Wow, this issue begins the 18th consecutive year of writing this letter to you. We didn’t even use computers back then, and my car phone weighed 30 pounds and was mounted in the trunk. Forget fax, e-mail, voice-mail or word processing. For $12/sf we could turn-key an East Bay office space and leases were just 20 pages long. Syndications were hot, savings and loans were the lenders of commercial real estate, and tax laws made it lucrative to own commercial property even if it wasn’t leased. Walnut Creek and San Ramon were barely on the corporate map, South of Market in San Francisco was just being invented as an office location, San Jose was way out in the boonies and Pleasanton was just a place to get gas on the way to elsewhere. The Worldwide Web hadn’t been spun yet, and if you were in the hardware business it meant hammers and nails, not disc drives. The next 18 years will be interesting ... I think I’ll stick around for the ride!

"In a recent survey conducted by Olsten Staffing Services, approximately 62% of U.S. companies polled are encouraging telecommuting arrangements, up from 49% in 1996 and 39% in 1994. More than 42% have telecommuting programs underway, and 70% expect telecommuting to increase this year." This was from Entrepreneur March 1998 ... "telecommuters still need to show up at the office on a semi-regular basis, and when they don’t they should make an above-average effort to keep their bosses informed ... most telecommuting is done only part-time, most telecommuters go into the office one to three days a week. Company leaders need to make certain they can afford the necessary equipment that makes telecommuting work. An e-mail, a solid ISDN phone line and modems can be just the start of crafting an office-away-from-the-office. Adding furniture, voice-mail, a fax machine, a laser printer and other necessary equipment can be quite costly." Most employers work out a compromise with the employee on who pays for what ...

In Buildings February 1998 about Category 5 wiring: The trend toward high-performance Category 5 and fiberoptic cabling has affected the design of wire management systems in several ways. Basically, the integrity of data transmissions is affected by bending. Older workstations may have tight corners requiring retrofit cable bend fittings to allow high-performance cable. Here we are into the bend at turn 6, going at a high speed, oh no, it’s data spin out!

Millennium 2000 and corporate facilities: First, check out my web page http:\\www.weiloffice.com for a number of direct links to Internet solution sites on the Millennium problem. There are dozens of building functions which might be affected including; generators, phones, faxes, parking access systems, smoke detectors, lights, building access systems, not to mention other building-related issues such as operating expense passthroughs, CAM charges, rent invoices and more. BOMA has a publication out called "Meeting the Year 2000 Challenge: A Guide for Property Professionals," available at 800.426.6292.

Buildings Interior February 1998 reported on a recent AT&T Global Sales Organization layout re-design which cut each person’s office space from 204 square feet to 121, reduced square footage from 45,000 to 26,700 square feet and saved the company $500,000. They use a computerized system which allocates various workstations to the individuals who need them, reserving, allocating, activating and tracking space usage. It routes phone calls so each person can keep their individual phone number. The facility consists of 150 individuals who share 50 workstations, with 150 more chairs in the areas for conference, team, cafe, personal harbor and open team space. Seventy staff members work in dedicated office space and only eight closed offices exist, one of which is a shared space. The use of headsets instead of speaker phones, and great attention to acoustical, sound-deadening detail, make the single-panel concept work without people being bothered by a lot of background noise. "Personal Harbors," completely enclosed and private, one-person offices can be reserved for private phone calls. There are also private team rooms accommodating up to six individuals. The design manager for AT&T, Leland Horstmann said, "We’ve gotten a lot of good feedback regarding the design. Of course, this company traditionally rewarded senior management with more office space, a better view. But with the cost of office space these days, some of those traditions just have to go."

I still believe the East Bay office market will remain tight for at least the next several years. We have yet to see a potential flood of corporate tenants from San Francisco who when faced with $45/sf and higher rental rates will prefer to pay $27/sf for new Class A suburban space. Over 10 years the difference for a 50,000 sf office user is about $9 million, with an additional $1.465 million in business tax savings. (See my web page www.weiloffice.com for a Bay Area business tax comparison). However, recently I have begun to notice a few hairline cracks in the office leasing velocity, such as one major developer who has 120,000 sf of just-completed office space still not leased, and another who was holding off for 25,000 sf or larger tenants and now has announced they would break up the floors. In a super-hot market, both of these projects would have filled prior to completion, so I guess we only have a moderately-hot market. I’ll keep you posted during the next few years and we’ll see if we can predict with any degree of accuracy when the market begins its next turn from landlord back to tenant ...

