Transbay project in $300 million hole Sa

Transbay project in $300 million hole

San Francisco’s Transbay Transit Center, the so-called Grand Central station of the West that’s now just a deep hole in the ground, will cost $300 million more than anticipated, Bay Area transportation officials were told Wednesday.

And that financial hole could grow deeper, cautioned Steve Heminger, executive director of the Metropolitan Transportation Commission, the Bay Area transportation planning and financing agency.

“We may not have seen the end of it,” he said. “This is a very costly project.”

The commission learned of the nearly 19 percent cost overrun as it agreed to let the Transbay Joint Powers Authority building the downtown transit center shift $47.8 million in toll bridge funds for future expenses to help cover the cost of a structural steel contract that came in over budget.

The construction cost for the first phase of the transportation hub at First and Mission streets, which will initially serve buses from seven transit agencies and eventually electric trains from Caltrain and high-speed rail, has risen from $1.6 billion to $1.9 billion in the revised budget the authority adopted on July 11. The project’s first phase includes demolishing the old Transbay Terminal, building and operating a temporary terminal and building the five-story terminal, including bus decks and ramps, retail spaces, two below-ground rail levels and a rooftop park.

Funding elusive
To cover the hefty cost increase, Heminger said, the authority will use some of the money that had been dedicated to the second phase of the project – the downtown extension that would carry trains from Fourth and King streets to the Transbay center. That portion of the project had never been fully funded, and is a key Bay Area project competing for major federal funding. But the soaring cost of the first phase means it will be an even bigger challenge to find the funding to lay rails to the new transit center.

“There’s not enough money to deliver the full project – not before the increases and not after,” said Adam Alberti, a spokesman for the authority. “The fact that the cost increased by $300 million means that a bigger hole needs to be plugged.”

San Francisco Supervisor Scott Wiener, a commissioner and Transbay center supporter, said after the meeting that the cost increase was disappointing but not a serious setback for the downtown extension.

‘We’ll get it done’
“I don’t think it will have a meaningful impact,” he said. “We have always known that getting the downtown extension done would take a lot of work over a number of years, and this doesn’t change that. We’ll get it done.”

Alberti blamed the cost spike on increased and unanticipated federal security requirements for the transit center, whose prominence will make it a potential target for terrorist attacks. A federal vulnerability analysis identified an additional $56.8 million in detection, communications and protection systems needed for the project.

The resurgent economy and construction industry also contributed, pushing bids on the last major contract – structural steel – 75 to 80 percent over estimates. The authority received a single bid, rejected it and repackaged the work into three separate contracts to attract more bidders. It worked, resulting in lower bids, but they were still $95 million more than budgeted.

Economy strengthens
“It’s largely reflective of the fact that the economy, and especially the construction economy, is heating up,” Alberti said.

While construction costs are rising, so are land values, and that will help the authority cover the $300 million overrun. To take advantage of the boom, some of the land sales funding the center will be accelerated so that money is available sooner, Alberti said. The authority also hopes to win additional Proposition K transportation sales tax funds in San Francisco, transit center impact fees and grants from the MTC. It also hopes to refinance a federal infrastructure loan.

But if…

San Francisco has lowest office vacancy

San Francisco has lowest office vacancy in U.S.

