San Jose and Oakland challenge SF in private equity real estate market

California’s largest cities for real estate investment, San Francisco and Los Angeles, are now being challenged by San Jose and Oakland. California holds almost 20% of the private equity real estate (PERE) in the country and 12% of global PERE assets under management, according to a study by accounting and advisory firm EisnerAmper and Preqin. PERE properties include office buildings (high-rise, urban, suburban and garden offices); industrial properties (warehouse, research and development, flexible office/industrial space); retail properties, shopping centers (neighborhood, community, and power centers); and multifamily apartments (garden and high-rise). Less common but still an option are senior or student housing, hotels, self-storage, medical offices, single-family housing to own or rent, undeveloped land, and manufacturing space (via Investopedia). 

So how do the Bay Area cities compare?

San Francisco’s strength is in its office market, with $3.2 billion PERE deals in 2018 (a $1 billion increase over 2017) and another $1 billion already invested this year as the Bay Area’s largest tech companies continue to expand. The overall PERE total for last year was $4 billion,down from $4.8 billion in 2017; according to an article in the San Francisco Business times, “the drop-off in the quantity of large mixed-use transactions compared with recent years is at the heart of the decrease.” San Francisco is also running out of space, which limits growth.

While San Francisco is still the largest market for office transactions in the Bay Area, San Jose is leading in growth. Their office transactions in 2017 and 2018 both reached $1 billion, with a record in 2018 at $1.2 billion. In Q1 of 2019 alone, these transactions reached $500 million, putting San Jose on track to quadruple its PERE deals this year. The overall PERE total for 2018 was another record of $2.7 billion, almost 60% more than 2017 and a sharp contrast to San Francisco. 

Oakland may be emerging as a competitor, with more reasonable housing options for tenants; the tech company Square announced at the end of last year their intent to move 2,000 employees into an Oakland office. Even as a smaller city, it is on track to reach a total of $1 billion in PERE deals this year, with $560 million in Q1 2019 already; $493 million of that was just two office space deals by Starwood Capital Group. The city also has more Opportunity Zones than either of the other two cities.

With San Francisco as the “benchmark,” San Jose as the “growth leader,” and Oakland as the “up and comer” (according to the SF Business Times), all three cities are going strong.

Source: SF Business Times

 

How to take advantage of “Opportunity Zones”

The Tax Cuts and Jobs Act of 2017 created new rules for “opportunity zones,” underdeveloped neighborhoods, sheltering your investments from federal taxes with minimal limits and employment requirements. You only have a few more months to maximize the benefits of this program: so how does it work?

When you sell a property, you can immediately reinvest that gain, tax-deferred, into an Opportunity Zone by depositing it into a qualified Opportunity Zone fund (either one you create or a traditional one). Then you have two choices; buy a property in one of the zones, or invest in a business in the zone. We’ll focus on the property option.

You have 31 months to purchase your new property, whether it’s multifamily, retail, industrial, or office space. Eventually, you need to invest the same amount of money as the property’s structures (not land!) currently are worth; if the current building is worth $100,000, you need to spend $100,000 remodeling, rebuilding, or otherwise upgrading the building. This means if you buy a property with a structure worth very little, you don’t have to do much to get the tax benefits.

Speaking of benefits, not only is the tax on your original gains deferred until 2026, but if you hold it for seven years, 15 percent of that gain will completely avoid federal capital gains taxes. (You only get 10 percent if you hold it for five years.) And if you hold it for ten years and your new investment appreciates? None of that appreciation is taxable under federal capital gains taxes. This is an opportunity indeed!

There are 102 opportunity zones designated around the Bay Area, including in Oakland, Concord, San Rafael, Santa Rosa, and even San Francisco; visit the SF Business Times’ site for maps and stats about the zones, or contact one of our advisors to find a property that matches your investment goals.

Sources: BizJournals.com, Tax Policy Center

Read our June 25, 2019 newsletter

Which Bay Area neighborhoods are at risk for a major earthquake?

Earthquake map reveals liquefaction risks in Bay Area neighborhoods.

No place in the Bay Area is safe when it comes to the inevitable, devastating earthquakes that loom on the horizon. But some neighborhoods are better situated than others.

Read more on NAI Northern California’s Newsletter

Can opportunity zones improve Calfornia’s economy?

How federal ‘opportunity zone’ tax incentive can help California build an inclusive economy.

