption of only 370 units a year through 2018, down from an average of 1,148 for the past four years. The report pegs San Francisco as passing through the final stages of an expansion phase. "It is important to note that these are net absorption figures. So this number reflects the number of units absorbed after factoring in new construction," said Brady Barbier, managing director at Integra's San Francisco office. "The positive 370 units reflects that, despite the significant number of units coming on line in the next three years, all of these units and then some are expected to be absorbed, resulting in a slight downward impact on the vacancy figures in San Francisco." All three Bay Area submarkets—San Francisco, the South Bay and Oakland—saw strong multifamily net absorption over the past three years as the tech boom lured new residents faster than new supply could be built. Now supply is finally catching up, Barbier said, bringing a stabilizing effect to rental rates. Large multifamily projects are just now coming online in Oakland and the East Bay, so Integra expects net absorption figures there to stay strong in the near term. The East Bay also benefits from some renters getting priced out of the San Francisco market and heading over the Bay Bridge, with a major focus on locations at or near BART stations. Even Walnut Creek and Concord will benefit from this eastward migration, Barbier said. Concord is in the process of evaluating three options for a massive 1,000-acre master planned community that could bring as many as 5,400 housing units, all of which would be minutes from the BART station.
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Given the difficulties associated with entitling and developing in San Francisco, the city rarely gets overbuilt, he said. Paragon Real Estate Group also shows buying activity slowing down, but not for lack of interest. While there are fewer multifamily listings, they are selling faster. The average time on the market dropping to 50 days in the fall of last year, the Paragon report said. Because of the huge variety of multifamily properties—size, age, location and quality of buildings—median and average statistics are gross generalities, Paragon cautions. But the story is in the overall trends. About 3,100 residential units of all types—rental, sale and social-project—were built in San Francisco in 2014 and almost 7,000 are currently under construction in the city, Paragon said. "Adding large quantities of new inventory should eventually affect the recent, high-appreciation dynamic for both sale and rental markets, but so far, population, employment, wealth and buyer demand have continued to outpace supply," the report concluded. The only spike in San Francisco inventory came in the month after Labor Day last year, possibly driven by seller concerns over Proposition G. That measure would have imposed an extra transfer tax on multifamily properties owned less than five years. After Prop. G was defeated in November, the spike in listings ended. Average values per square foot have been climbing since the market hit bottom in 2009, and last year it reached $435 in San Francisco. Overall, values per square foot have increased more than 60 percent since the bottom of the market in San Francisco and Alameda counties, Paragon reported. Combining all these factors makes this a great time to unload multifamily property all through the Bay Area. "However, the expectation is that apartments in prime locations will continue to cash-flow very well, and this property type has historically provided a very stable investment, so many owners
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want to stay in the market and enjoy this steady income," Barbier said. The strongest demand now is for the smaller and older properties, he said. Investors see upside potential in capturing higher rents through renovations or turnover from rent control units, or both. "The bigger players in San Francisco essentially see the multifamily market in the city as poorly managed by primarily 'momand-pop' owners that don’t know how to maximize net income or don’t have the resources to do it like a larger operator does," he said. Those resources include leasing teams, management teams and construction teams. But demand stays so strong in San Francisco and the most desirable parts of the South Bay that many owners feel confident holding on despite the high selling prices because they are confident in the cash flow, he added. There's one more explanation of how the market is shifting, this one from Brad Lagomarsino, executive vice president at Colliers International. In the Great Recession, large portfolios of multifamily properties were taken back by lenders. As the market went back up, speculators grabbed some of that for a few years and sold it off.
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The bigger players in San Francisco essentially see the multifamily market in the city as poorly managed by primarily 'momand-pop' owners that don’t know how to maximize net income or don’t have the resources to do it like a larger operator does." Brady Barbier Managing director at Integra's San Francisco office
"All that inventory has been sold off by institutions to private equity," Lagomarsino said. Those who bought in the last round are long-term investors he added. Some mom-and-pops are selling now, but there has been such a run-up in rent that owners wonder what they could trade into that would justify selling in this hot market. "There are certainly people who are sick of management, going through a divorce, or inherited an asset and can't afford it. But that is a very small percentage of who owns property in San Francisco," Lagomarsino said. The private client market has owned these buildings for generations and live off it."