San Francisco has the lowest office vacancy rate in the country, surpassing Houston for the top spot, according to Jones Lang LaSalle.
With more than 34 million square feet leased since the depths of the recession, much of which was leased to accommodate expansions, San Francisco will continue to see vacancy decline as many of the largest leases signed in 2011 and 2012 begin to take occupancy, JLL said in a report.
San Francisco’s office vacancy rate is now 11.3 percent, although trendy submarkets such as SoMa are closer to 5 percent. Rental rates have responded in tandem, increasing by 62.8 percent since the bottom of the market in 2010, surpassing the previous peak and expected to climb further as demand remains strong.
San Francisco is clearly leading a national trend. Stronger leasing volume and more tenants growing pumped up the volume of occupied space by more than 10 million square feet nationwide during the quarter, the largest quarterly increase since the end of 2011, researchers report in Jones Lang LaSalle’s Second Quarter 2013 Office Outlook. That absorption reined in the overall vacancy rate to 16.9 percent, marking the first time that vacancy has ducked below 17 percent in five years.
“The expanding U.S. private sector is driving office occupancy gains to geographies that have lagged the domestic recovery for more than two years, including Atlanta, New Jersey, Chicago, Orange County, and Sacramento, among other markets,” said John Sikaitis, senior vice president and director of office research for the Americas at Jones Lang LaSalle.
Even in New York and Washington, the two markets where tenant demand has been most sluggish of late, the highest-quality office segment started to show signs of stabilizing demand and even rent growth, said Sikaitis, who also directs local markets research. “If this momentum holds, we could see a broader-based recovery in the two largest markets headed into 2014.”
Improving occupancy has enabled landlords in many markets to demand more rent. National average asking rent shot up 1.2 percent since the end of March, the highest quarterly increase since the recovery began in 2010. Asking rent surged 5.5 percent in lower Manhattan, contributing to a 1.9 percent rent increase in New York, while Silicon Valley posted the second-largest rent increase at 4.9 percent. Tenant improvement allowances and free rent were down 4.7 percent and 8.5 percent, respectively, in the quarter from a year ago.
Looking ahead, Sikaitis says, “With a broadening recovery geographically forecasted in the second half of the year and into 2014, the market will shift to one that begins to pull away from tenants and into the landlord’s advantage in most market segments over the next six to nine months.”
Construction has picked up quickly in San Francisco, Austin, Houston, Dallas, Silicon Valley and a few other markets, while New York leads the nation in construction with 9.1 million square feet under way. Some market segments could enter an overbuilding cycle by the end of 2013.

Google Said to Expand San Francisco Space

Google Said to Expand San Francisco Space in Lease Deal

Google Inc. (GOOG) agreed to expand its San Francisco office space at Morgan Stanley’s Hills Plaza building in what would be the city’s biggest lease transaction of 2013, according to a person with direct knowledge of the deal.
The planned 10-year lease for 350,000 square feet (32,500 square meters) will increase Google’s space at the waterfront location by 25 percent, said the person, who asked not to be named because the process is private. The Mountain View, California-based company will pay average rent of $65 a square foot, little changed from the rate in its current agreement, which expires in 2015, the person said.
Enlarge image Google Said to Expand San Francisco Space in Blow to New Towers
Google Inc. is choosing to stay in its current building at a time when 2.8 million square feet of new office space is coming to San Francisco in the biggest construction boom since 2001. Photographer: Denis Doyle/Bloomberg
Google, owner of the world’s most popular Internet search engine, is choosing to stay in its current building at a time when 2.8 million square feet of new office space is coming to San Francisco in the biggest construction boom since 2001. The company had been one of the largest tenants in the market for developers including Tishman Speyer Properties LP, Boston Properties Inc. (BXP) and Shorenstein Properties LLC, which are building towers without lease commitments.
“If you’re an office developer, you’re racing to get all these new buildings leased up,” Steve Barker, San Francisco branch manager for Studley Inc., a tenant brokerage, said in a telephone interview. “The most important thing is to land the anchor tenant.”
Foundry Square
Katelin Jabbari, a Google spokeswoman, declined to comment on the company’s lease plans. Wes Powell, managing director at Jones Lang LaSalle, the brokerage that represents Morgan Stanley, declined to comment.
Google was close to signing a letter of intent to occupy Tishman Speyer’s Foundry Square III, under way in the South of Market area, before backing out of the deal, three people with knowledge of the situation said. The 10-story building with 278,000 square feet of luxury offices is set to open this year.
Rick Matthews, a spokesman for Tishman Speyer, and Google’s Jabbari declined to comment on the technology company’s involvement with Foundry Square III. The New York-based developer is negotiating with several potential tenants, Matthews said.
San Francisco’s office leasing surge began in 2010, fueled by demand from technology companies. Prime downtown occupancy costs — rents plus local taxes and service charges — jumped 36 percent in the year ended Sept. 30, the biggest increase of any global market, CBRE Group Inc. said.
Leasing Slowdown
Leasing volume has since slowed, with deals plunging 45 percent this year through June compared with the first half of 2012, according to CBRE.
Google isn’t the only big tenant to forsake tower projects under way. Health insurer Kaiser Permanente chose to lease 264,000 square feet at offices being developed by Alexandria Real Estate Equities Inc. (ARE), a Pasadena, California-based builder of biotechnology and medical properties, the company said.
Bank of America Corp. and Delta Dental of California, seeking a combined 350,000 square feet as each company nears the end of current lease terms, may renew those deals rather than relocate to new high-rise space, according to a person with knowledge of the assessments made by the tenants.
San Francisco office vacancy fell to 7.2 percent in the second quarter from 7.5 percent at the end of March, according to a Cornish & Carey Commercial Newmark Knight Frank report. Asking rents rose 1.2 percent to an average of $54.59 a square foot, the smallest increase since 2010, the brokerage said. Illumina Inc. (ILMN) signed a lease for 97,700 square feet in Mission Bay, near the Kaiser site, in the biggest deal of the period.
Boston Properties…

