In the Sunday Times 11/15/98, "But unless the economy swoons or a successful anti-growth movement directs the flow, 1.4 million people will pour into Bay Area cities by 2020. Demographic experts say a half-million—more than a third—of these new residents will make Alameda and Contra Costa counties their home." Where will all these folks live? Dougherty Valley near Danville will house 30,000; East Dublin has 13,500 planned houses for 45,000 residents; and North Livermore has 12,500 planned houses for another 40,000+ future residents. "By 2020, 14 out of every 100 new jobs in the Bay Area will be found along the Interstate 680 corridor, according to Association of Bay Area Governments. The Tri-Valley is expected to generate nearly 90,000 new jobs; one out of every 10 new positions created in the Bay Area in the next two decades." I’m a native and also curse traffic, but in spite of all the negatives the onslaught of these invading hordes will bring, growing corporations need quality labor and expanded housing.

Reported in LoopNet, an on-line commercial news source, 1/20/98, "U.S. investors spent more than $10 billion this year acquiring assets and portfolios of non-performing loans in Japan and East Asia, according to a study by E&Y Kenneth Leventhal Real Estate Group. That $10 billion is much more than the $6.4 billion Asian investors spent on U.S. real estate assets in the period from 1993 to 1996 and is more than five times the amount the Japanese invested in 1985, their first big year in the U.S."

The new neighborhood: Main Street at corporate headquarters, where major U.S. firms are putting mini-downtowns right into campus offices. Banks, general stores, cafés, libraries, dry cleaning and Starbucks all without having to leave work. For dual-workers, single-parents or others who have minimal time to run around town doing errands, these "lifestyle benefits" are becoming an important recruiting tool and also keep workers at the office ... In Inc. September 1998, "Typically corporations subsidize the cost of a concierge. The cost to employers who provide the benefit is minuscule compared with many other perks they offer for a potentially large gain. Making long hours more tenable in the work place is critical to employers ... "

When deciding between new or used office systems, be sure to factor in power systems and cabling capacity. A number of office systems five years or older may have power systems which might not be expandable, and older systems may not allow sufficient capacity for today’s telecommunications and data cabling requirements.

A large number of major commercial real estate sales transactions around the Bay Area have fallen apart during the past 90 days due to the collapse of major capital markets. It seems every few days I’m reading about another $10 or 50 million sale gone awry, and the handful that are closing usually involve significant price reductions. In my opinion, the height of the Bay Area investment market was early summer 1998, and it’s been downhill ever since. Not necessarily a bad thing unless you are a seller who missed the very top of the curve, but investors were starting to get into Beanie Baby buying frenzy ... I still think Bay Area rents will continue upward, but on a much more gradual basis.

As reported in the San Francisco Examiner 10/25/98, according to Chris Edmonds, TheStreet.com’s resident REIT expert, "The REIT market will flounder." Most pension funds still shy away from them, preferring direct ownership of the bricks and mortar to the liquidity of a fund. However, as the real estate market turns around Edmonds says, "you’ll begin to see a real separation of the good from the bad, and that will lead to consolidation and a number of public real estate companies that just go away by either going public again ... or just going away."

Stated by Peter Bedford, president of Bedford Property Investors in August 1998, "If you read ‘tea leaves’, they would tell you that there is a slowdown fast approaching. The hot markets are cooling! We have received calls to buy back leases in Silicon Valley. There is a flattening in demand and a decrease in many of the regional occupancy statistics. The public equity markets also sense this, given the slowing of tile equity capital availability. There are other indicators; experience tells us to watch out—and we are."

Parking construction "ballpark" costs: Surface parking: $1,000 per space. Above-grade structure: $15,000 per space, underground structured parking: $25-30,000 per space.

