JMA Ventures LLC | Week in Review: 3/31 – 4/4
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Week in Review: 3/31 – 4/4

Microsoft Corp. is moving its San Francisco office from the technology-heavy South of Market area to 555 California St., the city’s second-tallest building. Bloomberg cited a source as saying Microsoft will occupy 50,000 square feet on the second and third floors of the tower, with rent at about $62 per square foot. Rates in the north financial district averaged about $58 per square foot during the first quarter, the report notes. That’s an increase of about 7.8 percent from a year earlier. The 555 California St. tower, owned by Vornado Realty Trust, has 1.5 million square feet of office space and 45,000 square feet of retail. It is the city’s second-largest building after the Transamerica Pyramid. Microsoft also operates a Bay Area campus in Mountain View. (Bloomberg)

In one of the largest hotel deals in San Francisco within recent years, LaSalle Hotel Properties closed escrow Wednesday on the sale of Hotel Vitale for $130 million. The 200-room hotel is the sixth San Francisco property acquired by the Bethesda, Md.-based investment trust. “The hotel is on a city land lease, so when you factor in the capitalized value of the land, the price per room is over $800,000,” said former Hotel Vitale owner and longtime hotelier Chip Conley. In another large deal last summer, the Ritz-Carlton sold for $161 million˜ about $476,000 per key. The sale follows three acquisitions LaSalle made last year, including the Hotel Serrano for $71.5 million, the Harbor Court and Hotel Triton in San Francisco for $47.8 million. The group also owns San Francisco-based Hotel Monaco and Villa Florence. According to Conley, the management contract will stay with Joie de Vivre (which Conley founded) and parent company Commune Hotels & resorts. “The employees of the hotel and Americano restaurant deserve lots of credit,” Conley said, “as they helped create San Francisco’s most successful luxury hotel.” (SF Biz Times)

Airbnb will begin collecting hotel taxes in San Francisco this summer as part of its peer-to-peer vacation rental service in the city. Airbnb broke the news in a blog post, a week after saying it would collect similar occupancy taxes in Portland, Ore., where it is opening an operations headquarters. The San Francisco company has fought tax issues and local laws regarding short-term rentals. San Francisco’s hotel tax is 14 percent, meaning the move could add millions to city coffers. “We have repeatedly said that we believe our community in San Francisco should pay its fair share of taxes,” executive David Hantman said in a blog post. “We know from countless discussions with our hosts that they want to pay taxes, but some of these rules are arcane and difficult to follow. Some hosts have even tried to pay taxes in San Francisco and been turned away.” (SF Biz Times)

LDK Ventures LLC, a Sacramento-based developer, just bought a 42-acre site in the Pinole Business Park in Richmond where it plans to build up to 700,000 square feet of industrial space on a speculative basis. With this project, the East Bay now has a pipeline more than 2 million square feet of industrial space built on spec. The site at 2995 Atlas Road has an abandoned, 350,000-square foot former steel factory that LDK will tear down. “We’re seeing quite a bit of demand of locating larger distribution centers closer to the Port of Oakland,” said Denton Kelly, managing principal of LDK. “That’s why we see this as an opportunity.” The sale is the first in the Bay Area deal for LDK, a family-owned real estate development firm with 8.5 million square feet of industrial buildings in Northern California. The developer bought the Richmond site from a conglomerate out of Mexico. Terms of the deal were not disclosed. It will take about a year to demolish the existing buildings, clean up contaminants and prepare the site for new development. New construction is expected to start in 2015. Meanwhile, another developer also plans to add new space to neighboring site known as the Pinole Point Business Park. KTR Capital Partners and Sponsor Properties plan to start construction this summer on 515,000 square feet on a 30-acre site they bought from Sares RegisGroup of Northern California. Pinole Point Business Park already has 700,000 square feet of existing space leased to tenants such as Whole Foods Market, Restoration Hardware, Serena & Lily, Broadline Medical, International Delicacies and Bio-Rad Laboratories. The huge amount of new space demonstrates strong demand for larger and more modern industrial spaces, Kelly said. Whole Foods, for example, agreed to a build-to-suit lease in 2013 with Sares Regis for a new distribution center that would have an up-to-date refrigeration system. (SF Biz Times)

