Why Meeting Tenant Needs Creates Office Buildings With Staying Power
One way to keep the momentum from the past few years in the office market is to keep tenants happy over the long-term. That was one of the key tips panelists gave the nearly 500 attendees at Bisnow's San Francisco State of the Market this week.
That's true when planning new development or purchasing existing buildings, and it's what our panelists say lies at the heart of keeping their companies successful.
The Swig Co takes a long view with properties in its portfolio, holding some for 50 to 60 years, said CEO Ken Perry. (We spoke with Ken about that long-term investment view last year.) We snapped Ken, right, speaking with Kai Ching of Alain Pinel Realtors before the event.
What's exciting is figuring out how to make those buildings relevant over time to tenants, creating an inviting and supportive environment, Ken said. Each building is unique, with its own particular solution.
In San Francisco, in particular, there's the draw of bringing in the surrounding city to give projects more of a community feel.
Forest City VP of development Jack Sylvan said his firm has sought to create partnerships in delivery of a place that is not a stale suburban office park.
For Forest City, that meant taking an early step in the 5M project, a residential, office and retail project with property owner Hearst Corp that was approved in November. The firm has started to move tenants into vacant space in the adjacent Chronicle building, including a co-working space, Intersection for the Arts and a fabrication workshop for the DIY crowd, Jack said.
"We're trying to become something greater than just office space," he said. Similar attention will be given to Pier 70, where Jack foresees the kind of space firms want for a campus environment.
We snapped Jack on stage, below right, next to Kilroy Realty's Northern California EVP Mike Sanford.
Mike described the transformation that took place at The Exchange on 16th when Kilroy purchased the site in Mission Bay. Mike said the company looked at the design it inherited, which looked similar to the rest of Mission Bay, and considered the location of the site, which is surrounded by neighborhoods that are a little grittier with more of a warehouse feel.
So Kilroy Realty reimagined the project, creating a completely different environment that inspired some possible tenants who had passed on the earlier concepts to take a fresh look. He said it's all about creating environments—a place where people want to be.
When Allen Matkins partner Tony Natsis (left with Lincoln Property Co EVP John Herr) asked about the viability of properties north of Market, John replied that was never a worry with Lincoln Property's 350 Bush and 500 Pine.
Supply constraints and continuing demand for the kind of properties tech tenants want continue to drive the market, John said.
John talked about the company's 19-story office tower at 350 Bush, set to deliver next year and the first new office building north of Market since 2000. That project also needed a second look after Lincoln Property purchased the 350 Bush/500 Pine sites in 2007. The company is building a smaller office building at 500 Pine St.
The original plans at 350 Bush were for a traditional office building, since no one was thinking of creative space or tech firms, John said. Lincoln Property recognized tech as an emerging trend, so sought ways to offer what those companies were demanding.
The firm shifted the building from steel frame to concrete with large floor plates and as much open outdoor space as possible, including a roof deck and nine different patios.
When it comes to tricking out a building for tenants or simply finding a better way to adjust the bottom line in the current market, developers should consider cost segregation, said Jeff Glass of Bedford Cost Segregation. We snapped Jeff, left, with Craig Malaer of Vantage Technology Consulting Group before the event.
The process works by breaking out those items that are eligible for short-term depreciation, such as carpet and accent lighting. It creates a way (accepted by the IRS, he emphasized) to accelerate depreciation on a project, taking a greater expense in those early years and increasing after-tax cash flow. The concept can be part of the overall strategy, he said.
At one point, Tony asked Ken about the rising demand in Oakland, where Swig owns the iconic Kaiser Center and The Wakefield Building. Ken says while some tenants won't leave San Francisco at any price, Oakland is benefiting from growing interest and starting to see organic growth.
He mentioned a colleague observing that Oakland feels more like the old San Francisco than San Francisco does today—a little grittier and newer.
You'll be able to hear more about booming Oakland at Bisnow's Oakland State of the Market event Feb. 23.