For those of us in the suburbs, the pending parking predicament will be just one more reason for firms to reconsider the cost and convenience of doing business in San Francisco. I recently had a business lunch at One Market, and tried meter parking for five blocks in every direction—every meter was 30 minutes only, so off I went seeking a parking garage or lot. Every one was 100 percent full within a five-block radius. I then went to nearby Embarcadero Center, and after driving each level twice discovered they were also 100 percent full and hadn’t put the "full" signs out. Reluctantly, I left my prize automobile in the valet’s hands and two weeks later received a "no parking in a white zone" ticket in the mail that One Market’s valet had hidden from me. Think what your clients may be going through when they come to visit! During the next five years a number of the few remaining parking lots in San Francisco will disappear under development, and new entertainment projects like PacBell Park (5,000 parking spaces for 41,000 fans), and Sony’s Metreon Center (5 million annual visitors and virtually no parking) will make San Francisco an interesting place to do business.

According to the Tri-Valley Herald 10/4/98, "A Bay Area Bioscience Center study found there are between 50,000 and 55,000 bioscience workers at Bay Area companies, not including universities and support services. The California Health Institute named bioscience as the second largest employer in the state, said Sue Markland Day, president of the BABC ... Over 60 percent of area bioscience companies employ 40 people or fewer" ... Reason for the Bay Area’s pre-eminence in bioscience: Support system of venture capitalists, bioscience accounting and legal experts, technological infrastructure, one of the best places to live in the world and five major universities that feed into the research system ...

The Y2K problem as discussed in the Alter & Hadden Real Estate Trends, August 1998, "Very few existing commercial leases contain provisions addressing the Year 2000 Bug. Given the magnitude of the potential systems failures, it will be necessary for landlords to bring their buildings into Y2K compliance. Unfortunately, it may be too difficult to repair older equipment with outdated operating systems and programming languages, thus warranting replacement of such systems. Depending on the type of building, the cost of replacing or bringing the systems affected with the Y2K Bug into compliance may be significant. Landlords will argue that such expenses are normal legitimate operating expenses and will attempt to pass through those costs to their tenants under the escalation provisions of the lease. Without specific language excluding such changes, tenants may be required to pay such charges. In fact, the Financial Accounting Standards Board (FASB) has recently proposed changes to the accounting rules to treat the costs of remediating Y2K Problems as a current year expense, rather than amortized expenses."

Deals and Rumors: Oakland has been one of the regional hot spots during the past 60 days ... PolicyLink signed for 12,000 sf at 101 Broadway; Koret is relocating out of San Francisco to 50,000 sf at 505 14th Street, Oakland Tribune has leased 60,000 sf at 13th & Franklin St. (it’s former Tribune Tower building); InfoEdge leased 10,000 sf at 360 22nd St.; and the Department of Defense took 45,000 sf at 2201 Broadway. In Emeryville, I leased 45,000 sf to State Farm Insurance at 1400 65th St.; and the University might be looking at 50,000 sf in labs in this area. In San Leandro, Corrpro took 16,000 sf of office space at 2799 Miller St.; and in Hayward, Azuma Funds leased 34,000 sf at 1787 Sabre St. Farther east, I leased Certified Grocers 15,000 sf at 3420 Fostoria Way in Danville, and in San Ramon, TCI hooked up for 39,000 sf and Unum for 21,000 sf, both leases going down at Bishop Ranch 15. Further down in Dublin, E-Loan signed for 43,000 sf at Creekside Business Park, where Allstate Insurance is rumored to be taking 17,000 sf. In Pleasanton, at 6170 Stoneridge; American Baptist Homes leased 25,000 sf; at 6170 Stoneridge, Microgenics is reportedly out looking for an 80,000 sf office/lab location, SBC Technology Resources leased 41,000 sf at 4698 Willow Road; Sprint PCS is expanding by 12,000 sf at 4683 Chabot Dr.; and Ellis Partners closed escrow two weeks ago on a 500,000 sf office portfolio from Paine-Weber, including numerous office buildings in Hacienda. In Walnut Creek, Basic Vegetable leased 27,000 sf at Treat Towers, where Greater Bay Bank is reportedly looking at 10,000 sf in this new project. In Concord, Trizec-Hahn is reportedly purchasing the 369,000 sf 2300 Clayton office mid-rise. On the Peninsula, Seaport Centre III in Redwood City announced new tenancies of Oceania: 41,000 sf; Sqribe Technologies: 41,000 sf, and Clarent Corporation: 25,000 sf. In San Francisco, Pyramid/Nextera leased 14,000 sf at 540 Howard St. Women’s Technology Cluster leased 20,000 sf. South of Market, Jeffries & Co. took 30,000 sf at 650 California St.; Discover Brokerage Direct inked 14,000 sf at 301 Howard St., Fremont Group will be taking 80,000 sf at 199 Fremont St.; Platinum Technology is rumored to be leasing 75,000 sf at 475 Brannan St. and Document Repository signed for 18,000 sf at 760 Market St.

