S.F. Office Sales in 2007 Could Smash Record Again

by J.K. Dineen and Ryan Tate
San Francisco Business Times
Investors pumped more than $5.5 billion into San Francisco office buildings during the first quarter, a number that easily surpasses the entire sales activity for both 2005 ($4.3 billion) and 2006 ($3.8 billion). And it’s not going to slow down any time soon.

Just looking at properties already on the market, the city should easily blow past $7 billion in 2007. And if more owners jump in to take advantage of the unprecedented pricing, we should surpass $8 billion, according to a Grubb & Ellis quarterly report.

“This could be the record to beat all records,” said Colin Yasukochi, research director at Grubb & Ellis.

Although it’s not clear what One Market Plaza actual sold for when Morgan Stanley bought it from Blackstone, brokers involved in the bidding say it was priced just under $1,000 a square foot. The entire 3.9 million-square-foot portfolio averaged over $750 a square foot.

And now the asking rents are beginning to reflect the new pricing reality, with space on the top of One Market going for $90 a square foot.

“Many of the new investors strongly believe that rents are undervalued and they can be raised dramatically,” said Yasukochi. “Only time will tell if they are right.”

Venture firm joins brethren at 1700 Owens

The Column Group, a new life science venture capital group started by executives from Three Crowns Capital and GlaxoSmithKline, has joined Mission Bay’s ever-growing venture capitalist community. The Column Group joins Versant Ventures, Novo Ventures and Arch Venture Partners at Alexandria Real Estate Equities’ 1700 Owens St. It is taking 4,000 square feet; rent is in the low $40s.

Managing partners at Column include Richard Klausner, the former director of the National Cancer Institute and Bill & Melinda Gates Foundation’s global health program. Others partners are Harald Ekman, a partner with Three Crowns Capital, and Tularik co-founder David Goeddel.

“This office is going to be their collaborative center,” said Kidder Mathews broker Craig Zodikoff, who represented the tenant. “They were quite intent on being in Mission Bay.”

The idea that these VCs would be able to share conference rooms and water coolers with researchers from Sirna and Pharmion was a primary attraction, Zodikoff added.

“Alexandria was forward thinking in putting aside space for venture capital,” said Zodikoff. “They clearly thought about how the venture capital community would want to interact with the life sciences community.”

Turnberry set to go on 227-unit Rincon tower

Turnberry is gearing up to start construction on its 227-unit 45 Lansing St. project, likely to be the third of the six razor-thin luxury condo towers on Rincon Hill.

Turnberry has hired Swedroe Architects and HKS to tweak the design. Swedroe has been designing Turnberry’s towers for 30 years. On March 15, the San Francisco Planning Commission unanimously approved the revised design. The reconfigured west façade offers better views of the hills and Mission corridor.

“The design features a smooth, seamless prism of glass on the northeast corner that extends from the base to the top of the tower,” said Mark Donahue, design director of HKS Architects.

East Bay scores gains despite lag in housing

Though housing sales continue to decline in the East Bay, there are some bright spots, according to a recent monthly report from East Bay business group EDAB.

One is in multi-family housing, including rental apartments and condos. Construction permits for that type of housing were actually up about 11 percent over the 12 months ending in March to 4,836, despite a 27 percent drop in permits issued for single-family housing. That’s due mostly to new construction in Oakland and a pullback in single-family construction in Contra Costa County.

There’s also been a slight increase in permits for commercial and industrial construction, up about $8 million to $1.2 billion in March. EDAB released the numbers on a brand new research web site, eastbayeda.org.

According to a separate report from CB Richard Ellis, East Bay office lease rates shot up 13 percent in the first quarter year-over-year, including a 12 percent increase in downtown Oakland’s Class A space and a 25 percent increase in Emeryville Class A..

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