Here`s - The CRE Group

THE
Registry
P.O. Box 1184
San Mateo, CA 94403
415.738.6434
Mission Statement
Letter from
the Publisher
The Registry is a real estate journal
that aspires to fulfill the need of
Bay Area professionals for accurate,
unbiased and timely news, analysis
and information.
Publisher
Vladimir Bosanac
vb@theregistrysf.com
President
Heather Bosanac
415.738.6434
heather@theregistrysf.com
Editor-in-Chief
Sharon Simonson
408.334.2512
ssimonson@theregistrysf.com
Design
Karyn Charm
Jelena Krzanicki
Janet Raugust
Photographer
Chad Ziemendorf
Writers
Doug Caldwell, Robert Celaschi,
Michael Fitzhugh, Janis Mara,
Sharon Simonson, Sasha Vasilyuk
Contributors
Peter Ingersoll, Scott Korney, Rob La Eace,
John McNellis, Yann Taylor,
Marina van Obereek, Lynda Ward
Advertising
415.738.6434
News
news@theregistrysf.com
Feedback
letters@theregistrysf.com
Subscriptions
subscriptions@theregistrysf.com
Ethics Policy
The Registry embraces a strict ethics policy
for its staff and contributing writers, including
columnists and freelance reporters. No person
employed by or affiliated with The Registry has
accepted or will accept any compensation,
monetary or otherwise, in exchange for editorial content. All information that appears in the
magazine is selected solely for its informational
value to readers.
The Registry is a registered trademark of Mighty Dot
Media, Inc.
©2011 Mighty Dot Media, Inc. All rights reserved.
This publication and/or its contents may not be copied,
reproduced or republished in whole or in part without
the written consent of Mighty Dot Media, Inc.
2 theregistrysf.com
M A R C H 201 1
Dear Reader,
The issue that you hold in your hands is our
third annual collaboration with the Northern
California chapter of the International Interior Design
Association. This issue celebrates the Bay Area’s best
and brightest architects and designers, the dreamers
whose creativity bends steel, molds cement and
shapes glass into beautiful settings that the fortunate
few get to use on a daily basis. This year, as in the ones
past, we will gather to honor them in Oakland on
March 2, and The Registry will commemorate their
success with this very magazine.
I am particularly pleased at our partnership with
the IIDA. Growing up I had aspirations to be an
architect and expressed them to my family. My dear
father, who realized quickly that my athletic career
would not be a good companion to my architectural
aspirations, helped me understand where I could apply
my talent best. However, I am realizing that even as
I excelled in a business career and helped launch this
media company, I am pulled in the direction of my
original aspirations—architecture. Perhaps being an
entrepreneur is akin to being an architect: Having a
vision and creating something in a place where nothing
or something very different existed.
In line with this theme, we have focused this
month’s editorial package on interiors and design.
They are an important part of the real estate
development process and an increasingly critical
contributor to worker productivity, so it is only
natural that we give them due attention.
Design in our industry has to be contemporary.
It has to respond to a commercial need, and the
creativity has to be driven by market research. By
market I mean those who will inhabit the space and
use it on a regular basis.
We are already seeing a transformation in interior
office design as a response to the significant changes
in our working population. Baby Boomers are retiring,
the Xers are pretty much forgotten, but the Ys, or the
Millennials, will be the ones getting custom workplace
settings made to suit their daily needs. Mostly because
they are a very large group (see By the Numbers on
page 39) and will replace the Baby Boomers nearly
one for one, but also because of global competition
for talent. Recruiting and retaining the best-educated,
most-forward thinkers among the Ys has become
a near obsession for technology companies. It is a
theme that arises again and again among designers
responding to business demands.
Aside from being an employee morale booster,
it is also expected to exert a direct, positive and
verifiable impact on the bottom line. It is tied to
strategy as much as selecting a vendor or opening
a business in a new vertical. On page 14, in our
cover article, “Working Design,” Robert Celaschi
looks at how companies such as Google are trying
to understand what kids in high school today will
want from their employers in five years. The simple
message is that those who are not thinking about
these trends today will not be competitive tomorrow.
As the world awakens from the slumber of the last
three years, business executives are beginning to
realize that locating in areas where top talent resides
is going to be a crucial step in their resurgence and
relevance. Silicon Valley companies are already making
the move up the Peninsula, opening satellite offices in
San Francisco. Consider, however, Nokia and its new
campus in Sunnyvale. Realizing that the epicenter of
creativity in their industry is now mainly in Silicon
Valley, they are making significant investment in the
region just to stay competitive. In the article titled
“Phone Home” on page 18 by Sasha Vasilyuk we get a
sneak peek of the global company’s strategy to catch up
with Bay Area smartphone giants, Apple and Google.
Not only is Nokia setting up its own lemonade stand
across the street from these two global leaders, the
approach exudes a certain kind of Nordic cool.
When we undertook our Nokia story, the dramatic
developments at the Finnish mobile phone maker
in the opening weeks of February were well into
the future. We were delighted to be admitted to the
sanctum of Nokia’s new Sunnyvale offices to see and
understand the business process driving their design.
As the days have passed, the importance of that design
to Nokia’s business future has been outlined with a
black marker. Press reports suggest that the Sunnyvale
offices could become the company’s headquarters. At
the least, they—and what the workers produce inside
of them—are critical. Silicon Valley software engineers
are driving content on today’s mobile devices. As we
went to press, Nokia and Microsoft Inc., which has its
own valley offices in Mountain View, had announced
their collaboration in the smartphone sector.
