February
1, 2001 Issue:
125
According to Business
Xpansion Journal (November 2000), the American Electronics
Association (AEA) tracks state-by-state growth trends of the various sectors
of the industry. The employment rankings in selected electronics
manufacturing categories include: Computers and office equipment: 1)
California 2) Texas 3) Massachusetts; Consumer electronics: 1) California 2)
New York 3) Indiana; Communications equipment: 1) California 2) Illinois 3)
Texas; Electronics components and accessories: 1) California 2) Illinois 3)
Texas; Electromedical equipment: 1) California 2) Minnesota 3) Florida;
Defense electronics: 1) California 2) New York 3) Texas. Notice any pattern
here?
www.officetimes.com
was featured in the January 5, 2001, East
Bay Business Times! “Target audience: CFO’s, corporate
real estate executives and business start-ups looking for comprehensive
information on various aspects of office leasing. Why use site:
Fast access to information on Bay Area office rents, housing prices,
business taxes, local government contacts, listings of all the East Bay
hotels and articles on setting up telecommuters. I especially like the
listings of all the golf courses with direct links to their websites and
the links to transit information. I can get current BART schedules
instantly. What’s on site: officetimes.com publishes
a newsletter on trends in the office market, what sub-regions are hot,
predictions of where the market is headed based on 25 years of experience.
You can get a free subscription to the newsletter right off the site. Accolades:
I’ve book marked the site. It has hundreds of links and it’s a
one-stop shop for just about any piece of information I need on the office
leasing industry, as well as great links helpful to doing business in the
East Bay. It seems they update the site every few days as I’m always
finding new stuff.” Thanks, East Bay Business Times!
Good news/bad news. On the one hand, San Francisco
has experienced a tremendous vacancy increase in South of Market office
buildings ranging from between 2 to 3 million square feet of office space
currently available. Rental rates have reportedly dropped $15 to $25/sf
per annum in just the past 60 days, now currently ranging from $40 to
$50/sf. Financial district rents are still in the $75 to 100/sf range, and
I have heard of recent nosebleed rents that belay any market downturn.
However, you can’t put 2 to 3 million feet back on the market, even if
it is non-financial-district space, and not expect an impact on the entire
office market. So, good news for tenants, bad news for office building
owners, especially SoMa.
In the San
Francisco Business Times (12/15/00), “S.F. beauty contest turns
ugly for developers,” two developers have locked up rights to build
almost all the space the city can allow. Catellus is first in line for
475,000 sf, and Wilson/Equity would account for most of the remaining 1.2
million square feet of capacity. With a potential of declining rents, this
might be good news to developers who might otherwise be off and running to
build more space, but long-term, this is bad news for tenants as it will
once again restrict future office supply… and we know what happens once
our dotcom space gets released…
A Synthetic Lease overview, thanks to Business
Xpansion Journal (November 2000), “Simply stated, a synthetic
lease is a financing arrangement that is classified as a lease for
financial accounting purposes and as a loan for tax purposes. This type of
financing arrangement is attractive to a lessee/borrower because the
lessee achieves off-balance sheet accounting treatment for its debt, but
retains the tax benefits associated with the ownership of the property.
The lessee’s purchase option also permits the lessee to capture any
appreciation on the property. From the lessor’s standpoint, the lessee
retains the residual risk of any decline in value of the property,
contrary to a typical lease arrangement.” For further information,
please contact the author, Nancy Little, partner in the law-firm of
Mcguire Woods LLP at nrlittle@mcguirewods.com
In addition to the dotcom demise, mainstream America
is beginning to tighten its belt. On December 9, 2000, the Tri-Valley
Herald listed the following layoffs: Gillette: 2,700; Aetna:
5,000; Motorola: 2,870; Unisys: 1,500; General Motors: 13,500; Whirlpool:
6,000. On January 25, 2001, the Tri-Valley Herald said Lucent
Technologies is laying off 16,000 people. On January 27, 2001, the
San
Francisco Chronicle reported WorldCom’s plans to lay off 10,000
employees. Most expect this list to grow.
I don’t know if the U.S. has seen another industry
like the dotcommers soar so fast, so high and crash so quickly in such a
short period of time.