JP Morgan shells out $103M for Dublin Corporate Center

JP Morgan Chase, Dublin Corporate Center

By Blanca Torres, Reporter, San Francisco Business Times

In the largest East Bay office sale this year, JP Morgan Chase & Co. paid $102.75 million or about $247 per square foot to buy Dublin Corporate Center, a 440,000-square-foot, three-building office complex in Dublin.

The seller in the deal, reported by research firm Real Capital Analytics, was Tishman Speyer, which bought the property in 2007 for $121 million or about $275 per square foot.

In 2010, I reported that Tishman settled a $105 million loan for the property for $55 million with lender Eurohypo, a German conglomerate.

After settling that debt, Tishman leased up more than 250,000 square feet of the complex to tenants including Epicor and Taleo Software.

Bloomberg reported in January that Tishman Speyer was looking to unload three properties including Dublin Corporate Center, 350 Rhode Island St. in San Francisco and Sunnyvale Office Park in Sunnyvale. The story reported that Tishman was looking to snag about $110 million for the Dublin complex.

The complex, at 4120 and 4160 Dublin Blvd, includes three four-story buildings on 18.6 acres right off Insterstate 580 that were built in 2000. JP Morgan brought on Cornish & Carey RiverRock Newmark to manage the complex.

The deal is one of only a handful of major office sales in the past couple of years.

Last year, MetLife paid $118 million or about $312 per square foot Treat Towers, a 378,000-square-foot complex in Walnut Creek.

Divco West picked up two buildings in Concord Plaza, at 2000 Clayton Road and 2001 Clayton Road in Concord totaling 600,000 square feet from Swift Realty Partners for $94 million or $157 per square foot.

Last fall, Westcore Properties put down $110 million or $211 per square foot for 1221 Broadway, the 520,000-square-foot Clorox headquarters.

Deal velocity in the East Bay pales in comparison with what’s going on in San Francisco, but the East Bay market has steered away from distressed, opportunistic deals to more investor-oriented deals like JP Morgan’s purchase in Dublin.

Neither Tishman or JP Morgan commented on the Dublin Corporate Center deal.

Ritz-Carlton San Francisco Trades for $161M

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By Bruce Meyers, Costar Group

 

Thayer Lodging Group, an Annapolis-based hotel investment company, acquired the 338-room Ritz-Carlton San Francisco from Host Hotels and Resorts, Inc. for $161 million, or about $476,000 per room.

The acquisition marks the first investment of Thayer Lodging Group’s new fund, Thayer Fund VI. Thayer intends to invest approximately $17 million in the property within its first two years of ownership, upgrading the hotels offerings, services, and amenities.

Thayer has completed roughly 43 hotel investments with a total acquisition cost of nearly $2.5 billion within its first two decades of existence.

