The San Francisco Chronicle
By John King
December 27th, 2009

The Transamerica Pyramid is San Francisco’s tallest and best-known tower. It’s a registered corporate trademark, a fixture on postcards - and proof that snap judgments on buildings can often be wrong.

Construction began 40 years ago this month over the loud objection of anyone who was anyone in urban design. The city’s top planner called the proposal “an inhumane creation.” The Washington Post’s critic recoiled at “a second-class world’s fair Space Needle.” Progressive Architecture magazine warned the impact on San Francisco would be “no less reprehensible than … destroying Grand Canyon.”

Instead, the 853-foot-tall tower that opened in 1972 has become a civic icon.

What the opponents missed at the time is that cities thrive on the unexpected, new twists as well as old treasures. They aren’t static creations, tightly controlled: The best ones evolve in sometimes startling ways, shaped by hubris as well as high ideals.

Viewed from this perspective, the Pyramid is a fitting addition to the skyline - even to many former foes.

“What’s good about the Pyramid overwhelms what’s bad about it,” says Henrik Bull, an architect who denounced the proposal at hearings and rallies. “It’s a wonderful building. And what makes it wonderful is everything that we were objecting to.”

If Transamerica had proposed a flat corporate box a few blocks to the south, there would have been no fuss.

But with Mayor Joseph Alioto at their side, the leaders of a then-little-known holding company booked space in the Fairmont Hotel on Jan. 27, 1969, to unveil what the next day’s Chronicle called “a pyramid so unusual it might have drawn a wink or a gasp from the Sphinx.”

At first, 1,000 feet

The proposal’s 1,000-foot height exceeded any hill in this city revered for its topography. The tapering shaft of concrete with a steep metal peak defied every architectural norm of the era. The location was on the north end of the Financial District at Montgomery and Washington streets, at the foot of Columbus Avenue on a site across from Jackson Square - then and now an atmospheric nook defined by brick survivors of the 1906 earthquake.

None of this bothered Alioto, or The Chronicle’s editorial proclaiming that the “needlelike shape thrusting skywards … will be a fitting adornment to this most fitting of all cities.”

Other people, though, had plenty to say.

Some resistance was predictable, such as complaints from Telegraph Hill groups eager to keep the modern city a polite distance away from their affluent slopes.

Broadsides also came from local chapters of the American Institute of Architects and the American Institute of Planners - groups whose members rely on new buildings for new business - and the San Francisco Planning and Urban Research Organization, founded in 1959 by downtown interests.

“We were very much opposed to a tall building so far out of the financial center,” recalls Bull, and the design only stoked the fires: “It was insulting for us to have 20 stories of spire with no reason other than to make it the tallest thing on the skyline.”

The city’s own planning director, Allan Jacobs, took a leading opposition role.

It wasn’t that the building was too large; the 500,000 square feet of space within the sloping walls compares to the Russ Building four blocks south on Montgomery Street, the city’s tallest tower from 1927 until 1964.

But Transamerica was twice the height of the Russ Building, on an edge of the Financial District where heights had always been low. Jacobs also was bothered by how the company made little effort to meet with planners beforehand, essentially presenting their concept as a fait accompli.

“This is unmistakably a ‘look-at-me’ building that does not complement the buildings near it,” Jacobs told Time magazine.

Support at City Hall

Another vociferous blast came from the Washington Post, where architecture critic Wolf von Eckardt fulminated against “this 1,000 foot height of hideous nonsense” that would mar “one of the most breathtaking skylines of the world.”

Progressive Architecture rolled out a string of adjectives: “insensitive, inappropriate, incongruous.” Newsweek bemoaned a tower that would be “wrong in any city” but “particularly wrong in … easily wounded San Francisco.”

None of the slings dislodged the support of the player who mattered most, Mayor Alioto. Not only did he back Transamerica because of the jobs that would be created, he very publicly touted the unorthodox design.

