Except this parking lot, at Howard and First streets in San Francisco, is located in one of the hottest commercial real estate markets in the country.

Late last week, New York’s Tishman Speyer Properties closed escrow on the space, which, by the end of next year will be transformed into a 10-story, 286,000-square-foot office building serving “tech tenant demands and needs perfectly,” said Allen Palmer, managing director at Tishman Speyer’s San Francisco office, in an e-mail to Bay Area real estate brokers.

Two distinguishing aspects of the deal: It’s the first “spec development” (i.e. built from the ground up with no signed tenants) in the city since the onset of the recession in 2007, and no debt financing is involved. The land, architectural plans and construction costs – the latter estimated between $180 million and $185 million – is “funded with all equity,” said Palmer.

“Tishman has just turned on the light switch,” said Daniel Cressman, executive vice president at Grubb Ellis, suggesting that San Francisco’s tech-driven market, especially in the South of Market area, may see similar deals in the near future. (Grubb Ellis, which was recently acquired by New York’s BCG Partners, is not involved in the Tishman Speyer deal.)

In fact, Tishman Speyer cut an even bigger spec deal at 222 Second St., which is also a parking lot. Scheduled to begin construction next year and to be open for tenants in the fall of 2014, the “world-class” $100 million, 27-story, 452,000-square-foot high-rise is “purposely designed … to cater to the tech user, yet also appeal to the professional, traditional office space user,” said Palmer.

Partnering with Tishman Speyer in both deals is JPMorgan Chase Asset Management, which bought a majority stake in China Basin Landing in January for $415 million. Like Tishman Speyer, which owns 555 Mission St., another spec project, and Infinity Towers, the upscale condo complex on Spear Street, JPMorgan has identified South of Market as the place to be.

“The demand is relentless, especially for tech space,” said Michael Covarrubias, CEO of TMG Partners, which is putting the finishing touches on the retrofit of 1275 Market St., a 17-story office building across the road from Twitter’s soon-to-be-occupied new headquarters.

The space at Howard and First streets is part of the 1.2 million-square-foot Foundry Square development, originally designed for Sun Microsystems. Three architecturally similar 10-story buildings are occupied by Oracle, the law firm of Orrick, Herrington Sutcliffe and BlackRock, the global investment management company.

The fully leased BlackRock building reportedly has been sold for $240 million by another New York property company to the State Teachers Retirement System of Ohio. A second Foundry building, owned by Utah Retirement Systems and leased to Oracle, was put on the market in February, with a reported asking price in the $185 million range, “or just shy of an eye-popping $800 per square foot,” according to Real Estate Alert, an online newsletter.

“Our initial goal is to find one tenant” for the space at Howard and First streets, Palmer told potentially interested brokers. “But don’t let that goal get in your client’s way if they would like to pursue part of the building.”

Buyers’ market: If San Francisco real estate is a little too rich for your blood, how about Oakland? Home sales are up, especially in the condo market, and property developers are keen to show you their wares.

A number of developers and real estate firms, including Holliday Development and Uptown Place, are part of a monthlong business campaign called Passport Oakland, designed to entice folks to experience a city that has had some not-so-good press lately. Five “new home communities” are available for inspection, plus neighborhood tours. Barbecues, wine tasting, deals on meals and $100 gift-card prizes are among other incentives.

More information at passportoakland.com and on Facebook (Facebook.com/PassportOAK) and Twitter (#PassportOAK).

Andrew S. Ross is a San Francisco Chronicle columnist. Blogging at www.sfgate.com/columns/bottomline. Facebook page: sfg.ly/doACKM. Tweeting: @andrewsross. E-mail: bottomline@sfchronicle.com.

This article appeared on page D – 1 of the San Francisco Chronicle

Article source: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2012/04/09/BUET1O0RN2.DTL&type=tech

While the changes over the last five years have inevitably created volatile market conditions for owners and developers of life science real estate, the best assets in the prime biotech clusters of the U.S., including Boston/Cambridge, New York, the San Francisco Bay Area, San Diego and the Research Triangle of North Carolina, appear to have withstood the recession and unsteady recovery fairly well, especially as compared with the larger office and flex space property markets.

According to CoStar data, the number of office/flex sales transactions involving biotech, lab and RD space actually saw five quarters of growth between mid-2010 and mid-2011, when the downturn was falling hard on most office landlords. Like other property types, the number of deals has fallen slightly over the last two or three quarters, reflecting the uncertainty of the broader U.S. and global economy, the slowed pace of capital markets and uncertainty of future government financing for biotech research and development.