Deals and Rumors: In Pleasanton, Long Beach Financial leased 10,000 sf; Smith Barney 12,000 sf; and Square D 11,000 sf, all at 6160 Stoneridge Drive. Castlelink took 11,000 sf at 6140 Stoneridge. In San Ramon, I sublet Infant Advantage 11,000 sf at 2420 Camino Ramon. In Walnut Creek, I was fortunate to be involved in leasing California State Automobile Association 44,000 sf at 355 Lennon Lane. A short toot of my horn (which I rarely do in these letters) -- during the past six months I have closed more than 200,000 sf of office leases totaling almost $40 million dollars, so I guess we’re off to a good start! Back to deals ... PaineWebber is taking 10,000 sf at 2185 N. California, and Exterra expanded by 22,500 sf at 365 Lennon Lane, both transactions in Walnut Creek. Growers Square in downtown Walnut Creek is reportedly being sold to Invesco Realty Advisors for $41 million or $215/sf. In Concord, Commonwealth Title expanded by 13,000 sf and Associates Commercial signed for 35,000 sf, both at 1855 Gateway Blvd. Also in Concord, Eichleay Engineers is rumored to be looking at 2600 Stanwell for 20,000 sf. In Oakland, Standard Insurance leased 23,000 sf at City Center and Teligent took 24,000 sf at 1111 Broadway. In Berkeley, Bayer leased 50,000 sf of R&D/office space at 717 Potter Street. In Fremont, Network Equipment Technologies will be taking 500,000 sf at Ardenwood Business Park, near where Protein Design Labs will be doing a 92,000 sf build-to-suit. Intervista and PCTI took 10,000 sf, both in San Francisco (I thought SF was out of space?), Charles Schwab is rumored to be expanding by 100,000 sf at 130 Kearny St. when PacBell vacates; Swords to Plowshares leased 12,000 sf at 1063 Market St.; Fly-Cast took 12,000 sf of office space at 181 Fremont St.; Arthur Andersen is rumored to be taking 118,000 sf in the new Cousins Properties 350,000 sf project and Level Three Communications leased 43,000 sf at China Basin Landing. Sam Zell may be buying the 565,000 sf 301 Howard and 215 Fremont St. portfolio for $92 million; New York State Teachers Retirement System is reportedly buying the 1 million sf 525 Market Street building for $240 million and the 3 million sf Embarcadero Center is rumored to be in the $1.5 billion dollar price range (maybe Bill Gates could buy it by cashing in one week’s profits.). On the Peninsula, InsWeb will do a 65,000 sf build-to-suit and Miller/Shandwick Technologies leased 17,000 sf at 555 Twin Dolphin Drive, both in Redwood City. In San Mateo, State Teachers Retirement of Ohio reportedly is buying the 240,000 sf California Casualty headquarters building on a sale-leaseback for $63 million, Visa International leased 80,000 sf at 1450 Fashion Island and Electronic Arts reportedly obtained $80/sf for Peninsula dirt when they sold some excess land to Tishman Speyer Properties.

Marty Wilson, president of CIC Associates, one of the Bay Area’s leading TI contractors, provided the following nuggets: A $25/sf TI allowance in Walnut Creek or Pleasanton might equate to $28/sf in Oakland and $32/sf in San Francisco for the same amount of tenant buildout. There are at least four basic reasons for this. First, imagine trying to unload drywall in the middle of the day on Montgomery Street (double-parked, one worker watching for the meter maid, etc.) versus pulling right up to the rear door of a suburban office building. Second, San Francisco tenants have a higher expectation of the level of finishes, i.e., carpet specs, ceiling standards. Third, San Francisco buildings may demand a higher quality of construction, and fourth, high-rises require more stringent life-safety requirements which alone add $2.50-3.00/sf. Within the next week, Marty will be my first "guest contributor" on my web page at www.weiloffice.com, with a conceptual breakdown in detail for an East Bay TI buildout, as well as an article on the cost of project fast tracking. If any of you want to contribute an article, just e-mail me at jeffrey.weil@grubb-ellis.com.

San Francisco multimedia companies employ 35,000 workers and comprise the city’s fastest growing industry. The 1997 revenues from San Francisco multimedia companies were $2.2 billion, an increase of 135 percent over 1998. Not in order of importance, here is what multimedia companies request: 1. access to qualified labor pool 2. suitable facilities 3. technological infrastructure 4. affordable facilities 5. lower cost of doing business 6. access to strategic partners 7. customer access 8. public transportation 9. closeness to affordable housing 10. local tax policies 11. affordable parking and 12. access to content owners.

