BART’s rent is soaring, so it wants to buy a new Oakland headquarters

BART may move its Oakland headquarters in an effort to save millions of dollars in annual rent as it grapples with the city’s record-high office costs.

The transit agency’s current headquarters lease at the Kaiser Center complex near Lake Merritt expires in 2021, and rent would rise by more than 60%, said Sean Brooks, BART’s manager of real estate.

Instead, agency staff recommend a relocation and the $140 million purchase of 2150 Webster St., which is across the street from Kaiser Center. Interior construction and additional costs would total $87 million. BART’s board of directors will vote on the deal on Sept. 12. Around a third of BART’s 3,300 employees would be affected by an office move. (BART has a separate operational center near Lake Merritt and most employees work in BART stations and rail yards.)

The agency wants to limit costs, use space more efficiently, and stay close to a BART station as part of a move, Brooks said.

A 25-year sales tax bond would finance the deal. The agency already uses such bonds for its current operations, and a move wouldn’t raise taxes or fares for riders. The bond doesn’t require voter approval.

“It doesn’t change the use of the funds,” Brooks said. “The money being used to purchase this is not taking away from any other capital projects.”

BART has a $2.3 billion annual budget this year, but falling ridership and fare evaders are eroding revenue. In June, BART’s board approved an 18% fare increase over seven years to help offset the decline.

BART occupies 369,587 square feet, or over a third of the Kaiser Center complex, making it one of the city’s largest tenants. It signed its lease in 2004, long before real estate values surged throughout the Bay Area, and pays rent of $15 million annually, or $40 per square foot, about half of current market rates, said Brooks. If it renewed its lease, the agency would pay hundreds of thousands of dollars more in rent, according to a recent staff report.

 BART’s rent is soaring, so it wants to buy a new Oakland headquarters

Oakland office rents have doubled in the last four years. Competition for limited space is growing, with only a few vacant downtown buildings. San Francisco tech companies Square and Credit Karma expanded to Oakland and filled two large projects: Uptown Station and 1100 Broadway. Blue Shield is moving its headquarters from San Francisco to Oakland’s 601 12th St., another new tower.

BART began studying its real estate options last year, surveying 225 managers and touring new offices in San Francisco. BART’s conclusion: Its 1990s-style offices were obsolete and had excessive space.

Now, BART plans to downsize to around 250,000 square feet and build a modern work environment that allows for more interaction among different divisions and fewer private offices. The agency is also reducing the amount of paper records it uses to cut its space needs.

BART is “a very siloed organization today. People don’t know what others are working on,” said Tom Maloney, managing director at JLL, BART’s real estate broker, at a June hearing. “The idea here is to move BART to a more open, collaborative layout.”

A new office with more technology integration will aid in recruitment of younger workers, said Maloney. There would be space at 2150 Webster St. for around 1,300 workers, an increase of 200 from the current office.

“BART is facing a retirement cliff,” said Maloney in an interview. “It’s critically important for them to create a workplace that will attract Millennial talent.”

The new building will include a ground-floor board room that is more publicly accessible.

BART also considered relocating to 601 12th St., the new tower also leased by Blue Shield, but costs were higher than at 2150 Webster St. BART studied moving to two proposed office projects by different developers at Lake Merritt and West Oakland BART stations on land that the agency owns. However, those projects aren’t approved and won’t be ready in time when BART’s lease expires, said Brooks.

Lane Partners and Walton Street Capital own 2150 Webster St., which was formerly an ATT office building that was fully renovated. Lane Partners didn’t immediately respond to a request for comment.

BART’s departure would leave a major vacancy — and opportunity to find a more lucrative tenant — at the Kaiser Center, one of the city’s largest office complexes. Kaiser Permanente will also move out of the property into a new headquarters in Uptown Oakland.

“While we value all of our tenants, should BART elect to make the substantial investment to acquire its own building or otherwise relocate, we are confident that Kaiser Center will benefit from Oakland’s robust tenant demand and limited space availability, and that we will continue to attract top tenants in this important submarket given the recent transformation of the lobby, common areas and building amenities,” Kaiser Center owners the Swig Co. and Rockpoint Group said.

Other Bay Area transit agencies have spent millions on real estate. The Metropolitan Transportation Commission moved from Oakland to San Francisco in 2016 after spending $155 million on renovations, double its original estimate.

The San Francisco Municipal Transportation Agency is headquartered at 1 South Van Ness Ave., along with other city divisions. The city of San Francisco bought the property for $71.5 million in 2007. Caltrans owns its regional office at 111 Grand Ave. in Oakland.

Roland Li is a Chronicle staff writer. Email: roland.li@sfchronicle.com Twitter: @rolandlisf

Article source: https://www.sfchronicle.com/business/article/BART-s-rent-is-soaring-so-it-wants-to-buy-a-14417407.php

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