May 11, 2017
Connect San Francisco brought hundreds of CRE professionals to the SPUR Urban Center for an afternoon of panels and an evening of networking and cocktails. Covering such topics as major mega developments shaping the skyline, investment in the Bay Area, and the creation of communities, here are some highlights from the day’s panels:
Mega Developments: Shaping the Skyline
Moderated by JLL’s Jacqueline Dompe, panelists shared the projects they are bringing to life, how they are working with private/public partnerships, and addressed the issue of affordable housing.
- SF Giants’ Fran Weld shared the opportunity that large scale public/private partnerships provide for developers, namely the ability to use public land to solve citywide issues. For the SF Giants’ Mission Rock mixed-use development, eight acres of the 28-acre site will be public parks and open space, as the district had the lowest per capita open space. Thus, they are serving a need by working with the city and community.
- Forest City’s Jack Sylvan shared how the historic Pier 70 project is taking cues from the public to create a place for the local community. With the integration of art and local access to the waterfront, Forest City is asking the question “what do you want to be able to come and do here?” and developing the answer, literally.
- Kilroy Realty’s Brandon Wang is “bullish going forward,” and explained more about their project currently under construction at 100 Hoover, which is 400,000 square feet, and offers PDR (production, distribution and repair) space. For the deal to pencil, they were entitled to develop office space, of which Adobe has leased 315,000 square feet.
- Lendlease’s Tiffany Bohee explained that because of Lendlease’s own capital stack, they are able to conserve nature and prioritize sustainability of their developments by leveraging their global platform.
- The John Buck Company’s Evan Schwimmer discussed how mixed-use master planned communities are “transforming downtown San Francisco.” So, they develop for the flow and demand of space in the concentrated urban market, and right now, demand is moving south of the Financial District.
Top Lenders & Capital Markets: Investing in the Bay Area
HFF’s Charles W. Halladay led the panel in discussing current risk in the market, and its effects on deal-making today.
- RealtyShares’ Bill Lanting had expected a natural correction to take place in 2018-2020, but no longer thinks that’ll be the case.
- Lone Oak Fund’s Alexa Mizrahi is “ultra conservative” because construction financing is hard to obtain today, and both interest rates and construction costs are rising.
- City National Bank’s Charlie McGann says there is far more equity in deals today, when compared to 2016. With the Bay Area cap rates going low and driving prices high, it’s not about LTV or LTC ratios. Rather, cash flow is the biggest constraint.
- UBS’ Rod Chu says that while the exit strategy is important to consider, it’s “equally or even more important to look at the going-in basis.”
Creating Communities in Active Neighborhoods
Alexander Pugh of Lubin Olson & Niewiadomski led a discussion on what types of amenities and services tenants demand today, as well as the factors driving the trend toward live, work and play developments.
- Airbnb’s Jaja Jackson says, “developers will need to define what is the character of that building and define the amenities that really appeal to your tenants.” He suggests designing space to be programmable since “amenities are not a mystery. Look at what your residents are doing.” That could include huddling outside waiting for an Uber ride or taxi, or planting gardens.
- MVE + Partners’ Darin Schoolmeester says there’s quite a lot of similarities between what Millennials and Baby Boomers seek today. They are attracted to urban sites that offer access to walkable communities, and convenience to services and employment opportunities. Where they differ is Boomers require storage to accommodate their accumulation of possessions, as well as parking.
- Bentall Kennedy’s Lydia Tan noted boomers typically require bigger units and more services, such as concierges and dog walking, and they have more disposable income to afford those upgrades. But to be successful, developers in urban environments need to find the best mix of amenities. Often today, that involves curating the retail in a building because that’s “super important to create the play component of the live/work/play” environment.
- Trumark Urban’s Arden Hearing said a couple of features have become popular, including a modern day business center and a hospitality suite. Since many buyers are empty nesters and downsizing into condos, they need a suite downstairs where their kids can stay.
- Colliers International’s Ryan Wagner notes that institutional investors are looking at secondary or tertiary sites, as well as creating a unique product rather than something simple, since the rents generated can be higher.
- Airbnb’s Jackson says more than 40% of Millennials want to share their homes for supplemental income, while the number drops to less than half of that for Boomers. However, when properties offer a “central host” – someone to manage and share the space for a resident, and to meet guests – Airbnb finds roughly 50% of the Boomer group wants to home share.