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BOMA and SFSU...
APRIL LEADERSHIP SYMPOSIUM
Helping Students Launch Their Commercial Real Estate Careers BOMA San Francisco thanks these companies who hired San Francisco State University students as interns in 2014, many of whom now work in commercial real estate. April 02: The MAGIC of an Engaged Team April 16: From Mad Men to the Modern Woman: Bridging the Gender Gap in Firm Leadership HARSCH INVESTMENT PROPERTIES
April 23: Ask for a Seat at the Table: Profiles in Leadership April 30: Think Like an MBA: Creating Accountability & Affecting the Bottom Line
With support from the BOMA San Francisco Foundation, SFSU’s Commercial Real Estate Certificate program is strengthening and expanding our workforce. To participate in the 2015 internship program, email jobready@boma.com.
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SENIOR LIVING
FOSTERING GROWTH
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A community on the Peninsula transforms itself into a Boomer amenity
fter more than a decade of plans, discussions and false starts, the site long referred to as “the 15 acres” in Foster City is being transformed into a master-planned senior housing community.
There were “a lot of bumps and bruises” on the way to this project, said Foster City Mayor Art Kiesel at the recently held official groundbreaking at the site, located between Foster City and Shell boulevards. Master developer The New Home Co. paid $30 million to purchase the land from the city, then sold portions of it to developers Atria Senior Living, MidPen Housing and Lennar Corp. to build senior housing communities at the site, now dubbed Foster Square. The project, which sits next to City Hall, will include 200 market-rate condominiums built by Lennar for buyers age 55 years and older, 150 assisted-living units by Atria, and 66 affordablehousing units constructed by MidPen. A central plaza will be included, along with about 33,000 square feet of retail space along the ground floor of Atria’s and MidPen’s buildings. Developers were drawn to the site in part due to its setting within walking distance of amenities such as the local library, Leo J. Ryan Memorial Park, Central Lake, a recreation center and
the Peninsula Jewish Community Center. The community center offers its members indoor and outdoor swimming, a fitness center along with a variety of community programs and events. “It’s a tremendous location,” said Curtis Banks, Foster City’s community development director. “It’s right in the heart of the community.” The site originally was slated for a high school, and more recently a senior housing community planned for the site fell through as the economy struggled in 2010, Banks said. In 2011, the city put out a request for proposals and agreed to terms with The New Home Co. in 2012. “[Providing] senior housing was a conscious decision,” Banks said. “This fills a great need in the community.” The senior population is “one of fastest growing demographics in the entire area,” and this community will help them age in place, he said. Affordable housing was a key piece of Foster Square as it is “important to the community,” and the city wanted to ensure
RENDERINGS
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WORDS Nancy Amdur courtesy of The New Home Company
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Itâ&#x20AC;&#x2122;s rare to have this infill location where you have so many city and other amenities that are walkable. MARK ALEXANDER, THE SENIOR VICE PRESIDENT OF REDEVELOPMENT AT LOUISVILLE, KY.-BASED ATRIA
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working seniors ages 55 to 75 years old to easily commute to work in Silicon Valley or San Francisco, said Gordon Jones, Lennar’s division president for Northern California. Lennar also wanted the opportunity to serve the senior population. ”We as a company have been really interested in age-qualified neighborhoods,” as that demographic is rapidly growing, Jones said. Baby boomers, ages 55 to 74 years old, comprise 21 percent of Foster City’s population, and an additional 15 percent of the city’s population are 65 years or older, according to a 2013 Commercial Market Analysis report prepared for the city by BAE Urban Economics, Inc. Foster Square will be the first local project for Foster City-based nonprofit MidPen Housing, whose affordable housing units were the first to go vertical at the site with completion expected around summer 2016. Lennar’s first 50 units should open in early 2016, and Atria expects to start construction in June with completion in about 18 months. As the communities are being built, The New Home Co. is working to construct the infrastructure, including the center road, plaza and parking lot. The first phase of street improvements will be complete around year-end, said Brian Olin, a Walnut Creek-based senior vice president of the Aliso Viejo, Calif.-based New Home Co. “For generations to come, people will enjoy Foster Square,” Olin said.