As always, we hope that you will feel compelled to
give us your feedback. We appreciate your interest in
our publication and will continue to deliver relevant
content that is intriguing and informative.
Best regards,
Vladimir Bosanac
Media Partners
The Registry would like to acknowledge its partnerships with
the following organizations:
www.norcal-ai.org
Peter Ingersoll
Contributors
Mind the Fundamentals
pg. 36
Peter Ingersoll is chief executive of East Bay investment advisory Safe Harbour Equity Inc. and a serial entrepreneur. He has an economics degree from
the University of Pennsylvania Wharton School and several advanced degrees from the School of Hard Knocks earned while working in the
construction, development, site acquisition, private banking & trust, investment banking, securities and, most recently, the Northern California commercial
real estate industries. This article is based on research for his book, “The Real Estate Tsunami Survivor’s Guide.” The book features interviews and
remarks from industry leaders such as Dr. Sam Chandan, the global economist for Real Capital Analytics; Ethan Penner, president of CBRE Capital Partners;
and Michael J. Panzner, author of “Financial Armageddon: Protecting Your Future from Four Impending Catastrophes” and “When Giants Fall: An Economic Roadmap for the
End of the American Era.”
Scott Korney
Laboratories by Design
pg. 17
Scott Korney is the founder and principal of the Bay Area’s Optimum Management Group. He brings nearly 30 years’ experience to optimizing lifescience facility operations including laboratories. His expertise includes real estate transactions and tenant improvements for large-scale campuses that
accommodate both offices and life-science research and development laboratories. He is an expert on Good Manufacturing Practice regulations
promoted by the U.S. Food and Drug Administration. Korney led the sale of the former Scios Inc. Mountain View campus of three buildings, the
disposition of surplus business assets and the company’s relocation to a new site in Sunnyvale before it was acquired by Johnson & Johnson in 2004. He
then led the design and development of a 300,000 square-foot R&D campus on behalf of Johnson & Johnson. In 2008, he was recruited to join the Pfizer Inc.
Biotherapeutics and Bioinnovation Center, where he directed a portfolio of research facility operations in Cambridge, Mass., Southern California and the Bay Area, including the
design and construction of a 100, 000 square-foot Mission Bay facility.
Rob La Eace
No Parking, No Deal
pg. 40
Responding to emergencies as a firefighter in a variety of uncertain situations and diverse neighborhoods taught Rob La Eace a lot about how people
should be treated, not only during a crisis, but also everyday. Today, these same skills are an asset to those who work with this San Francisco native
in his career as a broker associate with Paragon Real Estate Group. The tools he puts to work as a firefighter are what makes the difference to the
clients La Eace works with as an agent. While it may help that La Eace is the type of guy with a warm smile and a friendly attitude, his professionalism,
organization and drive to succeed are what make him stand out in his career. Working in his sixth year in the industry, La Eace is in touch with his
clients’ needs and with the city—putting a local’s perspective to work.
John McNellis
Let Us Now Praise Famous Architects
pg. 38
John McNellis is a Palo Alto-based retail developer and property owner. He practiced law in San Francisco with Landels, Ripley and Diamond and
co-founded McNellis Partners in 1982. A graduate of UC Berkeley and the University of California’s Hastings College of The Law, McNellis is a
member of the Urban Land Institute and a founding member of both its Environmental Task Force and Environmental Coordinating Committee.
He is also a member of the International Council of Shopping Centers. He has served as the chair of ULI’s Small Scale Development Council and is a
member of ULI’s Board of Governors. He is also a lecturer for both the ULI and ICSC.
Yann Taylor
Retail Revives
pg. 20
Yann Taylor specializes in the design of retail and mixed-use developments at many scales and locations throughout the western United States,
including On Broadway in Redwood City, a full block retail, restaurant and entertainment complex built in public-private partnership; The Orchard at
Westminster, Colo., a large retail center whose stone, glass and wood forms harmonize with its Rocky Mountain context; Victoria Gardens, an
award-winning downtown for Rancho Cucamonga; and three buildings at Northfield at Stapleton in Denver, one of the first sustainably designed retail
and mixed-use developments to be built in the United States.
Marina van Overbeek
Planning for Non-Occupancy
pg. 22
Marina van Overbeek is a workplace strategy and business relationship professional. She is experienced in strategic planning, innovative workplaces, and
managing leadership-level business relationships for major corporations. Her corporate experience includes positions as workplace strategist,
business-client relationship manager and planning manager at Cisco Systems Inc., Pacific Gas & Electric Co. and private consulting firms.
Lynda Ward
Planning for Non-Occupancy
pg. 22
Lynda Ward is market sales manager for Kimball Office in San Francisco. She has more than 25 years’ experience in aligning business
development strategies with workplace design and change. Strategies include an integrated approach between organizational practices, work
processes, technologies and the physical workplace. Projects ensure employee productivity, increased collaboration and support innovation.
Representative companies include Cisco Systems Inc., Hewlett-Packard Co., Kaiser Permanente, KLA-Tencor Corp., Logitech International and the
McKesson Corp. n
4 theregistrysf.com
M A R C H 201 1
Editorial Boards
Board members of The Registry serve without expectation of recompense or reward. They advise the magazine’s executive team on matters
of relevance to the region’s commercial and residential real estate community. The board’s makeup reflects the wide readership of the magazine
including attorneys, architects, interior designers, residential and commercial real estate brokers, investors, lenders, general contractors and
subcontractors, engineers and other professionals.