When the proposal went to the Planning Commission, Alioto urged it to approve a tower that would “add considerable urban beauty to San Francisco.” He appeared before the Board of Supervisors a month later to ask why the city should have “a monopoly on rectangular slabs.”

Alioto appointed the commission; the board was solidly pro-business. Each gave Transamerica a needed green light.

Community opposition

Transamerica made changes along the way, widening the tower while lowering the height. Jacobs wasn’t impressed, saying the revisions “intensified” the “devastating effect of the tower on the fabric of the city.”

Neighborhood groups were dogged as well, filing lawsuits to halt work once construction began.

Forty years later, Jacobs still has the courage of his convictions: “It’s a bad building that does really bad things for the street. … Urban-design-wise, the strange shape catches your eye for no purpose.”

Other opponents now love what they once loathed.

One is novelist Herb Gold, who testified against the project in public hearings.

“Almost as soon as it was open and completed, I felt different,” recalls Gold, whose Russian Hill apartment has a full-body view of the triangular shaft. “Things fool you.”

Elongated elegance

The Transamerica Pyramid is not great architecture. But it’s an architectural icon of the best sort - one that fits its location and gets better with age.

It also shows that architecture is more complex than what a first glance reveals.

Throughout the debate of 1969, architect William Pereira of Los Angeles defended his vision as a logical, elegant response to the challenge of inserting large structures into an older city, telling a reporter it “allows more light and more air into the streets and conserves the view.” He also made the case that an abrupt shift in scale from Jackson Square would help maintain that district’s distinctive character, rather than overwhelm it.

Time has proved Pereira right in both cases.

This is a building designed to catch the eye, to make Transamerica a well-known brand. But it does so without being bombastic. Your eye can linger or glide right past, which isn’t the case with blockier, more conventional towers of the era, such as the shoe boxes stacked along the lower blocks of Market Street.

You can even argue that the Pyramid’s distinctive silhouette (if not the futuristic air) foreshadowed the postmodern towers of the 1980s and 1990s - a period when flat tops were scorned and planners favored silhouettes and tactile details that would evoke the romanticism of older skylines.

A futuristic relic

Most surprising of all is how well the tower works with Columbus Avenue, a diagonal slicing south and east from Aquatic Park. A 40-story box on the block would have formed a blunt dead end; instead, it’s as if the thoroughfare continues up the edge of the triangle and into the sky.

“It terminates Columbus beautifully,” Bull says. “A shorter, more conventional tower would be a disaster.”

The one thing beyond dispute is that in San Francisco, a tower like the Pyramid can never be built again.

Height itself is no longer taboo, as planners propose zoning that would allow a 1,000-foot high-rise at First and Mission streets, a part of town where towers have long been steered. By the time the Pyramid opened, Jacobs’ planning department had crafted an urban design plan to prevent towers from pushing farther north, into Chinatown or Russian Hill.

Nor can a new tower rise on its own terms, the way the Pyramid lifts off from a thicket of diagonal concrete columns with space on all sides.

Planning rules spell out how to respect context, meet the street, not be “jarring.” Environmental studies and additional political layers extend the review process for years and give critics ample opportunity to chip away at anything they don’t like.

Perhaps this is as it should be; if San Francisco’s skyline had developed as a pincushion of pyramids, downtown would be a forlorn place.

But with each year that passes, the integrity of Pereira’s design grows more compelling. It is a strong architectural vision executed with simplicity and care. It emerges from the city that was, looking forward without fear. The aspects that made it ominous on paper strike a chord in real life.

As its novelty has faded, the sense of adventure has endured. The Transamerica Pyramid is brash and slightly odd - just like the city it calls home.

Photo Courtesy of Thomas Hawk via Touropia

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The San Francisco Business Times
By J.K. Dineen
December 18th, 2009

San Francisco office tenants are increasingly gravitating to downtown’s most prestigious trophy towers, taking advantage of desperate landlords to lock in cheap rents, according to a study by Jones Lang LaSalle.

