Here's Where San Francisco Investors Are Finding Opportunities
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Investing in San Francisco is not what it used to be. Good opportunities are hard to come by, and many investors are getting creative when looking to expand their portfolios.
During a recent Bisnow event, a panel moderated by Steve Golubchik, Newmark, Cornish & Carey vice chairman and co-head of commercial capital markets in Northern California, agreed hospitality is out as a good investment opportunity, but office remains of high interest.
San Francisco has become more challenging due to a lack of qualified construction labor, tough lending and a heavy reliance on the often volatile tech industry. Despite these issues, investment firms are still finding opportunities in the Bay Area and beyond.
TPG Capital likes pockets of dislocation, according to TPG Capital partner Tripp Johnson. The company has been working with a JV of Grammercy Property Trust called Strategic Office Partners. TPG Capital is buying short-duration office buildings with two- to five-year single tenant leases.
Johnson said his company has historically liked light-industrial where there has not been a lot of supply growth, but there has not been much rate growth and occupancy growth. He said pricing has been pushed hard to where it is difficult as an opportunistic investor to find more opportunities. The company has built up its industrial portfolio to 60M SF through its Evergreen platform and is seeing great trends in the business.
While TPG Capital expects continued good performance of industrial, his firm has become more interested in office where there are more value opportunities. In areas outside of San Francisco and New York, there is more potential for good fundamentals and valuations are much more attractive.
PCCP partner Bryan Thornton said his firm is looking into multifamily Class-B renovations where there is opportunity for rent growth. These assets have tenants that can afford the rent and could benefit from renovated kitchens and other improvements.
PCCP has expanded beyond just being real estate investors, as it was 10 years ago. While it still invests in real estate, it also offers investment management business. PCCP is a situational investor and can invest in market product types or asset-specific dislocation. This strategy means it can find opportunities in both up and down cycles.
Canyon Partners remains bullish on San Francisco long term. Over the last couple of years, San Francisco has been challenging because pricing is rich, according to Canyon Partners senior director Vernon Chin. He said he is monitoring the impact of the tech industry since the current cycle is reliant on young tech companies less than 10 years old.
Chin said Canyon Partners generally views Oakland office as a safer bet than San Francisco and the peninsula because of the stability of the tech base. He said tenants want to be in Oakland because they want to be in Oakland. One of the reasons Blue Shield will relocate to Oakland is many of its employees live in the East Bay.
Rockwood Capital partner Bob Gray said his company is bullish on office. Gray believes a lot of the office stock needs to be destroyed to make way for new office projects since the old buildings do not have good floor plans and are not designed for today’s tenants. His firm has sold all of its Class-B assets.