Associated Estates Realty Corp. teamed up with AIG Global Real Estate, the real estate arm of the insurance giant, as a 50/50 partner to move forward with 350 Eighth St., a $220 million, 410-unit apartment complex in San Francisco. The developer expects to finish the project in phases during in 2016 adding to San Francisco’s massive apartment pipeline that is expected to deliver 10,000 units in the next two years. “We are excited about our partnership with AIG,” said Jason Friedman, senior vice president of acquisitions and development for Associated Estates, in a statement. “Their outstanding reputation and experience as a joint venture partner in multifamily projects brings tremendous value to our development.” Associated Estates is a real estate investment trust based in Richmond Heights, Ohio, a suburb of Cleveland. The firm’s portfolio consists of 52 apartment communities containing more than 13,000 units in ten states. The project, designed by Kava Massih Architects, takes up an entire city block encompassing 3.36 acres at the corner of 8th and Harrison in the South of Market neighborhood. It was entitled as part of San Francisco’s Western SoMa plan that aimed to revitalize and rezone underutilized sites. The 350 Eighth project will consist of eight buildings along four streets with 40,000 square feet of retail and office space. The development was originally entitled by Archstone, an apartment developer that sold its assets to AvalonBay and Equity Residential in 2013. Archstone never used its option to buy the site, which was owned by Werbe H 8 Inc., a private investor. Last year, Associated Estates swooped in to buy the entitled site in 2013 for its project in the Bay Area. “San Francisco is the hottest market in the country right now particularly for multifamily,” Friedman said. “We really wanted to have the right site. We had a relationship with Archstone, so when this site became available, we decided to pull the trigger.” After the purchase, Associated Estates went out to look for a partner to help fund the project. The joint venture with AIG was arranged by Brian Eisendrath, of CBRE’s Debt and Structured Finance group. The developer has started demolition of an existing building on the site, which was used as a bus depot. It expects to start construction in the next couple of months and is still working on selecting a contractor to lead the project. “Together we recognize the significant upside from this unique development opportunity in the high barrier to entry SoMa submarket of San Francisco,” Friedman said. (SF Biz Times)

A new report found that San Francisco is one of the least sprawling areas in the country — second after New York City — but could do even better at building more in-fill and affordable housing. The report, released by Smart Growth America, a national organization that researches and advocates for better urban development, compared 221 metropolitan areas nationwide using U.S. Census tracts. Researchers score sprawl based on four factors: residential and employment density; neighborhood mix of homes, jobs and services; strength of activity centers and downtowns; and accessibility of the street network. “Today’s findings demonstrate the Bay Area’s progress in creating thriving, walkable neighborhoods and saving our treasured landscapes from sprawl,” said Matt Vander Sluis, regional director at Greenbelt Alliance, a land use advocacy group. “Yet over 300,000 acres in the Bay Area are still at risk of sprawl development — an area 10 times the size of San Francisco.” The San Francisco metropolitan area, including San Mateo and Redwood City, ranked above other areas such as San Jose-Sunnyvale-Santa Clara at 24th, Oakland-Fremont-Hayward at 25th and Santa Rosa-Petaluma at 63rd. Other notable rankings include Santa Cruz-Watsonville at 6th, Santa Barbara-Santa Maria-Goleta at 4th and Los Angeles-Long Beach-Glendale at 21st. One goal of the report was to look at how sprawl affects quality of life. Not surprisingly, living in a more connected and compact urban area translates into healthier people who have to commute less and therefore are happier. According to TransForm, a statewide transportation advocacy group, estimates that Bay Area residents who live near transit save an average of $5,450 on average per household (it’s unclear if that is compared to driving or living farther out). “But more people than ever want to live in compact, walkable places, so prices keep rising and threatening to displace our neighbors,” said Jeff Hobson, deputy director at TransForm. “We’re not building remotely enough homes in infill areas to address the affordability crisis. We need to provide more homes and protect the affordability of the ones we have, as we continue to stand up to sprawl.” So the Bay Area as a region looks less sprawl-y than the rest of the country, but comparing regions based on Census tracts makes the argument cloudy. For example, San Francisco is grouped with San Mateo and Redwood City. San Francisco as a city and county has more people living its seven by seven-mile boundaries than all of San Mateo County, which has much more land. Here’s how Bay Area counties compared with each other based on total “Sprawl Score:”
1. San Francisco County: 251.27
2. Alameda County: 146.57.
3. Santa Clara County: 135.11.
4. San Mateo County: 131.72.
5. Contra Costa County: 119.84
6. Marin County: 118.57.