J.P. Morgan bought the buildings from Canyon Capital Realty Advisors LLC, which manages a portfolio for the California Public Employees Retirement Systems (CalPERS), at a quite compressed actual capitalization rate of about 4.7%. About 30% of the 502,000-square-foot Wharfside and 400,000 Berry St buildings are leased to various life sciences tenants.

On the leasing front, San Francisco-based BioMed Realty Trust Inc. is seeing healthy activity, signing a new long-term pact with a private biotech company which it declined to identify for 220,000 square feet at its Pacific Research Center campus in Newark, CA, in San Francisco’s East Bay.

BioMed Realty has emerged as a major player in recent years to compete with life science real estate industry leaders Alexandria Real Estate Equities Inc. (NYSE: ARE) and HCP Inc. (NYSE: HCP). BioMed Realty last month agreed to acquire the 287,000-square-foot Cambridge Place in Cambridge for $119 million, bringing the REIT’s holdings in the nation’s top bio-cluster to about 3 million square feet.

However, biotech and lab property owners are facing secular changes in their tenants’ industry since the Great Recession.

Cost reduction has been a major driver in location considerations over the last five years, while major biotech companies have been downsizing and returning space to the market for sublease. The big pharmaceutical companies have been consolidating, with more mergers expected, resulting in a downsizing of property requirements in many cases. Life science companies ranging from well-established industry leaders to startups have delayed leasing or expansion decisions in the face of the thus-far tepid recovery.

Another major factor affecting U.S. investment is global competition. Foreign direct investment in new pharmaceutical RD, life science office and manufacturing locations has shifted since the downturn, according to a recent study by Jones Lang LaSalle. The U.S. still led by far with $112 billion in investment between the study period of 2003-10, more than double that of Ireland, the nearest rival, according to JLL. China, India and Singapore have emerged as key markets since 2007 due to the quest for manufacturing cost reduction and Asia’s own growing domestic market for sales and RD, however, JLL reported. Brazil, Canada and Switzerland also made major gains in market share in the last half-decade.

That said, demand has been propped up by limited deliveries of new biotech space, which have been flat since late 2008. Existing properties have seen positive net absorption for five of the last six quarters, reaching a high of almost 657,300 square feet in fourth-quarter 2011, the highest level since second-quarter 2008, according to CoStar data.

Since reaching a five-year high of about 18% nationally in late 2009 following a flurry of new supply deliveries, the vacancy rate has slowly drifted down, reaching to 16.6% in the fourth quarter 2011 The availability rate, which reached a decade high of 23.6% in mid-2010 as landlords prepared for tenant departures, has fallen recently to below 21%.

The numbers are more volatile for quality assets in specific regions of the cluster-driven sector. For example, in the three submarkets that make up the Cambridge market in Boston, the vacancy rate fell to as low as 6.5% in early 2011 from a high of 21% four years ago and currently stands at 8.8%.

And now, there’s rising competition from developers in other parts of the country trying to get in on the action, including such previously overlooked markets as southern Florida and central New Jersey.

In Miami, Wexford Science Technology is developing the University of Miami Life Science Technology Park in the city’s fledgling Health District. The 252,000-square-foot first-phase building is currently 63% occupied about six months after opening, with tenants including Advanced Pharma CR, LLC, Community Blood Centers of Florida, the University of Miami Tissue Bank, Spain-based technology firm Ándago and medical device firm DayaMed taking up residence near the university. UMLSTP’s master plan includes five buildings comprising between 1.6 and 2 million square feet of space at build out.

In Port St. Lucie, FL, the Tradition Center for Innovation (TCI) recently opened a new 100,000-square-foot facility for Vaccine Gene Therapy Institute (VGTI) Florida in TCI’s 150-acre research complex. Martin Health System, are scheduled to begin work on its 82-bed acute care and clinical trials hospital at the complex this month, and Mann Research Center will begin work on an MOB in August.

But the economic slowdown and other factors have exacted a toll on the industry from Wall Street analysts. Moody’s Investors Service last November its outlook for the U.S. life science industry to stable from positive due to slower-than-expected growth and uncertainty over U.S. and European funding for academic research, which has caused researchers and manufacturers to reduce spending, combined with relatively flat demand from pharmaceutical customers, which represent 25% of industry revenue.

“Regardless of how the US government actually funds science research, academic customers will be cautious with their spending until there is clarity around 2012 and 2013 budgets,” said Moody’s Vice President and Senior Analyst Jessica Gladstone.

Article source: http://www.costar.com/News/Article/Biotech-Lab-Property-Owners-Holding-Their-Own-Despite-Shifting-Landscape-for-Tenants/136484