While overall San Francisco tenants gave up 1.3 million square feet more than they leased in 2009, the city’s 49 most prominent buildings — JLL calls them the Skyline 49 — actually had about 100,000 square feet of positive absorption over the past two quarters.

“The trophy buildings have a lot less vacancy for their prime spaces, and the majority of the vacancy is in mid- to lower floors,” said Jones Lang LaSalle Research Director Colin Yasukochi.

Recent “flight-to-quality” deals include three tenants who signed leases in Tishman Speyer’s new 555 Mission St.: AT Kearny, which moved from 255 California St. Silicon Valley Bank, which moved from 185 Berry St.; and Novak Druce Quigg, which sublet the building’s penthouse from Sequoia Capital and is moving from 525 Market St.

Meanwhile, Medivation recently signed a 63,000-square-foot deal at the desirable Hills Plaza, moving from 201 Spear St., and Exigen relocated from 505 Montgomery St. to 345 California St. Del Monte will move from the Landmark at One Market to One Maritime Plaza, a 50,000-square-foot expansion that includes the top two floors of that building. Robert W. Baird & Co. is shifting from a small suite at 101 California St. to 14,000 square feet near the top of the BofA building at 555 California St.

“It’s your typical upgrading when the market conditions are favorable and rents are attractive,” said Yasukochi.

The top buildings are logging big blue-chip law firm renewals as well. In the fourth quarter, One Market Place signed three large renewals: Morgan Lewis for 150,000 square feet, Wilson Sonsini Goodrich & Rosati for 38,000 square feet and Duane Morris for 50,000 square feet.  Ropes & Gray, while remaining in the Embarcadero Center, is nearly doubling in size, from 29,000 square feet to 50,000 square feet.

Rents declined 30 percent across the entire market, and the space that has held up the best is the lower floors in the highest-quality buildings, according to Yasukochi. For this group, leasing rates dropped 22 percent, compared with 27 percent for the top floors.

Meanwhile, the flood of sublease space coming onto the market seems to have abated for now — peaking at about 2.5 million square feet. That is less than half of the 7 million square feet that hit the market after the dot-com crash, according to Yasukochi. During the dot-com collapse, San Francisco lost 63,000 office jobs. This time, 10,000 office jobs have been lost, although even at the height of the latest bubble — March of 2008 — San Francisco had 40,000 fewer office jobs than it did in March of 2001.

“The last time it was two to three times worse, and that is the story going forward — there is two to three times less recovery that is needed,” said Yasukochi. “It’s just a matter of what is going to drive the recovery and where those jobs are going to come from. And the answer is the usual suspects — tech, biotech, and this time health care as well.”

Many of the downtown subleases are being filled by tech companies. While tech companies prefer SoMa and open loft-style floor plans, when push comes to shove they are settling for ultra-affordable but less-than-stylish financial district subleases.

“It appeals to them because tech companies have traditionally been looking for shorter-term deals and good prices, and that is exactly what you are getting in the sublease space today,” said Yasukochi. “What is filling the bill for them is downtown buildings that are attractively priced and shorter leases.”

NAI BT Commercial broker Frank Fudem, who represented Sequoia Capital in the sublease deal at 555 Mission St., said, “It was an amazing opportunity and they got a fantastic deal. But this was not the year for most companies to appear opulent — this was a year a lot of companies wanted to look frugal.”

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The San Francisco Business Times
By J.K. Dineen
December 11th, 2009

Babcock & Brown Aircraft Management LLC subleased 28,730 square feet at 525 Market St. in San Francisco.

The commercial jet fleet management company will move in before the end of the year. Babcock subleased the Oracle space for $17 per square foot with two months free through October 2011.

Knickerbocker Properties Inc. XXI owns the First Market Tower, a 39-story, 1.08 million-square-foot office building at 525 Market St.

Mike McCandless, Steve Barker and Aaron Wright of Studley represented the tenant. Michael McCarthy, Michael Monroe and Brian McCarthy of Colliers International represented the sublessor.

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The recession hasn’t stopped San Francisco’s city planners from thinking big.