In the Tri-Valley
Herald (1/19/01), “Last year, Spieker’s (Spieker Properties
Inc., the largest commercial real estate investment trust on the West
Coast) shares returned 46 percent including dividends…The gains stemmed
from rising demand for office space in Spieker’s markets. Rents on the
company’s expiring leases rose an average of 83.4 percent in the third
quarter of 2000…The company, which owns more than 40 million square feet
of commercial space in California and the Pacific Northwest, in the third
quarter signed a lead tenant for a building it’s developing in Reduced
Shares to a lease that pays $93/sf. The sense is that the good times are
quickly coming to an end.”
In a potential boon for biomedical research in the
Bay Area, Gov. Gray Davis picked a consortium led by the University of
California at San Francisco yesterday to spearhead a $900 million push to
“help invent the future.” The QB3 Project (California Institute for
Bioengineering, Biotechnology and Quantitative Biomedical Research, in
case you were curious…) will be anchored at San Francisco Mission Bay.
The new 215,000 square foot Emeryville Pixar
headquarters features volleyball and basketball courts, a lap pool, three
screening rooms, a gym with free personal trainers, and plans call for a
swimming pool and apple orchard on the rolling lawn of the 16-acre campus.
The Contra Costa Times (12/9/00)
reported site acquisition costs of $5.8 million, capital expenditures of
$54.2 million, and an additional $34.2 million to be spent to complete the
project. Let’s see, dividing these figures by 215,000 sf comes out to
only $438/sf…
The San
Francisco Chronicle (1/5/01), reported a UC Berkeley forecast
predicting 23,000 or more Bay Area jobs could be lost during the next two
years. “The new economy is not going away. Some of the companies are
going away,” said Ken Rosen, chairman of the Fisher Center for Real
Estate and Urban Economics at UC Berkeley and the study’s lead
author…“The slow down could reduce real estate prices as some
companies die and their employees leave the area. Office rental prices
could decline 15 to 20 percent in San Francisco, although annual costs
could remain high - on average $63 per square foot.” Here’s my two
cents on this- whoopee… office rents might go down to only $63/sf, but
it was only a handful of years ago when they were in the mid-$20s for
great office space. My corporate friends who are currently trying to hire
new employees report that these laid-off dotcommers must be in hiding
because they are still having hiring difficulties. So, here is a
silver-lining in this potential office sector downturn…more available
employees, more available office space, more parking spaces, potentially
lower rental rates – all wonderful reasons to stay and grow your
business in Northern California! (p.s., as of December 2000, the
East Bay unemployment rate fell to 2.2 percent…)
Deals and Rumors:
In Pleasant Hill at 3478 Buskirk Avenue, I leased PG&E 19,000
sf, and in Walnut Creek I represented Teradyne, Inc. in a 37,000 sf lease
at 2401 Shadelands Drive. Also in Walnut Creek, Genysis
Telecommunications leased 27,000 sf at 1255 Treat Boulevard. AlphaSoft
sublet 39,000 sf at 2121 North California Boulevard, and PMI has announced
its intent to purchase a 195,000 sf office building under construction at
the Pleasant Hill Bart Station. In Concord, Knight Ridder leased
15,000 sf of flex space at 940 Detroit. MetLife leased 10,000 sf at 92 La
Gonda Way in Danville. In San Ramon, Exodus took 11,000 sf
at BR3, and AIG leased 40,000 sf in the same project. Pleasanton
continued to be dynamic, with Regus rumored to be taking 70,000 sf at
Inglewood Place, Charles Schwab possibly backfilling the 50,000 sf Regus
space at the Hines project, and Intel leased 55,000 sf at 5794 West Las
Positas. FiberStreet took 15,000 sf at 4637 Chabot Drive; Honeywell leased
12,000 sf at Bernal Center; Crossmark leased 17,000 sf at 5653 Stoneridge
Drive. Hatch Mott MacDonald will be relocating 12,000 sf at Hacienda West,
and Hines just purchased the 560,000 sf Stoneridge Office Park. In Livermore,
Adept signed a 250,000 sf lease at Tri-Valley Tech Park, NextCard will be