NORTH
Marc Cunningham
Bruce Dorfman
President
AllWest
Jesshill E. Love III
Partner
Ropers, Majeski,
Kohn & Bentley
Principal
Thompson | Dorfman
Partners, LLC
Daniel Myers
Partner, Real Estate Practice
Group Leader
Wendel, Rosen,
Black & Dean LLP
Phil Williams, P.E.,
LEED AP
Anton Qiu
Principal
TRI Commercial
Vice President
Webcor Builders
Daniel Huntsman,
LEED AP
President & Founding Principal
Huntsman
Architectural Group
Jeanne Myerson
President &
Chief Executive Officer
The Swig Company
Paul Zeger
Principal, President & CEO
Pacific Marketing
Associates
SOUTH
Terry de la Cuesta,
IIDA, LEED AP
Jennifer Dizon, CPA
Geoffrey C. Etnire
Michael W. Field
Director of Healthcare
Synergy 4 Health,
a One Workplace Company
Co-Chair,
Real Estate Group
Hoge, Fenton, Jones
& Appel, Inc.
Jody Quinton
Regional Manager
DPR Construction, Inc.
Audit &
Advisory Partner
Hood & Strong, LLP
Director,
Commercial Real Estate
The Sobrato Organization
Patricia Sausedo
Vice President of Public
Policy & Communications
San Jose Silicon Valley
Chamber of Commerce
Erik W. Doyle
President
Cornish & Carey
Commercial
Norman C. Hulberg,
MAI
President
Hulberg & Associates, Inc.
Jeffrey A. Weidell
Executive Vice President
NorthMarq Capital
News
SENT to us
Desk
Studley Tempers Outlook for San Francisco;
Firm More Bullish on the Valley
Leasing strength among large and small tenants propelled Silicon Valley
commercial real estate markets last year. But in San Francisco, while
technology companies leased and acquired big footprints, weakness below all
but the largest kept recovery less robust.
According to commercial real estate tenant advisor Studley, last year, sixteen
leases for more than 100,000 square feet were signed in Silicon Valley, twice
the rate of 2009. Leasing volume all in all climbed 20 percent, and tenants
mopped up 1.3 million square feet across the four quarters, driving availability
below 18 percent from nearly 20 percent at 2009 year end.
Meanwhile, in the city, in the last quarter of the year, after three quarters of
robust leasing, large-tenants fell back. The change revealed the weakness
among smaller tenants. Availability, which had been falling, increased by
101,000 square feet to 14.96 million, the brokerage says. “On top of tenant
downsizing, several long-standing local tenants are exiting the market,”
according to Studley. The State Compensation Insurance Fund plans to leave
385,000 square feet at 1275 Market St. and to distribute workers elsewhere in
the Bay Area. The U.S. Department of Agriculture, in 25,000 square feet, is
going to Oakland, the brokerage said.
Both real estate research company Reis Inc. and Moody’s Economy.com have
modest forecasts for San Francisco metro, the brokerage notes. Economy.com
says the area will gain only 4,200 office jobs this year, after losing more than
5,000 last year. Reis says office absorption will be a million square feet a year.
The outlook for Silicon Valley is better but is undermined by the uncertainties
in Sacramento, including a proposal to extend recent tax hikes on income,
vehicles and retail sales by another five years, the brokerage said.
Bay Area Services Firm Partners With Student Charity
Hayward-based Arborwell, a professional tree-management company, has
partnered with Students Rising Above. SRA’s mission is to help extraordinary,
low-income Bay Area high school students who are overcoming tremendous
odds of poverty, homelessness and neglect to fulfill their dream of a college
education. The company provides mentoring support, financial assistance and
employment skills to help participants find success in school and in life.
Brokerage Rebrands, Drops Ties to GVA Group
Commercial real estate firm Kidder Mathews has dropped its affiliation with the
GVA Worldwide network and launched a rebranding campaign. The company
has nine offices; three in the greater San Francisco Bay Area.
“Real estate is a regional business, and we intend to focus our energies on
where we are actually doing business, which is 98 percent on the West Coast,”
said Kidder Mathews’ Chairman and Chief Executive Jeff Lyon.
Bay Area Designers Named
2011 Designers of the Year
Contract magazine has named Studio O+A principals
Verda Alexander and Primo Orpilla Designers of the Year
for 2011. The annual award recognizes individuals whose
work and practice raise the standard for excellence in
commercial design and exhibit exceptional potential for
ongoing contributions to the industry.
Alexander and Orpilla founded Studio O+A in 1991. With
a staff of 15, the San Francisco–based interiors firm has
done workplace design for technology
clients including eBay Inc. and Facebook Inc. as well as
Emergence Capital Partners and Levi Strauss & Co.
JLL Markets $30 million-plus Complex in San Jose
South Bay Development Co. has hired Jones Lang LaSalle to market for sale
the Western Digital Rue Ferrari Campus, an office and research and
development complex at 5853-5863 Rue Ferrari in the Edenvale Technology
Park in San Jose.
The two-building, 286,000 square-foot complex is 100 percent triple-net
leased to Western Digital through December 2020. Jones Lang expects to
draw in excess of $30 million for the property.
Managing Director Michel Seifer, Senior Vice Presidents Rob Hielscher and Reid
McGlamery are overseeing the listing.
Peninsula Group Acquires Silicon
Valley Property
Real estate investor, manager and developer The
Matteson Cos., has acquired 5200 Patrick Henry Drive, a
90,000 square-foot office building in Santa Clara, for $20
million from South Bay Development Co.
The building is a single-tenant Class B+, commercial office and R&D property
recently leased for 10 years to Coherent Inc., a laser-optics company. Coherent
owns its global headquarters next door.