The Planning Department released an ambitious set of proposals Thursday to turn the blocks around the Transbay Terminal into a commercial and transportation centerpiece of the region over the next two decades.

The 145-acre “Transit Center District” would redraw San Francisco’s skyline with a half-dozen towers taller than almost any in the city, including one stretching at least 100 feet higher than the Transamerica Pyramid. The plan would widen the sidewalks and narrow the streets around a rebuilt terminal. It also would reroute most Bay Bridge commuter traffic outside the pedestrian-oriented district.

Officials say they’re confident the 147-page plan, which has been in the works since 2007, will bear fruit despite a stumbling economy that has stalled several projects in the area.

“This is a 25-year plan,” said John Rahaim, the city’s planning director. “There’s no question in our mind that this is the part of the city that should grow much more dense. … It’s appropriate for us to embrace this, and make sure it happens well.”

The draft pulls together previously aired concepts, such as taller towers, with new details ranging from bicycle-sharing programs to a districtwide energy network. It also suggests potential development fees to fund the estimated $567 million in public improvements.

The comprehensive plan’s release marks the start of an approval process scheduled to culminate in hearings before the Board of Supervisors late next year.

‘Crown of the skyline’

The focus of the new district would be the block of Mission Street between First and Fremont streets. That’s where the Transbay Terminal is to be rebuilt to accommodate commuter rail service and the state’s high-speed rail system. That project will be funded in part by proceeds from the sale of part of the block to the development firm Hines for construction of an iconic office tower.

The plan promotes creating “an elegant skyline … with its apex at the Transit Center” by allowing the Hines tower to rise 1,000 feet in terms of occupied space. Another 200 feet would be allowed for mechanical equipment and sculptural flourishes as long as they cast minimal shadows.

To ensure “that this building be the crown of the skyline,” the plan also would require it to climb at least 950 feet. By contrast, the Transamerica Pyramid is 853 feet.

This emphasis on height could prove to be the plan’s most controversial aspect; besides the transit tower, the proposed zoning makes room for six other skyscrapers exceeding the city’s 550-foot height limit.

A greener alternative

City planners say skyscrapers offer a way to place large amounts of housing and office space near transit. There also are environmental payoffs. The district is projected to produce 62 percent less carbon dioxide than a typical Bay Area suburban development with the same square footage, according to the report.

But the revised zoning is likely to draw fire from past critics of downtown growth, and not just for aesthetic reasons. Towers at the proposed heights could cast new shadows on nearby city-owned parks, which runs counter to a 1984 voter-approved sunlight protection initiative.

The extra height is just one part of the effort to transform the blocks bounded roughly by Market, Steuart, Folsom and Hawthorne streets - a once-forlorn area that already is home to a cluster of glassy towers erected during the past decade.

Sidewalks would be widened through much of the district to make the pedestrian environment more appealing, along with new midblock crossings. Bicycle lanes would be added on several streets.

Detour for drivers

Conversely, the plan criticizes the daily backup of Bay Bridge-bound traffic as “an inefficient and unsustainable use of the district’s street network.” It would divert commuters from Folsom and First streets as much as possible, and nudge drivers toward transit by capping parking spaces in the district at an as-yet-unspecified number.

“We can’t even accept the amount of traffic we have today,” city planner Joshua Switzky said. “We can’t just settle at 70 percent of people taking transit. We need to get to 80 (or) 85 percent.”

The plan to make a new, walkable downtown still faces hurdles, including developers potentially balking at the taxes and fees the city would levy in return for added heights.

“The fees we have on the table are based on what’s feasible for developers,” Rahaim said. “When the market turns around, there will be renewed interest. Downtown San Francisco will continue to be a desirable place to do business.”

Transit Center District Plan

The Transit Center District Plan aims for “a high-density, vibrant employment center” with “an engaging public realm appropriate to its place in the city.” The full plan - available at transitcenter.sfplanning.org - emphasizes small details as well as large goals:

Height limits: Heights would be raised above the city’s current 550-foot height limit on six sites besides the central 1,000 foot tower. This includes room for a 600-foot tower at the rear of the landmark Palace Hotel. “The Palace is a special case for us,” said mayoral adviser Dean Macris. “It’s a grand old building that needs to stay economically viable.”

