TMG Partners has won awards for many projects
including honors for “Best Mixed Use,”
“Best Office,” and “Best Historic Rehabilitation”.
Less than six months ago, developers Boston Properties and Hines were unsure if they could start construction on what will become San Francisco’s tallest building.
The 61-story story tower was both exciting and daunting — after all, who builds 1.42 million square feet of office on spec, even in a hot market like San Francisco’s?
The developers never had to test their nerve. Instead, Salesforce, one of San Francisco’s largest and fastest-growing companies, came in to sign the biggest lease ever in San Francisco, agreeing to occupy half the building.
“It’s a testament to being at the right place at the right time for us and being able to participate and hit the market when we did,” said Michael Tymoff, senior project manager for Boston Properties, who is overseeing development of the Salesforce Tower. “The lease we did with Salesforce proved out this building. It allowed us to make the decision to go forward.”
Several other developers also decided to jump into Transbay, where more than 3.7 million square feet is under construction. In addition to the Salesforce Tower, Boston Properties is also building the 307,000-square-foot 535 Mission St., Kilroy Realty is building the 450,000-square-foot 350 Mission St., Tishman Speyer is building the 450,000-square-foot 222 Second St., and Jay Paul Co. is working on 181 Fremont St., a 417,000-square-foot, mixed office and residential tower.
In the next few years, projects such as TMG Partner’s 2 million-square-foot office, residential and hotel development at First and Mission streets will break ground. Just last week, Golub Real Estate and The John Buck Co. won a bid to buy Block 5, a parcel slated for a 43-story tower and 700,000 square feet of office, for $172.5 million.
It’s been decades since San Francisco welcomed buildings taller than 700 feet high, but in the next few years, several will fill in the skyline centered around the upcoming Transbay Terminal.
“This is probably the most dynamic era in terms of downtown development,” said Jeffrey Heller, co-founder of Heller Manus Architects, a firm designing several San Francisco office buildings in the pipeline. The Transbay buildings will be higher than the Bank of America building at 555 California St. (779 feet) and the Transamerica Pyramid (853 feet).
“Transbay will create a cluster of tall buildings,” Heller said. “It will be a very dramatic change in the nature of San Francisco’s downtown.”
The slew of new buildings not only brought out A-list developers, but also world-renown “starchitects” such as Norman Foster of Foster + Partners who is designing TMG’s First and Mission project, Cesar Pelli of Pelli Clarke Pelli, designer of the Salesforce Tower, and Thomas Phifer of Thomas Phifer and Partners, designer of 222 Second St.
The First and Mission project includes two highrise towers stretching to 910 and 605 feet tall. The taller of the two will be the second-tallest building in San Francisco after the 1,070-foot-tall Salesforce Tower.
“The San Francisco skyline is interesting, but maybe underwhelming of what it could be,” said Michael Covarrubias, president and CEO of TMG Partners. “We can be a better urban city with great architecture.”
The redevelopment of the terminal and surrounding properties into a dense, urban district took decades to hash out, but now that plans are materializing, the timing couldn’t be better — both the commercial and residential real estate markets experienced tremendous growth in the past few years with no signs of slowing down.
The Transbay district — with more 6 million square feet of office planned — is now billed as the “new downtown” for San Francisco.
“This is probably the best (office leasing) market San Francisco has ever seen — it’s the hottest market in the United States,” Tymoff said. Developers, he said, aim to “start projects when the economy is going well and you hope that the cycle lasts long enough to deliver the building when tenants are looking for space. We’re in that comfortable zone right now.”
Salesforce took 715,000 square feet in its now-namesake tower in a deal announced in April. It had already fully leased 350 Mission, a Kilroy Realty Corp. development also in the Transbay area. Those deals and Salesforce’s existing downtown offices will create an “urban campus” for the firm, Tymoff said, that gives employees a live, work, and play experience in what promises to be a “24/7” neighborhood. Other tenants also pre-leased space, such as LinkedIn gobbling all of 222 Second and Trulia inking the anchor lease for 535 Mission.
When Kilroy made its Transbay investment two years ago, the decision to build “was before all the big leases,” said Mike Sanford, managing partner at Kilroy. “We were able to come to terms with Salesforce and got a deal done in record time. It was a matter of months. In hindsight, that looks pretty good, but at the time we decided to buy (350 Mission), we didn’t know that.”
Tech moves toward Class A
Transbay’s success is driven by a few key factors, said Colin Yasukochi, research director for commercial brokerage CBRE. One is the high demand for office space in San Francisco, two is the desire for employers to locate near transit and the third is that technology tenants shifted from wanting creative space — historic, brick and mortar type buildings — to Class A highrises that offer open floorplans and amazing views.
“It’s all the demand for office and residential that has created a critical mass in a short amount of time,” he said. “This project has benefitted tremendously in the past three or four years.”
Developers are keenly aware, however, that any market, no matter how strong, can quickly turn and any development project involves risk. Many projects now under construction could have started work in 2007, but the recession derailed those plans. The First and Mission project was caught up in bankruptcy court and is now moving forward after TMG agreed to a deal to pay the original developer and lender on the project.
“The beauty is that in real estate, cycles are unpredictable and it takes a long time to do something,” Covarrubias said. “It takes a long time to get a project entitled, built and you hope that someone will want it when it’s done.”