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Nancy Amdur
Recent groundbreaking of Foster Square.
PHOTOGRAPHS
it would be part of the first phase of development, Banks said. MidPen gained funding from various sources, including tax credits and city and county dollars. Atria’s site will include 21,000 square feet of retail space, expected to include dining along with some services, such as a bank, said Mark Alexander, the senior vice president of redevelopment at Louisville, Ky.-based Atria. Incorporating retail into a senior community is one aspect of the project that makes it stand apart from typical senior living facilities, he said. “It’s very unique,” Alexander said. While many senior housing communities are located in suburban areas, this project will allow residents “to be part of a more urban environment.” “This will be a trend-setter,” he added. “It’s rare to have this infill location where you have so many city and other amenities that are walkable.” Retail and open space also will benefit Foster City, Banks said, as the town square provides a place for city events. “The site was designed and intended to be something the whole community could use as well,” he said. Danville-based Blake Hunt Ventures Centerstreet Properties will own and operate the retail portion of the project. Miami-based Lennar Corp., which joined the project in November, liked Foster Square’s location, centered on the mid-Peninsula near Highways 92 and 101, allowing access for still-
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Word on the Street What is your organization’s primary goal for this year? ILLUSTRATION
Oleg Beresnev
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BOMA SAN FRANCISCO
BOMA SILICON VALLEY
CCIM
CITY OF HOPE
Marc Intermaggio Executive Vice President BOMA San Francisco
Anna Mcquillan Rose Vice President, Broker Associate, Transwestern President, BOMA Silicon Valley
Mark Hinkins President, Hinkins Real Estate Analytics, Inc. President, CCIM
Planning. Our Board, Committee Chairs and members are in the midst of our strategic long range planning process. This process pushes us as an organization, not only to define our role in the Silicon Valley commercial real estate industry; but as an audit of our every program and activity, assessing our strengths and weaknesses as we look to build BOMA 2020.
CCIM Northern California has had a very successful 40 years of business but to continue to be relevant to our members’ businesses we are taking another look at what we do, and how we do it. Our goal is to continue initiating new technological tools, enhancing programs and educational opportunities and expanding the member base to include a diverse group of successful commercial real estate professionals throughout Northern California.
Drew Gordon SVP, Hudson Pacific President of the Real Estate & Construction Council for City of Hope
BOMA San Francisco is solving our industry’s talent shortage. Working with San Francisco State University, we’re identifying, educating and preparing competent, job-ready candidates to fill a variety of CRE jobs. The good news: student interest in SFSU’s Commercial Real Estate Certificate program is strong and growing as rapidly as industry’s need for new employees. Join the Commercial Real Estate Alliance for Tomorrow’s Employees (CREATE) at Bently Reserve on May 15 to learn more! The multitude of tower cranes dotting our skyline testify to the importance of our workforce expansion goals!
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The Northern California Real Estate & Construction Council aims to raise over $1 million this year for the first time in our history supporting City of Hope research, treatment and education in fighting life-threatening diseases. I’m confident that both the May 7 Spirit of Life Award Celebration honoring Carmel Partners’ Ron Zeff along with the Oct. 16 Bike to Hope will get us to this goal. We’re thrilled Ron is our honoree, a fitting recipient of an award recognizing leadership and contributions to the community and our industry.
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We asked 12 industry experts to weigh in on their organization’s goals.