Landmarks: The report recommends giving landmark status to four buildings, including the Phillips Building at 234 First St. and the marble-clad union hall at 240 Second St. An existing architectural conservation district along New Montgomery Street would double in size - but leave out three older buildings on sites along Howard Street where the San Francisco Museum of Modern Art seeks to add a new wing.

Plaza: The plan would add a public plaza to the northeast corner of Second and Howard streets. Engineers say the structures now there must be removed to build the rail tunnel to the new transit terminal; the half-acre space would include connections to the terminal’s proposed 5.4-acre rooftop park.

Energy use: With an eye to long-term sustainability, the plan recommends a districtwide approach to energy and water conservation - including a $154 million investment in new systems to generate power and recycled water for the district as a whole.

Costs: The public improvements to the district are budgeted at $567 million (not including the transit center). How to pay for it? Mostly through focused taxes and fees on new construction, which means the pace of improvements would be tied to growth.

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San Francisco Business Times
By J.K. Dineen
November 13th, 2009

A nascent recovery in San Francisco’s leasing market could be swamped by a wave of empty office space hitting the market in the next two years.

Consolidations by several large tenants — including Wells Fargo, Levi Strauss, Charles Schwab, Williams Sonoma and JP Morgan Chase - will result in the return of nearly 1 million square feet to the office market during the course of 2010, according to a forecast by Colliers International.

Wells Fargo will vacate 350,000 square feet at 155 Fifth St. in June 2010. In opting to renew at Levi’s Plaza at 1255 Battery St., Levi Strauss will shed about 200,000 square feet of its current 550,000-square-foot headquarters. William-Sonoma’s consolidation into the Icehouse on Union Street will result in about 75,000 square feet of vacant space at Mariposa Square on Florida Street and Wamu Card Services, now JP Morgan Chase, will give back about 105,000 square feet at 123 Mission St., according to Colliers.

A steady stream of smaller tenants is also contracting.

“We are seeing a significant number of smaller tenants under 10,000 square feet giving back space as a result of companies merging, downsizing and dissolving,” said Jim Sobel, a Colliers senior vice president who represents landlords.

The impending space dump is a dark cloud hanging over the leasing market, which has recently seen an improvement. After a lengthy stretch without major deals, Del Monte, Cisco, Twitter, Nektar and others have grabbed half a million square feet in the last month.

And 2011 looks just as bad for landlords in terms of tenant contraction, according to the tenant brokerage Studley. In 2011, when 2.7 million square feet is up for expirations, Studley estimates that large tenants will downsize by 1 million square feet.

“Our data is showing a projected 2 million square feet of negative absorption through 2011 and I have not seen anything pointing towards positive job growth, so we still have some room to the bottom,” said Studley Corporate Managing Director Matthew Hart.

Financial services drives trend

Much of the downsizing will likely be led by financial services firms and has its roots in the bailouts, bankruptcies and government-orchestrated mergers of the financial crisis. The bankrupt Lehman Brothers has 21,000 square feet on the 30th floor at 555 California St. expiring next year. Bank of America leases 300,000 square feet at the Transamerica Pyramid with some 50,000 that the bank can terminate at the end of 2010. The BofA acquisition of Merrill Lynch last year creates other opportunities for contraction, as Merrill Lynch has 150,000 square feet at 101 California St. set to expire in 2011.

Large financial institutions are still sitting on unneeded space across the country, said CB Richard Ellis’ Global Chief Economist Raymond Torto.

“If you went into a lot of these spaces right now you’d find a lot of Swiss cheese,” said Torto. “As their leases expire, these guys are going to take that Swiss cheese and pull it together.”