moving to 40,000 sf at the same business park, and Shurex might be leasing
22,000 sf at Shea’s new project. In Oakland, I helped one of my
corporate clients acquire an 11-unit live-work complex at 1175 59th
Street, and in downtown Oakland, Kaiser Permanente leased 60,000 sf
at 2000 Broadway, and MMI Group rented 14,000 sf at 505 14th street at
Oakland City Center. In Berkeley, Intel leased 12,000 sf at 2150
Shattuck. Over in Alameda, Good Guys will be relocating its
headquarters to 30,000 sf at Harbor Bay, and Avigin leased 60,000 sf at
1301 Harbor Bay. In San Francisco, it was mostly an “unleasing”
market. Northpoint downsized 112,000 sf at 303 Second Street; ixL
Enterprises put 100,000 sf of sublease space on the market at 575 Market
Street and MarchFirst terminated its 270,000 sf office lease at Catellus
Mission Bay project. There was some positive news with Gap announcing a
283,000 sf lease at Mission Bay, and WPPGroup leasing 73,000 sf at 303
Second Street; Adams, Karkness & Hill leasing 22,000 sf at Four
Embarcadero and Sun Microsystems taking 20,000 sf at 631 Howard Street.
Inktomi announced it was proceeding with its 381,000 sf in Foster City,
but Electronics for Imaging announced it was putting 400,000 sf of space
on the market for sublease. Siebel Systems expanded by another 135,000 sf
at Bay Meadows in San Mateo. Do you also get the feeling we are a
market in flux?
A four-page article I authored “Wielding
Broker-to-Broker Web-Enabled Tools” was just published in the Jan/Feb
2001 issue of Corporate Real Estate Executive. I spent several
months interviewing top corporate real estate brokers in a variety of
national and regional firms from around the country, asking them what
web-enabled tools they utilized to better service their corporate clients.
If you’re interested in a copy of this article check out http://www.nacore.com
The world’s foremost corporate real estate
organization, NACORE (anticipated to merge with IDRC January, 2002) held a
number of educational forums at its annual symposium last September. One
two-hour program featured a number of e-commerce “platform providers”
offering to digitalize corporate America, including lease documents, space
plans, lease administration, transaction management and the rest of the
ball of wax. One astute speaker made this forecast way back at the end of
last summer, “Be very wary of which b-to-b Web-enabled CRE tool and
knowledge company you sign with. You will be investing a lot of time and
money getting your system in place, and once you are enabled the return on
your investment may be incredible if your Web-enabler remains in
business!” What this person was referring to is that the multitude of
corporate real estate Web-enablers for the most part do not share similar
platforms, so if yours goes out of business you might be in major trouble.
Fast-forward to today, only four long months later, and many of these
folks are already out of business…
In a previous newsletter a few years ago, I had
remarked on an emerging trend of companies allowing employees to bring
their dogs to work. Well, in the Contra
Costa Times (1/14/01)
titled “Office dogs getting the boot” it seems firms are beginning to
reverse this trend. “There were too many dogs running around and
barking…The dogs put off job candidates who were afraid of animals or
allergic to them…Landlords are worried that tenants who welcome pets
will upset those who don’t… more institutional and experienced
landlords won’t allow dogs and will go ahead and put something in the
lease barring them…companies are discovering that dogs will be dogs –
and that means everything from fights in the halls to unexpected
‘presents’ left by pups with poor potty training.”
An October survey of 155 foreign companies by the
Washington, D.C.-based Association of Foreign Investors in Real Estate
showed that San Francisco ranks number 2 in U.S. cities for investment
(New York is ranked number one). The city has been ranked number 3 since
1997.
I chuckled over the quote in the San
Francisco Business Times (1/19/01) by Paul Stein, a San Francisco
South of Market office developer when questioned “about the economy
going down the tank.” “The market is returning to normalcy,” he
replied.