Matteson bought on behalf of a group of private investors. Erik Fox of Cassidy
Turley/CPS represented the seller. n
PEOPLE on the move
Five Promoted at Gensler San Francisco
Gensler, a global design, planning and strategic consulting firm, announced
that Smita Gupta, Randy Howder, Daniel Pamperin, Kevin Rosenstein and Ben
Tranel have all been promoted to senior associates in its San Francisco office.
NOVO Builds Business-Development Ranks
Marc H. Flax has joined NOVO Construction as director of
marketing and business development.
Flax, 49, worked most recently for HOK, a global architectural
firm, developing business, managing client relationships and
overseeing projects worldwide.
BRIDGE Housing Adds Northern California Leadership
Rebecca Clark has been named executive vice president for Northern
California for BRIDGE Housing where she will lead its real estate development
activities. BRIDGE is one of the largest non-profit affordable-housing builders
in the state.
Clark holds a B.A. in Architecture from California State Polytechnic University,
Pomona and an M.A. in Business Management from the Peter F. Drucker &
Masatoshi Ito Graduate School of Business, Claremont Graduate University.
Dunhill Partners Expands in San Francisco
Rob Appleton has joined Dunhill Partners West as a partner.
Appleton has more than 30 years experience in all phases of
commercial real estate, concentrating on corporate leasing, real
estate acquisitions and asset management. In addition, as a LEED
AP he has been focusing on sustainable commercial properties
located in in-fill and emerging markets with value added potential for real
estate acquisitions.
New President Elected By Commercial Realtors
Victor Jin is the 2011 President for the Northern California Commercial
Association of Realtors.
6 theregistrysf.com
M A R C H 201 1
Jin is a licensed real estate broker with more than 25 years experience in
residential income properties including duplexes, apartment buildings, strip
centers and mixed-use properties across the Bay Area, according to the
association’s Web site.
Glumac Adds Three to San
Francisco Team
Brett Kelley, Dylan Connelly and Ross
Farris have joined the San Francisco
engineering firm as mechanical
department head, mechanical
designer and energy analyst, respectively.
Kelley adds senior engineering and leadership to the mechanical department
with a focus on laboratory and clean-room design. Connelly‘s past project work
includes extensive project management, mechanical design and administration
of sustainable projects.
Farris is a new graduate of the University of Kansas with a master’s degree in
architecture and a bachelor of science degree in architectural engineering.
Cassidy Turley Pushes into Building Management
Terry Everley has joined commercial services company Cassidy
Turley to oversee the development of the firm’s boutique
building-management program. The new initiative is focused on
the delivery of management services to clients with smaller
properties throughout the Bay Area.
Most recently, Everley was a member of the management team responsible for
the redevelopment and conversion of the Mare Island Naval Base to a privately
held business park. Along with managing more than five million square feet of
commercial properties, he was responsible for the oversight and preservation
of historic assets, retrofitting to meet federal disabilities’ compliance
requirements and obtaining government approvals.
He is an associate vice president based in the San Francisco regional headquarters.
Cassidy Turley Hires Lead of Project and Development Services
Jason Schlutt has joined commercial brokerage firm Cassidy Turley as a senior
vice president of project and development services. Schlutt joins Cassidy from
Compass Solutions Inc. where he was a founder and principal.
Schlutt will merge his existing business into Cassidy Turley and will help grow
the combined entity’s project and development service capability in Northern
California. He will be based in Cassidy’s Palo Alto office.
Schlutt has a degree in civil engineering from the University of Wisconsin—
Madison and is a LEED accredited professional.
Iron Construction Adds Director of Marketing and
Business Development
Stephanie Kirk has joined San Jose-based Iron Construction, Inc.
as director of marketing and business development. Kirk will be
responsible for overseeing the company’s development activities
as it continues it growth and expansion up the peninsula and into
South San Francisco. Kirk previously worked at Atmel where she supported the
international and US marketing teams.
Iron Construction specializes in commercial interiors, biopharmaceutical and
medical device projects.
Brokerage Expands Corporate Services Group
Robert Cook has joined Grubb & Ellis Co. as a senior vice
president, corporate services, in the company’s San Jose office.
A 30-year industry veteran, Cook brings extensive corporate real
estate finance experience to Grubb. He will lead the suite of
services designed to help corporate real estate departments
respond to the Financial Accounting Standards Board’s pending leaseaccounting changes.
Kidder Mathews Hires New Head of Bay Area Region
Long-time Bay Area commercial real estate broker and former
CB Richard Ellis senior vice president Reed Payne joins Kidder
Mathews as executive vice president to manage the company’s
Northern California brokerage group.
Payne was a member of CBRE’s private-client group, specializing
in investment sales of office, industrial and R&D properties. In the last 10 years,
he has handled more than 11 million square feet of transactions totaling more
than $1 billion in sales volume.
CB Richard Ellis Office Practice Grows
Industry veteran Hernan Santos has joined CBRE’s San Francisco Peninsula
office. Prior to coming to CBRE, Hernan was a senior director with Cushman &
Wakefield in its San Francisco Peninsula and Silicon Valley offices.
Hernan is a board member for The Bread of Life in East Palo Alto.
STUDIOS Architecture Grows Interior Design
Christiane Wendel has joined STUDIOS Architecture’s San Francisco office
as a senior interior designer. She brings more than 20 years experience in all
aspects of interior architecture and an extensive portfolio of corporate,
institutional, residential and retail work.