Here’s the top 10 least sprawling areas nationwide:
1. New York-White Plains-Wayne, NY-NJ.
2. San Francisco-San Mateo-Redwood City, CA.
3. Atlantic City-Hammonton, NJ.
4. Santa Barbara-Santa Maria-Goleta, CA.
5. Champaign-Urbana, IL.
6. Santa Cruz-Watsonville, CA.
7. Trenton-Ewing, NJ.
8. Miami-Miami Beach-Kendall, FL.
9. Springfield, IL.
10. Santa Ana-Anaheim-Irvine, CA.

And just for comparison, the most sprawling areas nationwide (listed from least to greatest):
1. Kingsport/Bristol/Bristol, TN-VA.
2. Augusta/Richmond County, GA-SC.
3. Greenville/Mauldin-Easley, SC.
4. Riverside-San Bernardino/Ontario, CA.
5. Baton Rouge, LA.
6. Nashville-Davidson/Murfreesboro/Franklin, TN.
7. Prescott, AZ.
8. Clarksville, TN-KY.
9. Atlanta/Sandy Springs/Marietta, GA.
10. Hickory/Lenoir/Morganton, NC.

In an effort to boost tourism for Oakland, nonprofit Visit Oakland — the official marketing arm for the City of Oakland — rolled out a new branding initiative and $195,000 advertising campaign that will focus on driving business into Oakland hotels. With a new logo for Visit Oakland and a rollout of both digital banners and billboards from Oakland-based ad agency Carol H. Williams that feature attractions like its outdoors, art and culture, restaurants and professional meeting spaces, the organization hopes to attract both tourists and meeting planners seeking a destination for large events. One of the largest markets for Oakland tourism is the “drive market” from southern California north to Vancouver, Canada — visitors who drive to Oakland either as a destination or on a longer driving trip, Visit Oakland CEO and President Alison Best said. The campaign will first focus on that market, putting billboards up in Portland, Ore., before expanding to the east coast and internationally. About 2.5 million people visited Oakland in 2013 and spent $1.3 billion — according to information from research firm Young Strategies — numbers that Visit Oakland hopes will increase this year. And according to the Department of Labor Statistics, tourism supports 94,000 jobs in the Oakland region. A further breakdown of statistics from Young Strategies shows that visitors spend their money in Oakland an average of $110 per day for lodging, $78 per day on food, $60 per day on retail, $41 per day on recreation and $26 per day on transportation. But with just 4,000 hotel rooms throughout the city, Oakland lacks tourist accommodations, said Best at the organization’s first annual tourism breakfast Wednesday. “We should have 8,000 to 10,000 rooms to be comparable with other cities of our demographic size.” She hopes that will change with the campaign if investors see Oakland as a valuable space for hotels. “Tourism is a $1 billion industry in Oakland,” Best said. Best said also that she hopes the campaign will encourage Oakland residents and employees to be “ambassadors” for the city and urge out of town visitors to explore Oakland’s restaurants, cultural events, museums and restaurants. “Other people have told (the Oakland) story,” she said. “We’re going to take that back, and we’re going to tell our story.” (SF Biz Times)