Thayer is not planning on halting its activity anytime soon, as Lee Pillsbury, Co-Chairman and Chief Executive Officer of Thayer Lodging Group, stated “We are bullish on the San Francisco market, and bullish on the environment for investing in hotel real estate. We look forward to making additional announcements in the weeks ahead.”

Please see CoStar Comp #2779393 for additional information on the transaction.

With Kaiser deal, Alexandria is on a Roll in Mission Bay

Studios

By J.K Dineen, Reporter – San Francisco Business Times

After a bit of a slump, Alexandria Real Estate Equities has bounced back with a vengeance in Mission Bay.

San Francisco Business Times health care reporter Chris Rauber reported today that Kaiser Permanente has abandoned its proposed medical office building on 16th Street, a project that had raised the hackles of Potrero Hill residents who don’t want Mission Bay’s somewhat bland, institutional health care campus spilling across 16th Street into their neighborhood.

Instead, Kaiser has agreed to lease 1600 Owens St., a 264,000 square-foot building that will part of Alexandria’s west campus. The building, which will take about 18 months to construct, is part of the Alexandria campus that includes 1700 Owens St., 1500 Owens St., 1650 Owens St., and 455 Mission Bay Blvd. The building is being designed by STUDIOS Architecture.

The deal comes on the heels of a 97,000 square foot lease with Illumina at 409 Illinois St., which had sat empty since Alexandria bought the building two years ago. A second 120,000 square-foot deal deal with Practice Fusion is pending, according to real estate sources. Alexandria purchased 409-499 Illinois St. from Shorenstein Properties and SKS Development for $290 million. The 409 building is leased to FibroGen.

In an earnings call in April, Alexandria CEO Joel Marcus said demand in Mission Bay has picked up.

“Once we put 499 (Illinois St.) to bed, our attention will turn to 1600 Owens because we think there is some pent-up demand down in Mission Bay, certainly institutionally,” he said.

The leases come as property owners are competing for a 300,000 square-foot requirement UCSF has for a medical office building in Mission Bay. “The fact that the 1600 Owens parcel is now spoken for certainly helps other development project in Mission Bay,” said Colin Yasukochi, research director for CBRE.

Crescent Heights Seeks to go Much Higher at its Transbay Site

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By J.K Dineen, Reporter – San Francisco Business Times

 

Crescent Heights is seeking to nearly double to 44 stories the height of an approved downtown residential tower on Howard Street, erecting a picture at the site along with the words “coming soon.”

The proposed slender tower is designed by Glenn Rescalvo of Handel Architects, whose group did the Four Seasons San Francisco, the Millennium Tower, and Blu. Most recently, the group was the architect for NEMA at 8 10th St., which is also a Crescent Heights project.

The San Francisco Planning Department received an application for the altered project on June 26th and has 60 days to produce a preliminary project analysis. If the project is consistent with the Transbay plan, as it appears to be, it would not require a full-blown environmental review, according to planning staff.

The site has been in play for decades and over the years has been targeted for both office towers and residential buildings. Crescent Heights bought it in 2012 from Redwood Mortgage, which had taken it back through foreclosure from investor David Choo, who lost control of multiple development sites during the recession. The property is assessed for $24 million, according to city records.

Under the old zoning the property was zoned for a 23-story, 200,000-square-foot building. The Transbay rezoning, however, eliminated the old 18:1 floor area ratio requirement and replaced it with a 450-foot height limit.

Meanwhile, Crescent Heights will go before the planning commission July 11 to seek authorization to allow for the property’s continued temporary use as a surface parking lot.

While Crescent Heights is building apartments at the 754-unit NEMA project in Mid-Market, the Howard Street site would be a natural place for deluxe condos, a market which is making a strong comeback. At the time he was marketing the property, Tony Crossley of Colliers International said the building could have a pedestrian walkway across to the 5.4-acre elevated Transbay park. “You walk out of the building, across to the park, get your cappuccino, and you’re right in the heart of downtown,” said Crossley.

The proposed increase was first reported by Socketsite.