I’m beginning to hear and read more about the differences between how new buildings are being delivered to tenants. The common terminology is "delivered in shell condition with a (for example) $25 per square foot tenant improvement allowance." However, what a "shell condition" is varies from market to market and from developer to developer. An associate of mine last month was told the "cold shell" he was working on did not include elevators, air conditioning, restrooms, sprinklers, etc. Obviously, this added a lot to the tenant economics. A normal "office shell" generally includes the above list but one has to dig deep to make sure what is what ...

A recent study bases its findings on the criteria that corporations use to pick a site for new facility. As reported in Outlook March 1998, the study, "Strategic Drivers of Location Decisions for Information-Age Companies" suggests that senior corporate managers and facility managers are growing increasingly interested in the slightly less tangible, subtle lifestyle perks that some facilities and locations offer. Martha A. O’Mara, Ph.D., assistant professor in Real Estate Development at Harvard University’s Graduate School of Design says these perks, or "ease of living" factors are the things in our day-to-day lives that make life more interesting and comfortable. "Examples," O’Mara says, "include amenities in the facility such as day care, dry cleaners and fitness center - and such community-related attributes as easy commutes, restaurants, golf courses and green space" ... Dr. O’Mara looked at 40 information-based corporations and dissected their site selection decision-making process in an attempt to help predict future patterns of development. I was fortunate to take a NACORE course from Dr. O’Mara -- she is one of the best corporate real estate instructors in the country ...

Reported in LoopNet, February 24, 1998, a weekly on-line publication, "Reliance on External Growth Will Lead REITs to Overbuild" ... The securitization of commercial real estate is the name of the game these days, but at least one well-known real estate economist is not sure Wall Street can instill enough discipline in the market to prevent another bust cycle. Anthony Downs, a senior fellow at the Brookings Institute in Washington D.C., told a gathering of real estate executives that "REIT investors are pushing for fast growth, leading REIT managers to overpay for real estate and jump-start new development which may not be justified by market demand."

One trend I believe we’ve only seen the tip of the iceberg is electronic document management. This may have a significant, long term impact on the way the office of the future is designed. As reported in Entrepreneur March 1998, "An obvious benefit of implementing such a system is a hefty reduction in paper costs. Although the evolution of computers was supposed to reduce our reliance on paper, in most businesses, it’s actually increased paper usage. According to information technology research firm IDC/Link, printing and copying expenses typically account for 6-12% of a company’s annual revenue. Yet the main benefit of adopting a more paper-free environment is increased productivity." Just think -- digitalize, and data is at your desktop, easily shared by team members, easily transmitted by e-mail to clients and colleagues anywhere in the world. Just how this will affect future office layouts is uncertain at this point in time ...

According to Mark Baker, vice president for Steelcase and reported in Interior Design and Space Planning March 1998, "Space can be a tool for enhancing corporate performance. Workplaces can be designed to help flatten hierarchies, reduce product development cycles, respond more quickly to change, facilitate learning, and save costs." Mark has a revised list of office layout rules: "When it comes to the work environment, what you do is more important than who you are; you don’t have to ‘go to work’ to work; group and team settings are essential; there are multiple models for the workplace, not a one-size-fits-all approach; we are moving from a focus on efficiency to a focus on effectiveness."

An interesting article on Power Quality in Buildings October 1997, regarding power loss, power glitches and computer system lock-up and shut down. "The situation is a familiar one for many facilities managers, as sensitive electronic equipment such as personal computers and fax machines take over the workplace. Power disturbances, harmonics, and electromagnetic field (EMF) interference are new demons for today’s wiring systems. The symptoms of power quality problems range from frozen keyboards and wavy screens, to costly lost data and damaged equipment ... Typically, power quality problems within a building involve three issues: load interaction, wiring, and grounding."

Mentioned in Commercial Investment Real Estate Journal March/April 1998, "An open floor plan (all cubicles) with management interspersed maximizes employee productivity, according to 56 percent of the respondents to KPS Group’s 1997 Survey on Employee Productivity Factors. About 32 percent of respondents said cubicles with management in perimeter offices are best, while 12 percent said all offices and no cubicles with management interspersed is the best set up"...

Those of you who know me are aware that I am infatuated with my son, Jordan. Just ask me and out comes the wallet photos, or give me a chance and I’ll e-mail his latest photo to you. Jordan just turned 10 months old, and has 4½ teeth. He loves to laugh, is almost walking, doesn’t know how to say da-da yet, and loves running up and down the hallway pushing his wagon. Without the wagon, of course, down he goes. When El Ninõ goes away, I can’t wait to start sharing our incredibly beautiful Bay Area with my boy ... as Jack Nicholson said, "This is as good as it gets," and it ain’t bad ...

Sincerely,

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

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