Oakland developer Alan Dones wants to see 1945 Broadway in Oakland, known as the Sears Building, revitalized as a retail and office complex in heart of the bustling Uptown neighborhood, but his dream is now on hold. An option for Dones to buy the building from Sears Holding Co. and an adjacent site from the City of Oakland just expired leaving his plans in limbo. “I wasn’t able to close and ran into issues with due diligence,” Dones said. “Sears has other buyers who think they can close.” Still, Dones, an Oakland native, managing partner and CEO of the Strategic Urban Development Alliance LLC, wants to stay involved with the 400,000-square-foot building. He declined to say whether he would attempt another bid to buy the building. He did say he would be interested in working with whoever does buy the building. “I haven’t given up on it, but there was a setback with Sears,” Dones said. “I’m still pretty hopeful and confident that there is a viable project.” Dones has developed other projects in Oakland including Thomas Berkley Square, a 242,000-square-foot office and retail building, and a condo tower he sold to Canyon Johnson Urban Funds now known as the Uptown. Most of the Sears Building is vacant other than the Sears department store on the 66,000-square-foot first floor. The entire structure includes a basement level and six above ground stories. Dones envisioned opening up the basement level, which has a direct access into the 19th Street BART Station, and bringing in a variety of new retailers as well as office tenants on the upper floors. The property neighbors Uptown activity zones such as the Fox and Paramount Theaters, several bars and restaurants, and the Uptown apartments, a 665-unit complex. The Sears building, being vacant, felt like “a big dark mass” in the neighborhood’s center. The building is also known to have various structural issues that would warrant significant investment. Industry sources told me numerous developers and buyers have toured it in recent years, but other than Done’s proposal, no one has made a substantive go at the building. Dones said his option on the purchase wasn’t long enough to get all the pieces in order to move forward. (SF Biz Times)

In the past few years, many new bars and restaurants have opened in downtown Berkeley, ushering in more artisan, gourmet and upscale dining and drinking options. The restaurant boom precedes what could be a major transformation of downtown Berkeley with more than a 1,000 residential units and 300-room hotel in the pipeline. Eureka, a restaurant specializing in burgers and craft beer, opened last October in a 4,000-square-foot space that was previously a low-price Chinese restaurant and is one of the new hot spots popping up in downtown Berkeley. “We love college markets,” said Paul Fredrick, a co-founder of Eureka. “It’s not that there so specific to students per se, but it’s the overall community and vibe that we relish.” Eureka has 11 locations mostly in Southern California. Berkeley was the company’s first Bay Area location. Fredrick said that like many restaurateurs, he was drawn to the activity and growth potential in the downtown area. “It’s just an emerging city that has had a lot of growth in the last five years and will continue to do so,” he said. Other restaurants in downtown Berkeley include Comal, an upscale Mexican restaurant and bar with an outdoor patio; Build Pizzeria, an artisan pizza restaurant; Five, a cocktail bar and restaurant in the renovated Hotel Shattuck Plaza, and East Bay Spice Co., an Indian-inspired bar and restaurant featuring high-end cocktails. (SF Biz Times)

Consolidations and relocations are the reasons given for why Liberty Mutual and Pacific Gas & Electric Co. are taking up new leases at a long-empty office building in Rocklin. For insurance company Liberty Mutual, the move to 58,000 square feet in Rocklin means entirely leaving behind the company’s current spot in the Point West submarket of Sacramento. “With our lease at 1750 Howe Ave. in Sacramento expiring later this year, we made the business decision that a new location at 6030 West Oaks Blvd. in Rocklin provided us with more suitable space to accommodate our current and future needs,” Liberty Mutual spokesman Glenn Greenberg said in an email. “Our operations there include more than 350 employees across multiple business units and functions. The move has no impact on staffing levels, as each affected employee as the opportunity to retain his or her position in Rocklin.” Greenberg said about 25 employees who work in personal insurance sales and service will remain in Sacramento at another location. For PG&E, the move lets the company consolidate some smaller offices elsewhere in the region, and move about 190 employees to the entire third floor and 41,000 square feet of the 6030 West Oaks building. It opened seven years ago but has never had a lease. Company spokeswoman Brandi Ehlers said the employees will start moving to the new site in June and will be completely moved in by July. “It definitely helps increase collaboration among employees,” she said, adding the approach will be based on a similar one PG&E did when it moved workers to the Bishop Ranch business park in San Ramon. The space there has cubicle walls considerably shorter than those employees previously had to also encourage collaboration, she said, and the Rocklin office will have the same setup. (Sac Biz Journal)

