What's Hot Right Now In SoMa
We got updates and back stories behind some of the biggest developments South of Market at Bisnow's Future of SoMa event yesterday at the Intercontinental, and we found out why the real estate world is worried about Prop M. (Real estate folks are telling their kids about Prop M to scare them into brushing their teeth.)
Hudson Pacific Properties SVP of NorCal Joshua Hatfield is responsible for a 2.5M SF portfolio in S.F., which all sits in SoMa aside from one building. (Some kids want to go their own way.) An engineer-heavy Salesforce group will start to move into Hudson's Rincon Center this month under a 235k SF lease, which he says will compliment other Salesforce sites nearby. The tenant will use a portion of the retail as a communal meeting place for guests, with bike storage and showers (the latter necessitated by the former, trust us), and a self-help area for tech and laptops. That will drive Salesforce employee traffic to Rincon Center from other buildings. When Hudson bought 1455 Market in 2010, tech tenants weren't the first thing that came to mind; in fact, a government tenant would've done just fine (now we all know startup types are open to going vertical). The building's office portion just hit 100% occupancy, thanks to Uber's freshly inked expansion.
At 1455, Hudson went the glass route to flood tenants with natural light. (Eye doctors are giving them a standing ovation.) Cushman & Wakefield exec director JD Lumpkin, who worked on the Uber deal, says older SoMa buildings like 1455 have undergone what he calls a creative destruction, or reinventing themselves to meet demands of a modern workforce (another example is what TMG did for 680 Folsom). A huge chunk of the new construction out there is already pre-leased two to three years in advance of delivery, and that's truly an astonishing phenomenon S.F. hasn't seen before. But Prop M ('80s legislation that limits new office development to 875k SF/year) means entitlements will be gold going forward. It'll be a beauty contest and politically charged discussion when it comes down to what will rise to the top and get approved.
Prop M is no doubt a big concern, considering how many tech cos want to be in the city, says Kilroy Realty SVP of NorCal Mike Sanford. Kilroy just pulled the acquisition trigger in Mission Bay, buying a prime parcel teed up for a 680k SF office campus. Mission Bay's now "the new SoMa," with eclectic uses for residential, office, nightlife, and entertainment (take the recent Warriors announcement). As a result, timing was right to make the move there; just two years ago Kilroy wouldn't have done the deal, he says. (We were different people back then, think of how embarrassed you are when you look at two-year-old Facebook photos.)
Mike says early collaboration with 333 Brannan's next-door developer Breevast paid off because Dropbox (and other interested tenants) wanted expansion options and the ability to move into both buildings. Construction is now well underway, snapped moments ago. He hinted that two more buildings nearby could accommodate future Dropbox growth.
Swinerton Builders VP Steve Johnson scored the job to construct both Dropbox buildings, which he says will save the two developers money thanks to commonality in tower cranes and site logistics. Moving forward the biggest challenge construction wise will be pricier projects. (Econ 101 tells us when demand is high, prices rise.) And that's not just for labor and materials; availability of labor will be the largest factor influencing cost. Most of Swinerton's jobs are in SoMa at the moment, and half of its work in the past few years has been residential. He stresses that paying attention to amenities is key. NEMA is a great example of that, having had success drawing tech tenants through its modern amenities (Twitter is next door).
Allen Matkins partner Tony Natsis, who moderated, toured Square's new space at 1455 this week. It includes a "boulevard," or main alleyway that spans the length of Market to Mission streets. The open plan's got a lot of breakout conference rooms, and the huge floor plates enable the company to collaborate on a grand scale. Co-founder Jack Dorsey wanted a world-class dining facility—and he got it. Tony does a lot of work for the panelists onstage, and he points out that a lot's changed in just a year. Now Salesforce Tower is half leased, 535 Mission is a third leased, and 222 2nd is fully leased.