According to a study conducted by the Building
Owners and Managers Association in late 1999 and reported in Small
Business Computing (January 2001), “80 percent of building
owners reported receiving flat-fee payments from providers in exchange for
access. And in some highly competitive markets, providers offered revenue
sharing as an incentive. But businesses may want to keep a watchful eye on
property management’s choices.” According to Jeff Moore, senior
analyst for a network consulting group, Current Analysis, “an industry
shakeout is inevitable. While buildings have the right to choose which
providers get access to their property, it’s the tenants who stand to
lose if the connection gets lost.”
In San Francisco more than 1 million square feet of
dotcom space was classified as “business services” to get around the
city office development limits. However, it is uncertain if these
buildings can be re-habited with non-dotcom firms. As landlord Mike Kelly
stated in the San
Francisco Business Times (1/12/01), “Every night when I go to
bed I worry, and every day when I wake up I worry.”
As mentioned in the Contra
Costa Times (1/7/01),
“Telecommuting, the hot trend of the 1990’s, that promised to give
relief to commuters and working parents, has lost its luster in the
workforce…Although no one tracks the precise number of telecommuters,
most personnel managers and experts in the field say the ranks of
telecommuters nationally are declining and that a majority of companies
are planning to allow fewer people to work from home in the future.”
However, the International Telework Association of Council estimates that
24 million now work occasionally from home and that millions more want to
but doubt their bosses would go for it. Executive Director Gail Martin
said any negative feedback on telecommuting likely comes from employees
who are either not committed to it, have tried it “on a whim and failed,
or have not carefully thought the whole process through.” In Kiplinger’s
(February 2001), “The ranks of telecommuters will continue to swell this
year, albeit at a slower pace than last year’s torrid 20% growth rate.
Although it’s usually presumed that employees are the driving force
behind telecommuting, businesses have selfish reasons of their own for
letting employees work from home, says Gil Gordon, a consultant who has
researched telecommuting. Independent studies show that employees are more
productive when they work off-site, and in tight labor markets employers
rely on telecommuting to attract and retain workers.” So your guess is
as good as mine whether the trend is up or down, but I know a lot of
telecommuting folks who rave about productivity and its many benefits.
I did a number of media interviews during the past
few weeks regarding California’s “Energy Crisis” I am sure we will
get past this as we have with all previous crises including a seven-year
drought, a gas crisis, a phase-out of Freon (oh no, no more HVAC…),
asbestos, PCB’s, earthquakes, and everything else that occupies headline
news until the problems are solved. I, like many of my Northern California
fellow office workers had to suffer through a few rolling blackouts, but
once they get the power situation figured out we’ll be fine. Meanwhile,
I have clients back East and elsewhere who get snowed in, have flights
cancelled, roads closed and life goes on for them as well. I do expect an
increase in our energy prices, at least short-term, so if you’re an
office user get ready for operating expense pass-through bumps. In the San
Francisco East Bay our normal utilities which used to run $.15 to .17/sf
per month for standard business hours might double or triple so you might
revise your budget. However, this crisis will spur new expedited power
plant construction, which should lead to lower energy prices in the
future.
According to Jonathan Schein, publisher of Real
Estate Forum (December 2000), “It’s amazing how many different
“E” Strategies have been announced, formed and established. Having
attended both PikeNet and RealComm this year, it’s amazing to see the
different business models that have sprung up. Unfortunately, at least one
half of the companies that exhibited this year want to be around next
year. But there are at least three new companies to take the place of the
one that doesn’t make it.”
My son Jordan is well on his way to his 4th
birthday on May 26. It is interesting that with a newborn you count the
age by days, then weeks, but after three years you begin rounding off to
the nearest half-year. In December, Jordan passed the 40” height
threshold, so off went father and son to race two-seater go-carts in
Livermore. Later that same month, I enrolled Jordan into ski school at
Lake Tahoe, finally realizing that he would advance quicker and have more
fun in a class of his own age group versus dad straining his back guiding
the little guy down the hill. Parents might smile when they read this, but
each child has his or her own characteristics. Jordan has an unbelievable
memory, and will remember places he visited when he was 1 ½ years old. My
wife and I now ask Jordan when we can’t find something, and 9 out of 10
times he’ll know exactly where it is. To see his current pictures
at his new web page "The Bat Cave" click HERE!
Drive safely these upcoming winter months!
Sincerely,