The federal opportunity zone program created by the 2017 tax overhaul, enables investors to defer capital gains taxes on funds invested in designated communities. Opportunity zones offer one path forward that relies on private capital to bear the cost. The program is designed to attract investors holding $6.1 trillion in unrealized capital gains, according to the Economic Innovation Group.​

Read more on NAI Northern California’s Newsletter

Transit-oriented development changing how Oakland grows

When it comes to the future of Oakland, a good amount of the development that will change the city has one thing in common: the transit station nearby. 

Bay Area Rapid Transit has committed to an ambitious plan to build mixed-use transit-oriented developments around its stations throughout the Bay Area, and a number of those projects will be in Oakland.

Already, the transit authority has started to transform land around MacArthur Station in the northern part of the city as well as Fruitvale Station to the southeast. Construction is underway on Coliseum Transit Village from UrbanCore Development and Oakland Economic Development Corp.

Future plans call for continued development on those sites and projects to go up around downtown BART stations.

BART’s transit-oriented development policy states that the agency will only move forward with future developments in cities that have adopted station area plans, and Oakland has been at the forefront, BART’s Sean Brooks said. Brooks, the department manager of real estate and property development for BART, will speak about TODs at Bisnow’s The Evolution of Downtown Oakland March 13.

Projects already underway have required upzoning, and the city also has been progressive about parking requirements, Brooks said.

“The city has kind of bent over backwards to help and advance some of these projects,” he said.

Case in point: the planned development for West Oakland, which got through the planning commission in record time, he said. The project was helped along in no small part because of the affordable housing it is bringing to the city.

 

Read more at Bisnow Oakland

 

Fight brews over hotel and housing project near Moscone Center

In San Francisco’s SoMa, an argument over city transparency could threaten to derail a key hotel and housing project. 

Across the street from the Moscone Center, the San Francisco Municipal Transportation Agency wants to turn a 732-spot garage on public land into a lucrative development. The idea is to help lure more conventions to the expanded Moscone Center, which just underwent a $550 million renovation, and build urgently needed affordable home.

But SFMTA has made a series of missteps that reveal a lack of transparency in how cities may handle public land, say community advocates, including keeping the development proposals private, not holding public meetings, and delaying the selection process. Those criticisms boiled over at a recent SFMTA board meeting and have worked their way up to the district supervisor’s ears.

The SFMTA is “trying to hold its cards closer to the chest, but that may end up making problems for them moving forward,” said District 6 Supervisor Matt Haney, who represents the surrounding constituents. Haney is meeting with community members tonight about the process.

 

Read more at San Francisco Business Times

 

Oakland A’s meet opposition over plans for new waterfront ballpark

Plans for a new Oakland A’s ballpark at Howard Terminal at the Port of Oakland have run into opposition that could throw up roadblocks for the project.

Last week, a coalition that includes Save The Bay sent a letter to the state legislature listing concerns from environmental, business and labor organizations about the stadium project.

In the letter, Save The Bay Executive Director David Lewis said East Bay lawmakers are considering introducing a bill that could fast-track the project through regulatory exemptions. That would lessen the project’s accountability to environmental laws designed to protect public health, public lands and vulnerable wildlife.

The coalition said it is opposed to any measures that would reduce San Francisco Bay Conservation and Development Commission oversight for the project, remove State Lands Commission-enacted public trust protections, undercut hazardous materials restrictions or seek a way around California Environmental Quality Act obligations for the project.

The A’s said they had no plans to ask state lawmakers to fast-track the process, the San Francisco Chronicle reports.

Save The Bay is not the only one arguing against the plans for the stadium.

The bar pilots association said the lights from the stadium will be blinding for those navigating container ships to the port, and those ships could hit kayakers going after stray balls, the San Francisco Chronicle reports.

The Pacific Merchant Shipping Association, which represents some of the port’s tenants, said the hotel and housing included in the plan would increase traffic and compete with trucks around the port.

Oakland has suffered the loss of sports teams, including the Golden State Warriors, who are slated to be in their new Chase Center in San Francisco for the 2019-2020 season, and the Raiders, who are moving to Las Vegas and still haven’t settled on where they will play next season before that move.

 

Read more at Bisnow Oakland

 

WeWork takes new downtown San Jose site amid expansion

WeWork is leasing a new downtown San Jose location, a clear indication of an ongoing expansion by the co-working titan in the core area of the Bay Area’s largest city.