Tenants taking more space than they previously had is an “exception” today, according to Jones Lang LaSalle Managing Director Greg Fogg, who represented Levi Strauss in its renewal on Battery Street.

“What we hope for today is stability, the status quo. That is a company that is actually doing well today,” said Fogg. “What most companies are looking for is a way to get more efficient, which is a euphemism for cutting back.”

New economy vs. old

With all the looming expirations in the central business district, brokers find themselves pinning hopes on the sectors that have driven growth over the last few years: technology and biotechnology. Social gaming company Zynga has a requirement for about 140,000 square feet and may still end up at 500 Terry Francois Blvd., although that deal is on hold after the lender was taken over and sold by banking regulators. The unstoppable Salesforce is currently out with a requirement for upwards of 260,000 square feet. Veteran Cushman & Wakefield landlord broker Richard Robinson, part of a team leasing the Transamerica Pyramid building, said San Francisco’s real estate community still tends to focus on the central business district, rather than growth areas like Mission Bay or SoMa.

“The old guard views San Francisco as having a weakening core because the old-name institutions are being consolidated,” said Robinson. “We all lament the days when we had the mainstays like Chevron, but I don’t know if enough credit is being given to the new names that are popping up here. My guess is that a lot of people don’t know what Salesforce does — it could be as strong or stronger than the mainstays.”

Colliers is currently monitoring nearly 60 tenants with over 2 million square feet of office lease requirements for 2010. If these 60 tenants were to fulfill their stated space needs (some are growing and some are downsizing), it would equate to a net growth of 648,000 square feet for vacant space.

“There are also numerous tenants from outside of San Francisco that are currently quietly touring the market, which could easily offset most of the negative growth projected for 2010,” said Scott Harper, director of Colliers’ regional specialization team Urban Landlord Partners. “Mission Bay, in particular, has received a lot of interest from tenants outside of San Francisco.”

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The newest building on Market Street in San Francisco isn’t really a building at all. It’s a 10-story bookend with a coat of brick-red terra cotta and crisp black metal.

It’s also the third piece of an architectural collage started in 1902 - a triptych that manages to distill a century of design and cultural trends into a single building that covers less than half a block.

The largest piece of what’s now called One Kearny came first, a 12-story burst of French Renaissance ebullience designed by William Curlett. There’s a regal granite base, the emphatic thrust of sandstone and then, at the summit, a steep two-story roof clad in red clay tiles and punctuated by florid dormer windows.

That’s how urbanism worked back then. You arrive on the scene, you put on a show.

To the east, filling the wedge where Geary and Market streets meet, stands the second installment of the saga: a 1964 addition that concealed new circulation systems and bathrooms for its predecessor.

This was the “Mad Men” era, when anything florid was out of favor. In fact, the owners wanted to tear down the original structure and start over until they were dissuaded by Charles Moore.

Within a decade, Moore was acclaimed as a postmodern theorist, a hero to opponents of modernism’s scorched-earth mortality. Then? He was merely an architect in the office of Clark & Beuttler who, bucking every trend of the age, persuaded the owners to save the old building - letting the addition serve as a sculptural version of a service core while creating a Kearny Street entrance.

Where Curlett exulted in ornamentation, Moore emphasized blunt forms. His piece of the puzzle reads as two upward strokes of dense brown brick linked by exposed concrete floors. And yet it’s topped with a mansard roof! Much plainer than Curlett’s, to be sure, but a distinct gesture of respect.

The newest piece of the composition is neither sculptural nor sumptuous.

It’s 10 stories, not 12, with a flat roof that stops where the neighboring mansards begin. Don’t look for earthy heft, either: The new walls seem to hover, weightless and taut, a diagram with vertical bands of terra-cotta intersected by horizontal strokes of black, the spandrels that separate one level of expansive windows from the next.

As light as it looks, this piece is the one that will do the work during a large earthquake. The terra-cotta conceals seismic bracing tied to the 1902 original; also tucked inside are the elevators and bathrooms which, yes, have been relocated once again.