That large chunks of office space in the Sacramento region are getting harder to find has been the watchword for commercial real estate agents for a few months now. But an analysis shows the situation isn’t what it’s perceived to be; arguably, it’s even tighter. Logan Dunnaway, research director with Colliers International Sacramento, said not only has half the space of 100,000 square feet or more been gobbled up by large companies in the last nine months, just 13 buildings in the entire four-county region have that much space available. What’s more, much of that space is being counted in buildings proposed, but as yet unbuilt. Only six buildings currently exist with those larger spaces, Dunnaway said. Among the large transactions in recent months that have sucked up space were Covered California’s announcement of a new home in Point West, Quest opening a data center in Roseville and VSP buying a building to occupy in Rancho Cordova. But the other side of so many big spaces being taken is a great many smaller ones remaining empty. Dunnaway said many of the large users are firms based elsewhere; the smaller spaces are more likely to go to local or regional companies, and so far they’re not doing it in great numbers. “We absolutely need more of the smaller- to medium-sized users to come to market,” he said, describing them as ones need 20,000 to 60,000 square feet. “The larger ones come and go.” While smaller firms don’t necessarily follow when larger ones need more space, healthy leasing by bigger names does send a positive message about the market as a whole, he said. And for those bigger spaces, the outlook could be more tightening. Of the new office buildings with 100,000 square feet or so in the pipeline, only one, in Roseville, is scheduled to break ground this year, Dunnaway said. None of the others, including two more in south Placer County, have confirmed construction dates as of yet. (Sac Biz Journal)

The California Third Appellate District Court has rejected an appeal of an eminent domain ruling being used by the city of Sacramento to acquire property for a new downtown arena for the Sacramento Kings. Issued at midday, the court ruling did not give a reason, though published opinions in the case are sometimes released after 5 p.m. the same day of a ruling. If there are no further appeals or rulings otherwise, the ruling would make final the city’s acquisition of the eastern end ofDowntown Plaza, which became official earlier this week. The property in question, the site of an empty Macy’s men’s store, had fallen into foreclosure and was being managed by the U.S. Bank National Association as trustee on behalf of owner California Public Employees’ Retirement System. Still to be determined, however, is the value of the land in the transaction. The city had set aside about $4 million for the property, provided by Kings ownership, while U.S Bank’s attorneys contended the actual value was more than $10 million. A jury trial will determine the ultimate final price, but won’t affect actual ownership of the property, which would belong to the city. Pending approvals by the city council and planning commission, demolition of Downtown Plaza’s buildings on the site is expected to get underway in about two months, with arena construction beginning this fall.

With property rights for the future arena site in hand as of this week, the city of Sacramento now has a series of public meetings and approvals necessary to get project work formally underway this year. Assistant city manager John Dangberg said the first hurdle is a city planning commission meeting on April 10 with a number of entitlements to approve, include a development agreement, creation of a special planning district and rezones of property connected to the arena project, which will be on the eastern end of what’s now Downtown Plaza. On April 22, city staff will have a presentation for the city council on a more detailed list of documents, including a revised term sheet between the Sacramento Kings and the city, though the council won’t actually take action to approve those documents at the meeting. “The purpose is to provide some definition and explanation of a large volume of documents they’ll see on May 13,” Dangberg said. Given the time involved, much of the presentation will be explaining, in short order, what each document is and how it corresponds to the overall development plan. On May 13, the council will vote on the whether to approve those documents, which constitute the final approvals necessary for the arena project itself. Though not all documents will require such advance notice, Dangberg said, the city’s goal is to have all of them posted online for the public 10 days before the May 13 meeting. Presuming the final approvals are given, the next step would be acquiring demolition permits, a process Dangberg said is already underway by contractors working with the Kings on the arena project. After construction fencing is put up and utilities are rerouted to avoid affecting other buildings and businesses when demolition begins, formal takedown of the shopping mall is set for early June. The demolition process will continue until about August, when work will begin below ground on the foundation for the arena, a task also designed to be as non-intrusive on neighbors as possible, Dangberg said. By October or November, the arena project will begin going vertical in earnest, he said. (Sac Biz Journal)