Webcor Builders Revitalizes Its
Executive Committee
Ten-year Webcor veteran Shelley Doran has been named to the
company’s executive committee. Doran serves as vice president
with a focus on business development and governmental affairs.
Webcor Vice President Elected to
AIA’s College of Fellows
Ten year Webcor veteran, Jim Bedrick, has been elected to the
American Institute of Architect’s (AIA) College of Fellows.
Bedrick, who is a Vice President for Webcor Builders with a focus
on Virtual Building and Integrated Project Delivery, was
recognized for over three decades of work in building bridges between the
architecture and construction communities.
Law Firm Brings Attorney to San Francisco
Alex Hamilton joined the Rimon Law Group as a business and real estate
partner in its San Francisco office. Rimon is an international-business law firm
with attorneys in San Francisco, the Silicon Valley, Denver, New York and Israel.
Hamilton will represent clients in entity formation and structuring, commercial
leasing, real estate purchase and sales, real estate financing and restructuring,
sustainable development and construction.
Green Building Board Expands Director Roster
Kirsten Ritchie was elected to the U.S. Green Building Council
board of directors, filling the newly created Green Building
Educator board seat.
Ritchie is principal and director of sustainable design for Gensler
architects’ Asia Pacific region and has more than 30 years
experience in high-performance building design and operations, green
product certification, environmental cleanup, business-intelligence technology
and sustainable infrastructure.
She holds bachelor’s and master’s degree in civil engineering. n
RESIDENTIAL MARKET REPORT
Death of an
American Institution
The longstanding home-mortgage
deduction faces its demise.
By Janis Mara
W
ith the once-sacrosanct mortgage-interest deduction in
question, along with higher, upper limits for conforming
loans, housing finance in California will likely see changes
in the next three years—changes that could reflect a radical rethinking of
the way homes are financed in America.
For decades, the federal government has promoted homeownership,
allowing homeowners to deduct mortgage interest from income taxes.
When the 2008 credit crisis hit, the government raised the limit of the loans
it guarantees to $729,750 for high-cost areas. The move reflected fears that
without government-backed finance the housing market would freeze.
Now, a jaw-dropping 96 percent of all U.S. mortgages are financed via
Fannie Mae, Freddie Mac or the Federal Housing Administration. That is
up from 43 percent in 2006, according to Inside Mortgage Finance.
As a consequence, the nation now has an “addiction” to federal
mortgage money, say personages no less august than U.S. Rep. Spencer
Bachus, an Alabama Republican and the new head of the House Financial
Services Committee. Bachus is a chief proponent of changing the country’s
approach to home finance.
The first significant modification could come as early as September.
That’s when federal housing agencies are slated to roll back the more
generous loan guarantees for the 71 high-cost parts of the country including
the Bay Area. The expanded limit has already been extended twice, and
the second extension ends that month.
Congress also is eyeing changes to housing finance as part of tax
reform. One of the three tax plans crafted by President Obama’s fiscal
deficit commission would eliminate the mortgage-interest deduction on
primary-home mortgages above $500,000, down from the current limit of
$1 million. Erskine Bowles, former chief of staff to President Clinton, and
Alan Simpson, a former Republican senator from Wyoming, co-chaired
the National Commission on Fiscal Responsibility and Reform, which also
proposed eliminating the deductibility on second homes and home-equity
loans and credit lines.
On the local and national level, many businesses and industry groups
decry the gathering momentum behind change. Perhaps the loudest protest surrounds the mortgage-interest deduction, which the federal government estimates will cost the Treasury $131 billion in foregone revenue in
2012. “If [the deduction] is eliminated, it will completely crash the housing
market,” says George Duarte, a mortgage broker who has headed his own
Fremont firm for more than 20 years.
“It would drop housing values 15 percent,” says Walter Molony, a senior
public affairs specialist for the National Association of Realtors. The million-member group is fighting the proposed changes tooth and nail. “It
would make things worse for people who have already lost equity and
would eliminate much of the motivation for them to stay in their homes,”
Molony says.
Rep. Bachus has said he would not eliminate the mortgage-interest deduction altogether. Rather, the focus is on paring. “I think it’s going to be scaled
back somewhat, but it is not going to go away,” says Michael Lea, director of
the Corky McMillin Center for Real Estate at San Diego State University.
Like Bachus, Lea favors reducing government involvement in the
mortgage market. Currently, the deduction applies to loans of up to $1
million on a mortgagee’s primary residence and to home equity loans of
$100,000 or less. Lea believes the deduction will be reduced to around
$500,000 for a primary residence.
Such a reduction would disproportionately affect high-cost locations
such as the Bay Area, he agrees. “You can overcome that by some metro
Role Reversal
The federal government's share of the mortgage market fell during
the housing boom as the private sector surged. Now private lenders are in retreat.
Annual (1985 – 2007)
90%
Conventional, Prime, Fixed-Rate
Lending Is Mainstay of Market (1985-2003)
Quarterly (2008 - 2009)
Subprime,
Non-Traditional
Lending Boom
(2004-2007H1)
4th quarter 2009:
FRE & FNM
68%
68%
Subprime Crisis,
Private-label MBS
Collapse
(2007H2-2009)
45%
Ginnie Mae
28%
23%
Private-Label
4%
0%
1990
Ginnie Mae
1995
2000
Private Label
2005
20
0
20 8 Q
08 1
20 Q
0 2
20 8 Q
08 3
20 Q
0 4
20 9 Q
09 1
20 Q
0 2
20 9 Q
09 3
Q
4
1985
Freddie Mac & Fannie Mae
Sources: Office of the Chief Economist, Federal Home Loan Corp. (Freddie Mac); Inside MBS & ABS
8 theregistrysf.com
M A R C H 201 1
“If [the mortgageinterest deduction] is
eliminated, it will
completely crash the
housing market.”