“The new structure and the Charles Moore building together brace Curlett’s building without tearing into it,” explains Charles Blozsies, the architect and engineer for the retooled One Kearny.

Blozsies also wanted his new piece to read as just that, a 21st century contribution to the work-in-progress: “This was a missing tooth on the block. We wanted to put a stamp on it that was current, but not too stylistic.”

What 2009 shares with 1902 is a spirit, a quiet pride in putting well-crafted materials to use.

Those black aluminum spandrels with their thin lines, for instance, give the facade a sophisticated snap. Along Market Street, they’re accompanied by sunscreens that extend 30 inches beyond the facade, adding visual depth while also deflecting glare away from the offices inside.

I’ve no doubt there are passers-by who wish the new piece was a replica of the old. And indeed, the new section’s machine-like poise seems chilly alongside its 107-year mentor, which still exudes life.

As for Moore’s proud modern flank, its thick shafts haven’t aged nearly as well as Curlett’s atmospheric finesse.

But this was the right step to take, each step of the way: Each piece is serious architecture, shaped by thoughts about how best to fit within the city in lasting ways. Compare One Kearny to its neighbor on the west, an 11-story office building from 1987 designed with no aspiration except to escape notice. Its mock-historic trappings grow more pallid with each passing year, dutiful to a fault.

The three pieces of One Kearny are not a seamless fit, and that’s OK. The clumsy bits are part of what makes the overall composition compelling - like any vibrant city where one layer collides against the next.

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San Francisco Business Times
By J.K. Dineen
November 6th, 2009

The Shorensteins are jumping back into the downtown market with the $25 million purchase of 188 Spear St., the first property the legendary family real estate investment firm has bought in San Francisco since 2005.

Prudential Real Estate Investors is in contract to sell the 147,000-square-foot office property to Shorenstein for $170 a square foot, a 56 percent drop from the $385 a square foot or $56.9 million that the city assessed the south financial district property for last fiscal year. The only other Class A financial district building to sell this year, 250 Montgomery St., traded for $172 a square foot — also a 56 percent drop from its previous sale in 2006.

With so few sale transactions in the last two years, some in the real estate industry have argued that it’s difficult to gauge how much property values had fallen from their peaks. Two recent deals, each at a 56 percent discount, provide a clearer indication.

The 188 Spear St. deal is scheduled to close on Nov. 15. The mostly empty building on the corner of Howard and Spear streets was part of a 10-building national portfolio that Broadway Partners acquired from Beacon Capital in 2007 at the apex of the frothy market. After the market collapsed last year, Broadway ceded control of the building to Prudential, the mezzanine note holder. While Shorenstein is technically buying the note on 188 Spear St., it will acquire the property itself at closing. The buyer is the Shorenstein family rather than any of the investment funds that Shorenstein Properties operates, according to sources. A spokesman for Shorenstein declined to comment.

The last property Shorenstein bought in San Francisco was in 2005 when the company teamed up with SKS Investments to buy a Mission Bay development site at 409-499 Illinois St. SKS and Shorenstein also bought a development site on Oyster Point in South San Francisco in 2008 that is being entitled for a 2.3 million-square-foot biotech campus.

“Walter Shorenstein is a legend in American real estate history, and if he is buying again, I think that is a pretty strong signal,” said Mark Geisreiter, regional managing director of Grubb & Ellis. “At this point it’s a gut feeling. He is buying something close to home, of good value, in a market he understands.”

Some 23 investors made offers on 188 Spear St., with offers splitting into two categories. On the lower end, at $130-$150 per square foot, were opportunistic buyers looking for a return based on current leasing rates and tenants. On the higher end were long-term cash investors willing to hold onto the property through what promises to be a long and painful recovery.

“If you have a long enough horizon and can buy a building at $170 a foot that is well-located, then you reasonably say sometime in the next 10 years I am going to be able to sell this at a great price per square foot,” said Diane Olmstead, a managing partner with real estate advisory firm W3 Partners. “The Shorensteins are smart. They don’t do things carelessly, and they have a long-term horizon.”