Progress seen last year continued for Sacramento’s office leasing market in the first three months of 2014. With 294,097 square feet of positive absorption in the January-to-March timeframe, the region saw more large users looking for space, and many suburban towns, such as Rocklin and Folsom, are able to fill the demand, according to CBRE. “The suburban submarket accounts for a majority of the absorption right now,” said Tony Whittaker, a senior associate with CBRE. For companies, he said, the search is a balancing act between maximizing the space they’re occupying and still finding enough parking to accommodate their employees. In the suburban markets, he added, they can find those attributes, and still find newer space relatively easily. He noted two leases at an office building at 6030 West Oaks Blvd. in Rocklin as an example. Overall, the absorption of office space was the ninth consecutive quarter of growth, and put direct vacancy for the Sacramento region at 19.3 percent. In the next few months, the demand for good suburban market space is likely to continue, Whittaker said. “They want parking options, and buildings able to accommodate possibilities with floor plans,” Whittaker said. He explained a space with a lot of obstructing columns, for example, might not be as welcome as one with plenty of room for new cubicles and work stations. But if suburban markets continue to drive recovery, it also might be that they have more room to improve, he said. Downtown Sacramento vacancy is 17 percent, and as of yet, there’s no surge in demand relative to expected redevelopment in the next couple years, bolstered by the downtown arena, Whittaker said. (Sac Biz Journal)

The owners of Burgers & Brew andCrepeville have bought a midtown Sacramento building with plans to convert it into a restaurant and brewery. At 1616 J St., the 12,800-square-foot building has been through several incarnations in recent years, most recently a nightclub called Purgatory. Dave Herrera of Colliers InternationalSacramento, who brokered the sale, said the new owners will make the building into a bonafide midtown asset. Burgers & Brew owners Derar Zawaydehand Philippe Masoud could not be immediately reached for comment. Herrera said the concept would have a similar feel to what they’ve done at their Burgers & Brew and Crepeville locations, five in all between Sacramento, Davis and Chico. There was no immediate word on the timing of the new venture or a possible name. Another new bar and restaurant, Goldfield Trading Post, is scheduled to open this summer on the same block farther east in the former Hamburger Patties location. At one time, the 1616 building was office space, then became a piano bar, according to Herrera. When a nightclub operator made the piano bar’s owner an offer he couldn’t refuse, Herrera said, it became Azukar Lounge. “He was doing $250,000, $300,000″ a month, Herrera said of Azukar. But after the nightclub was caught selling alcohol to minors, it lost its liquor license. Purgatory tried next, but according to Herrera, the concept had funding issues and didn’t get an entertainment permit from the city before closing last year. The sales price for the building was not disclosed. According to a listing on LoopNet.com, the property was listed for $1.69 million. (Sac Biz Journal)

Developers and conservation groups have finalized a plan to develop about 700 homes in the Martis Valley area between Lake Tahoe and Truckee, and at the same time, created a plan to preserve thousands of other acres from development. In the plan called the Martis Valley Opportunity and submitted to local governments, developer East West Partners and property owner Sierra Pacific Industries will shift a planned residential development to the west side of Highway 267. Property owned by Sierra Pacific on the east side of the highway, including 670 acres zoned for 1,360 homes and 6.6 acres of commercial development, will instead be set aside for a total of 6,728 acres of open space. “It’s really a combined conservation and development plan,” said Blake Riva, a senior partner with East West. “We’ve been working on this for several years with key stakeholders in the area.” Under the plan, East West would still develop some of the Sierra Pacific-owned property west of the highway for 760 homes, and 6.6 acres of non-residential development. Riva said that development will most likely take the form of “community amenities” such as a pool and exercise club rather than destination retail or other kinds of stores. The plan will be submitted to Placer County and the Tahoe Regional Planning Agency for processing and adoption. In addition to East West and Sierra Pacific, Sierra Watch and Mountain Area Preservation helped craft Martis Valley Opportunity. “We know getting a project approved in Lake Tahoe takes a very thorough review process,” Riva said. “That said, we feel this can be a win-win scenario.” (Sac Biz Journal)

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