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CREW SAN FRANCISCO
CREW SILICON VALLEY
EAST BAY CREW
IFMA SILICON VALLEY
Laurie N. Gustafson Partner, Sedgwick LLP President, CREW San Francisco
Brian Franklin Vice President/Financial Planning Specialist, Morgan Stanley Wealth Management, President, 2015 CREW Silicon Valley
Holly Neber President, AEI Consultants 2014 East Bay CREW Chapter President
Russell Goldin Project Manager, VFMC 2015 IFMA Silicon Valley President
At East Bay CREW, we have three primary goals in 2015: 1) to provide our members with the most current industry intelligence to maximize their effectiveness in commercial real estate, 2) to provide access to the leaders in the industry and networking opportunities in order to leverage one of the most high-quality networks of deal makers and resources, and 3) to celebrate the achievements of women in commercial real estate.
IFMA Silicon Valley’s goal is to increase our investment into the future leaders of facility management. We have created a group targeted at the 35 and younger demographic and have witnessed the growth of a thriving community. We also established a relationship with NFTE (Network for Teaching Entrepreneurship) to spread the message of facility management as a career choice to high school students. These efforts led to on-going communications between the IFMA Foundation and NFTE headquarters.
In conjunction with CREW San Francisco’s mission to develop and advance women as leaders in the commercial real estate industry, we have numerous goals this year. We are particularly excited to launch a Young Leaders Group to provide women early in their careers with targeted training and mentoring. Additionally, we plan to significantly increase CREW San Francisco’s contribution to the CREW Network Foundation. Lastly, we are exploring a CREW Bay Area awards event with our regional sister chapters.
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CREW Silicon Valley’s areas of focus for the year is to increase our platform for young professionals, enhance our programming content and expand the recognition of our members and women in the industry. The mission of the national CREW Network is to advance the success of women in commercial real estate. By striving to achieve our Chapter goals in the months ahead, CREW Silicon Valley will successfully fulfill this mission.
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Word on the Street What is your organizationâ&#x20AC;&#x2122;s primary goal for this year?
9 IIDA
IREM SAN FRANCISCO
Natalie Engels Senior Associate, Gensler President IIDA Northern California
Elizabeth Griggs Principal, Windsor Management 2015 President, IREM San Francisco
The International Interior Design Association (IIDA) is the preeminent association for the commercial interior Design profession, so our goal this year is to focus on getting greater content/benefits to our members. Students are also a key factor to keeping our organization going. We strongly believe that investing in them is vital to the future of design. Recently, we competed in the West Coast Regional Student Design Charette, which was an amazing experience for all participants!
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This year IREM San Francisco is excited to continue bringing relevant and informative programs to our members and industry sponsors. Our 2015 focus is to advance the profession of real estate management while helping real estate managers and professionals prosper and add value to their companies and properties. IREM San Francisco continues our pursuit to be the industry leader and support for all our members.
11 SOCIETY OF MARKETING PROFESSIONAL SERVICES
Ginger Kelly Business Development Manager, RIM Architects President, SMPS The Society for Marketing Professional Services San Francisco Bay Area Chapter (SMPS) exists to advocate for, educate, connect and advance leaders in the building industry. This year promises to be a busy one as the industry is booming! We are focused on connecting our nearly 300 members through educational and networking programs and giving back to the community with philanthropic activity such as serving underprivileged communities.
12 ULI
Elliot R. Stein Executive Director, ULI San Francisco We have several goals for the year but two are most compelling. One is to help our members develop leadership skills and to nurture young professionals to become future leaders. We offer an amazing leadership training course and a mentorship program for Young Leaders. The other is to host ULIâ&#x20AC;&#x2122;s global Fall Meeting in October and make it a premier event for the real estate industry. The programs and tours will have great take-home value.