The newest WeWork location is at 152 N. Third St., a downtown San Jose office building owned by a group led by Gary Dillabough, a realty investor who is partnering with WeWork on the Bank of Italy office tower project a few blocks away.

The interest from WeWork in the North Third Street building appears to point to a rising focus on downtown San Jose, spurred by potential major developments in the area by tech titans such as Google and Adobe Systems.

WeWork agreed to lease 75,000 square feet at 152 N. Third St., according to commercial realty experts and information from sources with knowledge about the WeWork plans at that office building. The WeWork operation on North Third Street also shows up on the company’s website as a “just announced” location.

“It’s very encouraging that WeWork is getting more interested in downtown San Jose,” said Mark Ritchie, president of Ritchie Commercial, a realty firm.

In addition, WeWork has taken space in one of the Riverpark Towers office high-rises at 333 W. San Carlos St. and the tower at 75 E. Santa Clara St.

“WeWork is now into four buildings in downtown San Jose,” Ritchie said. “152 N. Third St. should function very well as a co-working building.”

 

 

Read more at The Mercury News

 

 

NAI Northern California Presents the Opportunity to Acquire the Lucca Ravioli Buildings Located on Valencia St.

1100-1118 Valencia St. Portfolio Sale.

 Jordan Geller and JB Williams of NAI Northern California are pleased to present as exclusive advisors, the opportunity to purchase jointly or as a portfolio, the three mixed-use properties located at 1100, 1102-1110 and 1114-1118 Valencia St. The associated business, Lucca Ravioli Co., has been operated from the retail storefront located at Valencia and 22nd Streets by owner Michael Feno for 53 years and has been in business for 94 years. After exploring many possibilities and having reached retirement age with no successor generation to continue the business, he and his family have made the difficult decision to close Lucca Ravioli effective Easter 2019. He would like to thank the many customers for their continued patronage and enthusiasm for the business over the years.The sellers understand that for generations Lucca has been a prominent local business and its absence will be felt by many, including San Francisco’s Italian American Community. They hope that Lucca Ravioli will be remembered fondly and that its location will continue to serve the neighborhood in a productive way.*The image above is a rendering of a potential conversion of two of the street level commercial spaces to a new retail use and is not representative of the current building configuration for the two non-corner buildings.

Contact NAI Northern California Vice President Jordan Geller and Investment Advisor J.B. Williams for more information. 

About NAI Northern California
NAI Northern California is a full service commercial real estate firm serving the Northern California Bay Area. Our team delivers technology-enabled commercial real estate services that create value for our clients, industry, and communities.NAI Northern California is a partner of NAI Global, the largest commercial real estate brokerage network with more than 400 offices worldwide and over 7,000 professionals completing in excess of $20 billion in commercial real estate transactions globally.www.nainorcal.com

 

San Jose and Stockton mayors boost transit-housing plan

“Too many children go to bed at night without seeing parents who are stuck in crippling commutes.”

On Thursday, San Jose Mayor Sam Liccardo endorsed SB 50, the proposed new law that aims to create more dense housing near major transit lines in California, as did the mayor of Stockton, Michael Tubbs.

Introduced in December, the bill, written by SF-based State Sen. Scott Wiener, is a follow-up to the very similar but unsuccessful SB 827.

According to Wiener’s office, the bill “eliminates hyper-low-density zoning near transit and job centers.”

The text of the proposed law specifies that it applies to “sites within one-half mile of fixed rail and one-quarter mile of high-frequency bus stops and in job-rich areas.”

On Thursday, Liccardo praised the proposal as a potential antidote to long commutes.

“Too many children go to bed at night without seeing parents who are stuck in crippling commutes,” Liccardo said in an emailed statement.

The mayor predicts that “SB 50 will spur more affordable housing near transit and job centers so that people can live close to where they work.”

Stockton Mayor Michael Tubbs endorsed the measure this week too, promoting it as a way to encourage more housing and keep prices down.

“As we force individuals to pay more for their rent, we also push them into poverty,” said Tubbs. “This is a policy failure that we must address.”

San Francisco Mayor London Breed, Oakland Mayor Libby Schaaf, and the mayors of Sacramento and Los Angeles are also among those who endorsed the measure or “made positive statements regarding the direction of the bill” previously, according to Wiener’s office.

 

 

 

Read more at Curbed SF