As reported in the San Francisco Examiner 10/11/98, "Telecommuting is rapidly coming into its own. About 6 percent of employed adults (8.2 million people) telecommute regularly. By 2005, the number of telecommuters is expected to jump to more than 18 million," says Charlie Grantham, president of the Institute of Distributed Work in Walnut Creek. Southwestern Bell Telephone, for example, offers its telecommuters a detailed shopping list of essential accouterments for successful telecommuting. They include: adequate electrical support; a desk approximately 26 inches in height and at least 24 inches deep, and allow room for a computer, telephone, fax or other necessary equipment. The chair, a telecommuter’s most important piece of furniture, should ideally be ergonomically designed and lighting should be adequate for reading, writing and computer use. Both natural and artificial light should be directed to the side and behind the line of vision, not above or in front of it." If you’d like a copy of this article please e-mail me at jeffrey.weil@grubb-ellis.com.

Of the six Bay Area Counties (Marin, Contra Costa, San Francisco, Santa Clara, San Mateo and Alameda) Contra Costa has the Bay Area’s highest median personal income (1996) at $34,281, and the lowest median home price (1998) at $230,000. In Central county, 49 percent commute less than 10 miles, 18 percent commute 11 to 20 miles, and 10 percent commute more than 31 miles.

In Money October 1998, "These days, reports the Employee Relocation Council in Washington, D.C., more and more families are moving because of career opportunities for the woman of the house—17 percent of the approximately 660,000 American families that relocated last year."

The City of Pleasanton is considering a $3.93 per square foot traffic impact fee which would affect 12 million square feet of office space that are expected to be built between now and 2015.

By 2010, there will be 17,000 more jobs than employed residents in the Livermore - Amador Valley, and 68,000 less jobs than employed residents in East Contra Costa. According to the Bay Area Association of Governments, between 1995 and 2010, slightly more than 100,000 homes will be built in the Silicon Valley, compared with 400,000 new jobs, pushing more home seekers over the Altamont. Job imbalance and more traffic congestion ...

I attended a presentation given by T&R Communications on wiring trends for office users. For most office users Category 5 is highly recommended, and while currently there is no Cat 6 or Cat 7 wiring, there is Cat 5 level 6 and Cat 5 level 7. Level 6 is about 25 percent more costly than level 5, and level 7, 35 to 40 percent more costly than level 5. The experts predict that in one year, only level 6 and 7 will be installed, so if you’re considering a lower level today, remember that Internet speeds will be incredibly faster just within the next few years. Will you have to re-wire midway through your lease term, or is it worth the extra $ today to prepare for the future? I was surprised to learn that the main difference between Cat 3 and Cat 5 wiring is the strict logarithmic formula in how the pairs are twisted, with many more twists in Cat 5 allowing higher capacity ... Other than this "twisted logic," the wires are physically about the same. Few companies are going to fiberoptics to each workstation and some of those that did report they underutilized their technology investment. Check out your network cards—you can have fast computers and Cat 5 wiring, but a slow network card will slow down the entire system.

It might be wise to have a telecommunications consultant (like T&R - check out my web page for a great article they’ve published at www.weiloffice.com) come in every 18 months to run a diagnostic on your system. Kind of like a car

tune-up ... A few other rules-of-thumb for different types of space usage: basic insurance, marketing operations: 2-voice/data per workstation at $250/station; high-tech software: 4 to 6 voice/data per work-station at $450 to 600/station.