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INVESTMENT
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Landbanking the Silicon Valley Way Just as in the cycles before, so too in this one tech firms are taking land as fast it becomes available WORDS
Nancy Amdur
A
healthy Bay Area economy is stoking demand for land among investors and developers. Land sales “are hotter than a pistol,” said Andre Walewski, a senior vice president at commercial real estate brokerage Colliers International in San Jose. “Multistory office sites, apartments and the single-family residential markets for land are as hot as they get,” said Walewski, who specializes in real estate sales, including land. Many sites get multiple offers. The technology sector’s fast-paced growth is fueling part of this market as companies seek more office space and their employees seek housing. “It’s the growth of companies [such as] Apple, LinkedIn, Facebook and Google,” Walewski said. “These companies are growing at rapid paces, so they’re finding sites—or developers are getting sites— entitled for high density.” The area from Santa Clara to San Francisco is particularly popular among buyers, though demand is now heading into areas that have seen less recent development, including downtown San Jose and the East Bay. “It’s transitioning to the East Bay, Pleasanton and Walnut Creek for both office and housing,” Walewski said. Fremont, which is working on an 850-acre
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mixed-use Innovation District around the under-construction Warm Springs/South Fremont BART station, also is topping investors’ and developers’ lists, local real estate brokers said. Many players in the market look for land near transit to please companies and employees who want transportation options, and entitled land is especially in demand, brokers said. “If you have entitled property, the value is much higher—just because you can look at a piece of land and say, ‘Hey, that should be housing, that should be an office building,’” said Mark Russell, a senior vice president of land investments at commercial real estate brokerage CBRE Group, Inc. in San Jose. But gaining development approvals could take years or may not be approved at all. “You live and die with your entitlements,” added commercial realty broker Ralph Borelli, the chairman of San Jose-based Borelli Investment Co. Players in the Bay Area land market are diverse and include both domestic and foreign investors, local real estate brokers said. “This is one of the most robust real estate markets in the world,” Russell said, “and if you’re a real estate investor, this is a safe place to deploy your capital.” Among recent deals is Facebook, Inc.’s
purchase of a 21-building 56-acre industrial park from Prologis Inc. The Menlo Science & Technology Park is on Willow Road between Highway 101 and the Dumbarton Bridge, near the social media company’s Menlo Park headquarters. The purchase price was not disclosed, but has been estimated at around $400 million. “If you’re trying to have a strategy of growing in a cluster like Google or Apple, [the purchase] makes sense,” said Phil Mahoney, an executive managing director at commercial real estate brokerage Newmark Cornish & Carey in Santa Clara. “Fifty-six-acre parcels don’t come available that often in Silicon Valley.” Tech companies are interested in older office property "because there's no new land for them to build their complexes. It's much easier to go and find something that's already existing," said Steve Becerra, a senior vice president at real estate services firm Intero Commercial in Saratoga. Facebook has reportedly discussed creating publicly accessible housing and retail at the industrial park site, but a company spokeswoman declined to comment on its plans, other than to say, "This purchase is an investment in our future and the future of Menlo Park. Being a good neighbor is extremely important to us, and we look forward to continuing our dialogue with city and community leaders
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Mark Russell, a senior vice president of land investments at CBRE Group
on local priorities in the months and years to come.” Also, San Francisco-based Jay Paul Co. plans to buy a 47-acre Sunnyvale office park from Lockheed Martin. The developer looks to create an approximately 1.5-million-square-foot office campus at the site. City Council in February approved initiating a General Plan amendment to study allowing higher floor-to-area ratios at the site to allow for the project. The ratio is the building’s floor area to its parcel size. Additionally, Borelli Investment is representing the Bumb family, owners of the San Jose Flea Market, on a 120-acre transit-oriented community near the future Berryessa BART station, slated to open in 2017. The property is expected to have 2,800 homes, along with retail, parks and a school site,
Borelli said. KB Home built about 300 residential units on the site and plans another 50. Borelli also is negotiating with potential developers to build roughly 500 apartments on a six-acre lot at the site. As demand for Bay Area property continues, brokers expect land sales to remain on the upswing. “Land sales heat up when there’s a shortage of supply or perceived shortage,” said Colin Yasukochi, the San Franciscobased director of research and analysis at commercial services firm CBRE Group, Inc. “The reality is we’re just in a supplyconstrained market,” added Russell. “The message to the development community” is to act quickly on land development opportunities.