George Duarte, president, broker and owner,
Wentworth Enterprises Inc, Fremont
area indexing,” he says. “Consideration should be given to regionalizing
the deduction limits, so there are higher deductions in higher-cost areas.”
The home-equity loan-interest deduction likely will be eliminated altogether, he predicts. Home-equity loans are widely believed to have powered
an ill-conceived consumer spending splurge during the economic surge in
the middle of the decade. At the height of this splurge in 2006, the cash-out
volume for prime conventional mortgage loans was $318.3 billion, according to Freddie Mac. The volume of such loans plummeted to around $30
billion in 2010. Perhaps surprisingly, such loans have not soured more quickly than first mortages, said David M. Blitzer, managing director and chairman
of the Index Committee for Standard & Poor’s Financial Services LLC.
In an economy still reeling from the biggest housing crash since the
Depression, it seems obvious to rethink longstanding assumptions about
homeownership and how much government support it merits. Some argue
that the American emphasis on ownership has exacerbated the downturn by
making the workforce less flexible because homeowners are most trapped
in regions where the economic hit has been worst. Others note that the
30-year fixed-rate mortgage seems the product of a bygone era when
workers spent careers at the same company, in the same home, paying
down mortgage principal and building equity.
Some have seized on homeownership as a vehicle to promote pride
in neighborhood and community. Expanding homeownership became
a favored route during the Clinton and Bush administrations for those
trying to spark urban renewal—a special irony given the urban decay
the housing crash has caused. But more and more experts are coming
to believe that homeownership should not be pursued at all costs—especially when the money is coming from taxpayers. “The idea of trying
to make homeownership an opportunity for everyone was that for the
less wealthy, a home is sometimes their main asset,” said Cynthia Kroll, a
senior regional economist at UC Berkeley. “But if all you have is the loan
and you have put a down payment on a very risky investment, you are not
building your wealth, you are putting your wealth at risk.”
A healthy financial sector also demands that the nation sharply cut
how much of the mortgage market enjoys federal guarantees, Lea said. It
distorts the housing market and unwisely burdens the taxpayer.
Loans larger than $417,000, the conforming limit for non-high-cost
areas, lubricate a lot of Bay Area buying. “They comprise easily half of
all the loans we do,” said John Holmgren of Holmgren & Associates, an
Oakland mortgage brokerage of 20 years’ standing. Based on research by
the Bay East Association of Realtors for The Registry, as of Jan. 24, in the
nine-county Bay Area, there were 8,728 active listings of homes for sale at
a price of $417,000 or above, nearly equal the 9,029 homes listed for less
than $417,000.
Despite the angst, bankers said the change means opportunity. Karen
Mayfield, national sales manager of the mortgage-banking division of San
Francisco’s Bank of the West, says the private sector serviced the mortgage
market above the $417,000 federal limit in the past quite well.
“Sixty percent of the lending in the Bay Area was over the $417,000
limit, and we as an industry were able to accommodate that,” she said.
Bank of the West is California’s fifth-largest bank.
“The jumbo market is starting to come back from the private-investor
standpoint, so as we see a return of the private investor, it will be less critical
for Fannie Mae to fill the gap,” Mayfield said. “A lot of banks, and we’re
certainly one of them, are going back into the jumbo arena.” n
COMMERCIAL MARKET REPORT
Ratcheting Back Risk
Hard-money lenders are pulling
in their horns.
By Doug Caldwell
T
he recession has changed the off-the-grid lending landscape,
too. Private, or “hard-money” lenders, who pushed into
commercial real estate along with everyone else in the go-go
days, are joining their more traditional lending peers in doling out
dollars: They have ratcheted up their underwriting requirements, including demands for more borrower documentation, and are reducing
loan-to-value ratios.
The changes stem from the familiar litany seen in other lending
arenas: The property bust and economic collapse caused widespread
borrower defaults and assets that offered insufficient collateral. The
ranks of private lenders, many of whom also suffered steep losses, have
thinned, especially among those who financed land and development
deals, remaining lenders say.
That history is not keeping other investors from diving in, however.
A California real estate attorney who specializes in helping private
lenders set up shop says he sees three or four clients a week who are
exploring a venture. Moreover, lenders left standing say they are finding
plenty of attractive borrowers, thanks to less competition from peers
and the stiffening of financial regulations that have put a cork in
traditional bank lending.
“It’s a great time to be a hard-money lender,” says Jon Freeman,
president of Stonecrest Financial, a San Jose-based private-money
lender and real estate investor nationwide. “We are loaning on today’s
values, what many people think is near-bottom, and we are able to
loan to higher-quality borrowers.”
Many hard-money loans right now are made to pay off maturing
bank loans secured by smaller commercial properties. The loans feature
a balloon payment at the end of their terms, which forces borrowers to
come up with lots of cash. “Even if the borrower is perfectly paying
and has tons of income coming out of the building,” banks are unwilling
to extend the loans, Freeman says.
10 theregistrysf.com
M A R C H 201 1
Private lenders raise funds from individuals seeking higher returns
on savings than they can get from bonds or certificates of deposit and
who often don’t want to invest in stock markets. Financial planners
trying to diversify clients’ assets also turn to private lenders as do
companies with extra cash.
The genesis of the term “hard money” is not entirely clear, says
Tom Pool, a spokesman for the California Department of Real Estate.
