Square Feet

The San Mateo City Council on Monday approved the site plan for the Bay Meadows race track. The 84-acre site in San Mateo is slated to be developed into approximately 95,000 square feet of retail, 15 acres of parks/open space, 750,000 square feet of office space, and about 400 new residential units.

Bay Meadows Land Company, which is owned by StockBridge has been working on the Bay Meadow project for years. The Friends of Bay Meadows group, which has and continues to battle the redevelopment plans, may still seek to further delay the project through litigation. Ultimately I don’t think there exists enough horsepower (pun intended) to stall this project for too much longer. In fact, an economic downturn is more likely at this point to delay the ground breaking than anything else.

Tenant-Landlord relationships in San Francisco can often be “delicate”, particularly in rent-controlled buildings, but I just read a story in the SF Chronicle which is astounding, to say the least.

The story is that a pair of 33-year old landlords purchased a building, began the eviction process, and when things didn’t go entirely their way, a chemical imbalance caused them to completely lose it. They allegedly cut the electricity, cut phone lines, sawed a hole in the apartment floor, and even went so far as to remove beams supporting the apartments floor. The story doesn’t end there, the landlords were also accused of breaking into the tenant’s apartments to steal possessions and using ammonia to damage the tenant’s clothing and electronics.

You can read the entire story here. Simply amazing. If there is one thing Landlords and potential landlords in San Francisco need to understand, it is rent controls and the power tenants wield in that city. The city offers free legal aid to tenants, a legal system (jury) full of renters, and a very tenant-friendly rent control board.

Coming on the heels of its recent $150M purchase of the San Tomas Business park, NVIDIA is working to put the pieces in place to develop approximately 2,000,000 square feet of office and R&D space on the site. The park and an adjacent 11-acre piece consists of 475,000 square feet of office and R&D space spread across 10 buildings on 25 acres. The project sits directly across the street from NVIDIA’s existing headquarters campus, which it is leasing from Sobrato until 2012.

Harvest Properties, which sold the site to NVIDIA, previously had plans itself for developing 2,000,000 square feet of Class A office space. The project entailed half a dozen buildings and parking garages, the tallest of the planned buildings being six stories. As of last month, the Business Journal reported that nobody was willing to comment on the development plans, but we’ve learned that NVIDIA is in fact pursuing development of the site.

Update: This job posting on NVIDIA’s site confirms the project is in fact moving forward:

Centex has sold approximately 8,500 residential lots and units to Farallon Capital Management, RSF Partners, and Greenfield Partners. Part of the sale, which came in at an effective $455 Million after factoring in tax refunds back to Centex, included the Plant51 project in San Jose. According to the Business Journal, Centex did not even sell a single unit in the 265-Unit historic rehab project after spending in excess of $100M over the course of the past four years developing the project. The project is still only 70% done.

The deal as structured still gives Centex a 5% stake as well as earnouts depending on the financial performance of the deal. The book value of the properties which were sold was in excess of $520M.

On a side note, something which I found pretty humorous was the home page of RSF Partners’ web site, where they indicate that they have “over $.5 billion in assets”. Normally people say $500 Million, or perhaps even “half a billion” under management, but this $.5 business just seems silly…were they hoping somebody wouldn’t see the decimal place?

We’re starting to see more reports of the credit crunch infecting Silicon Valley make the mainstreem press. IHT came out with an article the other day discussing how startups in Silicon Valley are beginning to feel the crunch.

For the most part, landlords and brokers have remained fairly bullish on the prospects of Silicon Valley with some landlords continuing to raise rents on some buildings despite having signed no deals in the building at the lower rental rate they were asking only a few months ago. It should also be noted that some landlords such as Jay Paul at their Moffett Towers project have been lowering rents at the same time.

But I think many people are making a mistake here. They’re looking at what’s on the ground now and assuming that because we have so many multi-national companies here, we will somehow be okay. But Silicon Valley has never been about “today”. It has been about innovation, and “tomorrow”, and that’s where I think people need to look when assessing the situation.

What is happening with the capital markets is affecting startups today, but tomorrow it will be the VC’s themselves who face a tight capital market when looking to raise capital for their next fund. VC’s with solid track records will likely be able to raise additional funds, but many others will likely not be as fortunate. As a result, we’re seeing some VC’s becoming increasingly cautious with their existing capital, and funding fewer companies and under better terms. It is that reason why that unless the capital markets are able to sort themselves out, Silicon Valley will not be immune and the downturn may be worse than many think.

The latest “big news” is that Brocade is in negotiations to lease the Phase I buildings of Hunter/Storm’s office project located at the SEC of 237 and First Street. The project entails 4 Class A office buildings totaling 880,000 SF, approximately 250,000 SF of retail, a hotel, a 25,000 SF health club, and a 168-key hotel.

The 36.6-Acre property was purchased by Hunter/Storm from Palm in Q3 of 2006 for $70,000,000 or $43.90 per square foot. The purchase and contract for the sale can be viewed here.

The first phase of the office development will entail about 436,000 SF of retail making it an ideal fit for Brocade, who occupies about 405,000 SF across several buildings located at the San Jose Airport. It’s leases for those spaces expire around Q2-Q3 of 2010. A warm shell is expected to be ready for tenant improvements in Q3 of 2009 making the deal attractive for Brocade from a timing perspective.

Originally the retail portion of the center was anchored by a Target. Those plans seem to have fallen apart, perhaps at the request of Brocade who likely is not to keen with such an intensive retail use, and would likely prefer a more lifestyle-centric retail component to the project.

If this deal happens it will likely be one of the larger deals to be concluded this year and will bring some reassurance to valley landlords, some of which who have gotten a bit nervous given the uncertainty in both the leasing and debt markets. Still though, this deal seems to indicate that Brocade is simply substituting space and not growing, and therefore likely to result in 400,000 SF of additional vacancy in the San Jose market.