An Integrated Joint Venture
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courtesy VTA
Rendering of the planned BART Berryessa Station in San Jose.
RENDERING
This is one of the most robust real estate markets in the world, and if you’re a real estate investor, this is a safe place to deploy your capital.
FINAL OFFER
Sandy
Heistand Director of Facilities & Real Estate at Advent Software 2015 President of the Northern California chapter of CoreNet
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s the incoming president CoreNet Global Northern California Chapter Sandy Heistand brings eight years of involvement in the organization and experience that spans several industries. As the chapter has evolved, so too has her involvement in it. Today we sit down with Sandy to examine the road ahead for her as well as CoreNet in our region.
As incoming President, what strategies will you implement to meet the challenges and capitalize on the opportunities that our market affords? SANDY: You have to start with the baseline of our Chapterâ&#x20AC;&#x2122;s Mission Statement: To connect corporate real estate and workplace professionals, advance knowledge, to promote personal excellence and add value to individuals and their enterprises. From there we can facilitate deeper relationships among our members at all levels. Our CoreNet chapter has grown into a unique and very active multi-generational community. We have strong engagement between those in the early stages of their careers, our CoreNet Apprenticeship Program students, and our most senior corporate real estate executives, some of whom have retired. We also have a thriving Young Leaders Group and a Women of CoreNet group. Each constituency is giving generously to the other, and the results are inspiring. I believe this is an important area of focus as it provides value for members at every stage along their career trajectory and will continuously provide an environment of growth and development. Broadening our educational offering to include connection to other areas of business is also important to our organization. My goal is to support our members in becoming optimally effective within their companies given the changing landscape of our profession. We as corporate real estate executives have a much broader role than we did in the past with connecting real estate, facilities, human resources, technology and finance. I am committed to producing programs that address this shift and to providing general leadership and personal development opportunities for our members.
Why are your peers interested in joining CoreNet, and what does the organization offer to them today that helps them in their daily work? SANDY: Because of the strength of CoreNet globally, members have access to extremely deep and far-reaching resources. For example, when I first joined CoreNet I had responsibility for real estate at
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Advent Software domestically. As my career advanced I took on responsibility for the companyâ&#x20AC;&#x2122;s global portfolio. When it came time to do my first international transaction I needed a bit of advice. Fortunately, I had already developed a network of contacts within CoreNet. I reached out to a few senior corporate real estate executives that I knew had global experience. Within 24 hours, all my questions were answered! My contacts helped me with a few key points and that gave me the confidence I needed. It is a great feeling to be a part of an organization that has so many high caliber people who are willing to help. You probably have a membership base that is more heavily represented in the tech industry than your sister organizations throughout the country. How is the Northern California Chapter leveraging the access to new technology that your membership allows? SANDY: Yes, we do have a concentration of technology companies in Northern California. Our membership base is a mix of cultures that include entrepreneurship and innovation. This only deepens the knowledge base and resources for the chapter and its members. One of our initiatives this year is to assess the technology opportunities that will improve the service and engagement with our membership. We also have established a Technology Special Interest Group (SIG) within our chapter. The Tech SIG is a knowledge-sharing network for corporate real estate, facilities and workplace technology. The groupâ&#x20AC;&#x2122;s mission is to share learning and understand future trends of real estate technology tools.
What recommendation would you give to someone starting out in this industry today? SANDY: The relationships and connections I have gained as a result of my involvement in CoreNet mean a lot to me. I have developed friendships that go far beyond the business. The Northern California chapter is a close-knit group that is welcoming and goes the extra mile to support each other. The opportunity to share best practices and participate in educational opportunities is invaluable.
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