Yesterday’s office user meeting room was called a "conference room," coming in different shapes and sizes usually with a drop-down screen, a rectangular conference table, maybe a speaker phone and sometimes, flipchart or tack boards. Today’s meeting spaces are much more specialized, including an increasing usage of team spaces which can be short or

long-term; conference tables can be separated into individual tables on wheels to maximize flexibility; plug-in capability to allow team or conference members to connect; training rooms with sufficient data and electric capacity with presentation capabilities; and upgraded board rooms with advanced technological capabilities to allow video-conferencing and on-line presentations.

Internet hook-up choices ... Wireless systems such as WinStar that place a small antenna on the roof which allows tenants to access data, Internet, local and long-distance communications; ADSL, which utilizes existing analog telephone lines and transforms existing telephone networks into high-speed transmission lines up to 50 times faster than existing modems; T-1 lines, which provide very high-speed data transmission usually at the upper end of the cost spectrum; ISDN, usually installed by the telephone provider; cable modems primarily focused on consumers. Whichever vendor is making the pitch makes their distinctive technology sound like the ideal solution, but right now the perfect answer may not exist ...

Tips on making team space more productive, reported in Building Operating Management September 1998 ... have team members share open space; locate team members’ offices next to one another; partition the group and give it physical boundaries; separate the team from other groups ...

Also check out "Internet Sites for Corporate Real Estate Directors" now posted at www.weiloffice.com, along with directories of East Bay hotels, conference facilities, governmental offices (city and state) and numerous other information at www.weiloffice.com, and its all free ... If you want all the current transit schedules for BART, AC Transit, the Ferry System, etc. just go to www.weiloffice.com for direct links to them all. This web site is averaging 13,000 hits per month!

Integration of building systems has recently become much more economically feasible. In addition to greater control, greater tracking, benefits in time saving and improved building performance, lower bottom-line costs can be achieved through system integration. Areas which might be included: fire and life safety, fire and life safety with security management; integrated security with digital video systems; access control notification; chiller plant control; specialized lighting, and cooling; remote access and monitoring; HVAC diagnostics. As illustrated in Building Operating Management, August 1998, "Beyond these 16 specific applications, integrated automation provides a database for preparing reports, billing, scheduling maintenance, controlling energy use and other functions. This database lets facility executives analyze various elements of the building effectively by gathering information from multiple systems and presenting it in a consistent manner, no matter what item is being checked."

In Buildings, August 1998 referring to BOMA’s 1998 Experience Exchange Report, "A New Source of Income: Telecommunications." 23 percent of the private sector buildings responding to the survey indicated they received some telecommunications-related income. On average, building owners and managers received $.20 per building rsf in telecom income. Breaking down the telecom income to the next level, they receive about $.07/rsf in wire access income and about $.13/rsf in roof-top income." To translate this to reality economics, for a 500,000 sf office building this would yield $100,000 per year, increasing the property value by $1,000,000 based on a 9 percent cap rate.

I flashed back on all the foreboding disasters the office building industry has faced and conquered during the past 10 to 15 years. We had the huge asbestos hoopla of the 1980s and early 1990s, some real and a lot hype. A number of older

buildings were affected by underground storage tanks (either oil or gas, most long abandoned) which required remediation. We had the seismic retrofit requirements. Then, the ban on freon which at one point raised the question whether all HVAC units would need to replaced or could they just be retrofitted (since then, replacement environmental-friendly freon was created). In the 1980s we had no tenants and no lenders, leading to massive foreclosures and the restructure of almost the entire office investor industry. Let us not forget ADA and life-safety upgrade/retrofit requirements which affected almost every office building in the country. Now we have the Year 2000 computer problem facing us, but looking at what we’ve been through already, I’m confident this will be another successfully overcome chapter in the history of the office building industry ....

I’m trying to teach our 17-month old son to update my database, but so far, he is limited to a 10-word vocabulary and still doesn’t grasp the difference between rentable and useable ... he does know what a truck is and points at every pick-up in sight. But when I excitedly point out a suburban flex office building, both my son, Jordan, and my wife, Lisa, look back at me with blank stares. Later this month, we go to visit relatives in Michigan and Toronto ... I’m shivering just thinking about the weather ... Have a healthy, safe holiday season, and we’ll chat again in 1999!

Happy Holidays!

Jeffrey S. Weil, MCRS.h, CCIM, SIOR
Senior Vice President

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