One interpretation is that it is a reference to the steeper interest rates
charged on the loans, traditionally extended to borrowers with lessthen-stellar credit histories or against properties that are somehow
flawed or out-of-the-ordinary.
In underwriting, hard-money lenders haven’t emphasized properties’ income-generating attributes or borrower credit scores but rather
the equity in the property itself. “Hard loans are very risky,” says Bill
Herrin, an economics professor at the University of the Pacific in
Stockton and an expert in urban economics. If the value of the real
estate drops to less than the outstanding loan amount, typically there
is no lender recourse other than seizing the collateral.
Traditionally, the industry has focused on residential mortgage
loans to investors looking to buy a home, improve it, then sell or rent
it. During the go-go days, when the residential field became crowded,
some hard-money lenders migrated to commercial property loans,
including land loans and construction loans.
Timothy Bricker, executive director of the newly formed American
Association of Private Lenders in Washington, D.C., says the industry
manages billions of dollars in assets and is well-established in California but is fragmented nationally. A part of the impetus behind the
association’s founding in 2009 was to gather data on the industry’s
size, a continuing process, and to increase professionalism. “Private
lending has been around forever but never recognized as a true industry,
which is why there are no statistics,” he says. “The reason we started
the association is to change the industry’s image and to bring together
people who do private lending, so they can embrace a code of ethics
and learn best practices from other lenders.”
The hard-money industry in California has three regulators, the
Department of Real Estate, the Department of Corporations and
the federal Securities and Exchange Commission. The DRE watches
funds secured by real estate with a single investor up to no more than
10 investors. The Department of Corporations steps in when there are
more than 10 investors on a single loan. Those loans need a prospectus
detailing the investment and risks involved. The SEC takes over when
a fund steps across a state line, either with investors or loans.
State law has “suitability standards” for these funds requiring investors not place more than 10 percent of their income or net worth in a
single investment. The state has alleged some recent industry failures
that this detail was overlooked, either by the fund, the investor or both.
“The most difficult arrangement for hard-money lenders is that
they raise money from investors and to do so properly, according to
the law, they get a securities permit from us,” says Mark Leyes, a Department of Corporations spokesman. “But then, most of them wind
up lending the money through a Department of Real Estate license.”
That way, the real estate-secured loans are exempt from state usury
limits, allowing for investors to make returns of 10 percent or more.
A number of major hard-money funds have gone under during the
recession. Monterey’s Cedar Funding LLC, which declared bankruptcy
“Three, four, five years ago,
you could probably get a
hard-money loan for 70, 75,
maybe even 80 percent of
the value of a commercial
property. Today, you’re
probably at 50 percent.”
Chris Goulart, All California Lending
in 2008, was one of the most notable. A majority of the loans in its
portfolio were second, third or fourth deeds of trust. A number of the
loans were foreclosed by senior lenders, which left Cedar sitting in a
back row when it came time for payout. And some of its ventures were
hefty, such as a $17 million loan on a property in Lake Elizabeth, a golf
resort and a recreational-vehicle park in Southern California. In 2006
Cedar claimed assets of $45 million. In filing for bankruptcy two years
later, it claimed liabilities of $100 million to $500 million.
Pool, the spokesman for the California Department of Real Estate,
says Cedar investors thought their loans were in senior or first-lien
positions, at the head of the line in case of default.
Hard-money lenders can provide a valuable source of funds for
borrowers. The association’s Bricker notes that his membership satisfies a niche that banks are unwilling or unable to fill.
That said, there is no question that underwriting even among
these more risk-tolerant lenders is tightening. “Three, four, five
years ago, you could probably get a hard-money loan for 70, 75,
maybe even 80 percent of the value of a commercial property,” says
Chris Goulart, a Brentwood-based agent for All California Lending,
which is one of the state’s larger hard-money lenders. “Today, you’re
probably at 50 percent.”
From income confirmation to credit checks to a fresh appraisal of the property, “There is a lot more documentation that goes
into hard-money lending than there used to be,” says Stonecrest
Financial’s Freeman.
Hard-money lenders that have survived seem to have plenty of
money to lend because there are still plenty of people who want the
higher returns the loans can offer, says Anthony Geraci, a director
and founder of the American Association of Private Lenders and
the managing partner of Geraci Law Firm in Irvine. Indeed, the industry is attracting entrepreneurs, primarily to serve commercial
real estate borrowers and flippers who buy foreclosed homes, fix
them, then resell them in short order, Geraci says.
Despite the problems, Freeman sees a strong future for hardmoney lenders. “There’s always somebody out there needing money
that either doesn’t have the capacity at the banks or doesn’t have the
time to get a loan from the banks,” he says. n
HOT LOT | SAN FRANCISCO
Room for Imagination
New Exploratorium could revitalize
underused stretch of waterfront.
By Michael Fitzhugh
Marc L’Italien, principal architect,
EHDD Architecture
12 theregistrysf.com
M A R C H 201 1
L
ong after the America’s Cup has come and gone, the new home of
San Francisco’s Exploratorium will be drawing crowds to the city’s
northeast waterfront. The museum’s $218 million construction and
move from the Palace of Fine Arts to piers 15 and 17 comes with a mission not
just to educate and enlighten the public, but to reinvigorate the long-dormant
stretch between the wildly successful Ferry Plaza to the south and the waterfront
tourist standby, Pier 39, to the northwest.
“We end up becoming the anchor in the middle that I think will really traffic
and populate the space from the Ferry Building all the way up,” said Dennis Bartels,
executive director of the museum. “The city is finally rediscovering its waterfront.”