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San Francisco Business Times
By J.K. Dineen
October 30th, 2009

San Francisco’s Del Monte Foods will relocate and expand its corporate headquarters to One Maritime Plaza, a 153,000-square-foot deal that is the city’s largest lease of 2009.

The new Del Monte headquarters, 27 percent larger than the company’s current home, will consolidate 400 workers from two locations: the Landmark at One Market, where Del Monte has 93,000 square feet, and 50 California St., where it leases 19,000 square feet.

The new headquarters will centralize the organization and will “further support execution of the company’s accelerated growth strategy,” the company said in a statement to the San Francisco Business Times. Del Monte has been based in San Francisco for more than 100 years.

“Bringing our San Francisco teams together under one roof is important for Del Monte and its continued growth, and a smart move for us to make financially given the opportunities provided by the current real estate market,” said Rick Wolford, chairman and CEO of Del Monte Foods.

The move comes a year after Del Monte centralized its brand support functions, including pet marketing and pet and operations finance, in its San Francisco office, increasing headquarters staff by approximately 25 percent. Prior to that, the company’s pet food and snack brand support functions operated out of its Pittsburgh office.

The Del Monte lease includes the top two floors of the 25-floor One Maritime Plaza, breathtaking view space that owner Morgan Stanley was looking to lease for $95 a square foot as recently as June of 2008. While the tenant did not disclose the rate they will pay, market sources put the rent for the top two floors between $55 and $60 a square foot. For the entire seven floors, which include five lower floors, the leasing rate averaged closer to $45. It’s not known whether the deal includes a period of free rent.

The deal is the latest in a wave of leases as tenants take advantage of cheap rents and a high availability rate — some 20 percent of office space in the city is available for the taking. Other recent major deals include the biotech firm Nektar, which scored four years of free rent in a 102,000 square-foot Mission Bay sublease; Twitter, which will move to 30,000 square feet of sublease space at 795 Folsom St.; and Cisco Systems recently took 37,000 square feet at China Basin to accommodate growth of subsidiary Pure Digital. Another major lease, social gaming company Zynga’s relocation to 137,000 square feet at 500 Terry Francois Blvd. in Mission Bay, is still under negotiation.

Average asking rates have dropped 26.8 percent in a year and the average deal includes 10 months of free rent, according to a recent report from the tenant rep firm Studley.

Michael Cohen, who heads up economic development for Mayor Gavin Newsom, said the growth of old-economy firms like Del Monte nicely complements the tech, green tech and life science companies that have been driving the city’s economy in recent years. “It is also critically important that we retain our corporate companies like Levi’s and Del Monte,” said Cohen.

Cohen said he expects a burst of positive absorption similar to the one seen during the bleak days after the dot-com bubble burst in 2001. “Because office rents are so steeply discounted right now we fully expect to see more and more consolidate from elsewhere in the Bay Area into the San Francisco (central business district),” said Cohen.

Del Monte’s targeted occupancy date of One Maritime Plaza is early 2011. Del Monte was represented by CAC Group principals Gary Arabian and Bill Cumbelich, who declined to comment on the transaction.

In addition to 25 manufacturing plants and distribution centers and 13 regional sales offices across the country, Del Monte also has an administrative office in Pittsburgh, a sales and operations office in San Ramon, and research and development offices in Walnut Creek and Terminal Island, Calif. In total, Del Monte Foods employs approximately 5,400 full time and 9,400 seasonal employees worldwide.

Del Monte sells foods under the S&W, Contadina and College Inn brands as well as pet food under the Meow Mix, Milk-Bone, 9Lives and other brands. Del Monte Foods reported earnings rose 42 percent to $71.5 million in its fiscal fourth quarter, which ended May 3. For the full year, Del Monte netted $172.3 million, up 29 percent. Sales grew 20.7 percent in the latest quarter to $1.06 billion. For the year, sales grew 14 percent to $3.6 billion.

Photo Courtesy of Mike Smith Via Flickr

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