Oakland has come into its own during the current market cycle and is piquing the interest of institutional investors.
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Longtime Oakland investors, such as California Capital & Investment Group, are getting quite a few offers to sell. The more-than-agreeable terms have made it difficult to turn down the offers, according to CCIG CEO Phil Tagami.
In the last year, CCIG, a long-term investor and renovator of Class-B properties, has become more of a seller than in previous years due to aggressive institutional money entering the Oakland Class-B office space.
These buyers are offering high prices, often three times as much as what CCIG originally paid for the property, at low cap rates, which makes it an ideal situation to sell, according to Tagami.
CCIG still owns plenty of assets in Oakland and remains committed to the market. CCIG’s biggest project of late has been its work on the $1.8B Oakland Army Base, a public/private redevelopment project. It has been working as a master developer and has helped get the site designed, entitled and funded.
The company also is in a JV with Prologis for some of the land. CCIG has been helping with infrastructure development, including work at the railyard and marine terminal, where it will hold a lease for 66 years. The project is already 10 years in and should take another four to five years, according to Tagami.
The Challenges of Oakland’s Market
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With so many new sellers entering the market, new challenges are cropping up. Tagami said one of his concerns with all of these new sellers is they are relying heavily on financial models where rent increases. Class-B occupiers often cannot afford afford ongoing escalation.
“The B market has traditionally been made up of support industries and nonprofits and by and large get priced out of the market,” he said.
An influx of new sellers also presents challenges with community engagement with many sellers not having strong ties to the community like previous owners did, Tagami said. It will be critical for Oakland to maintain a balance of people who are just living here and own and operate businesses here.
Development in Oakland has been heavily weighted toward multifamily with only a handful of new office developments getting started this late in the cycle. The central business district has multimodal infrastructure that can support more development, but it is a matter of making sure it makes sense for the community.
“We need to continue to strike a balance,” he said.
Despite Oakland working to make entitlements easier, Tagami said Oakland’s entitlement process is more difficult than San Francisco's. Oakland’s rent growth is not as strong as San Francisco. Couple that with Oakland’s fee structure and laws, regulation and mitigation to address concerns of vocal members of the community, and developments get to a point where they are no longer affordable.
“There is too often that notion of the developer versus community … that has to be played out publicly and that there has to be some tension or position when it doesn’t need to be characterized that way,” Tagami said. “The developer is in the business of delivering what a community needs and what a market needs.”
Hear more from CCIG’s Phil Tagami at Bisnow’s upcoming Future of Oakland event Oct. 5.
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