The museum has been looking for room to grow for years. It considered a
site at The Embarcadero and Bay Street in 2004. But the fit wasn’t right, Bartels
said. When officials at the Port of San Francisco suggested the Exploratorium
search team check out the piers, it was love at first sight. “The reaction was all
the same,” Bartels said. “This is it!”
Working with a tangle of public agencies, all responsible for the various
aspects of waterfront development, the museum and San Francisco’s EHDD
Architecture came up with a plan. They hope that the 230,000 square-foot indoor and outdoor complex becomes a truly inviting and buzzworthy social hub.
Even before the project opens, it is expected to have a positive impact on
the northeast waterfront. Consultancy BAE Urban Economics anticipates that
construction on the piers will engage 900 workers both directly and indirectly
during the estimated two years of construction. The group anticipates a $300
million short-term regional gain during building, a $28 million increase in
long-term annual economic impact and $1.4 million annually in net new total
tax revenue for the city and state.
Ultimately, Bartels hopes that the project helps create sufficient demand
to drive an even more robust public transportation system on the waterfront,
with as much as five times the current number of MUNI trains running along
the Embarcadero. While the new location is already at a transit hub, more
transit service should improve accessibility and enhance the museum’s educational impact on teachers, kids and the community, Bartels said.
The museum focuses on science, art and human perception and uses its
$35.5 million annual budget to offer professional development to 400 teachers
top and bottom rendering courtesy of E H D D A rch i t e ct u r e ; middle photo by C had Z i e m e nd o rf
“This site has
been one of
the biggest
inspirations in this
whole process.
What a gift!”
P hoto by C had Z i e m e nd o rf
each year and to host an ever-growing list of original, interactive exhibits, displays
and artworks intended to nurture human curiosity.
At its current location, 544,000 people a year visit the Exploratorium, with
about 61 percent of those visitors hailing from the Bay Area. Nearly 19 million
people pass the Exploratorium’s future home each year, Bartels estimates, based
on visitor counts to Fisherman’s Wharf and the Ferry Building. The museum
plans to draw in as many of those passersby as possible—an estimated 800,000
paying visitors a year.
Development along the Embarcadero has been a boon for San Francisco
over the past decade. Businesses along the Embarcadero have increased their
sales over 6.9 times since 1995 and more than doubled their share of city sales tax
payments during that time, according to data from Ted Egan, chief economist in
San Francisco’s Office of Economic Analysis.
With more than 8,000 square feet of income-generating space, including
a bayside restaurant and café, as well as a publicly accessible Exploratorium
store, the new museum will certainly add to that.
Marc L’Italien, EHDD’s principal architect for the project, says he anticipates
a hum of activity from the project driven by revitalization, in much the same
sense as that which has occurred at the Ferry Building. “It was always there,
but it took someone to come in and have a vision for how it could be transformed,” said L’Italien. “It just had to be looked at in at different way, and look
what it has become.”
His plans for the new museum include an interior area inviting the public
to view part of the museum without buying a ticket as well as a glass-enclosed
observatory at the end of Pier 15, an outdoor terrace, and public-access areas
that should create a permeable, accessible space to invite the public in and create
a node of activity.
An additional attraction to the site could be its green credentials. The
Exploratorium’s goal is to be a LEED Gold, net-zero-energy facility, possibly
the largest net-zero-energy museum of its size in the world. The museum will
run a 1.4-megawatt photovoltaic system on the roof to meet 100 percent of
its electricity needs. It also plans to leverage its location by pumping bay water through a maze of pipes under its poured concrete floor to cool or heat
its interior.
The project will be built in two phases, with Pier 17, the third-oldest
pier on the San Francisco waterfront, slated for development in the second
phase. At about 110,000 square feet, it will provide 2.5 additional acres for
future expansion.
“There’s a lot of potential,” says L’Italien. “This site has been one of the biggest inspirations in this whole process.”
“What a gift!” he said. n
FINANCE
Mind the Fundamentals
This is a football!
By Peter Ingersoll
V
ince Lombardi, the legendary Green Bay
Packers coach, began every summer
training camp by saying to veterans and
rookies alike: “This is a football!” Lombardi was big
on training fundamentals, and you can’t get much
more fundamental than peering at the pigskin. Commercial real estate practitioners often get caught up
analyzing the leveraged, after-tax internal rate of
return, comparing CAM charges per square foot,
or dissecting the demographics of a neighborhood
and the credit-worthiness of any particular tenant.
While this analysis is important, it is easy to forget
that fundamentally real estate acts like a corporate
bond—if interest rates go up, values goes down.
Imagine Lombardi in a board room full of top
real estate executives holding up an architect’s model
of an office building saying: “Gentleman, this is a
bond. Now get in your three-point stance and give
me ten 40-yard sprints!” Kind of like recess during
grade school—only with a higher risk of heart attacks!
The counterpoint, of course, is: “That is not true!
Value-add expertise dramatically increases occupancy
and net operating income.”
slightly higher than 4 percent. The core commercial
real estate market (trophy assets being the domain
of cash-flush REITs) is having trouble getting deals
done below an 8 percent cap rate, which makes sense.
A 4 percent spread over a 3.5 percent Treasury translates into a capitalization rate of 7.5 percent. Add a
pinch of safety to the spread to soothe the frayed
nerves of real estate investors and voilà—a price
ceiling tied to historic spreads. Perhaps the market
has innate intelligence after all!
A banker friend of mine is convinced that the Federal Reserve will continue to do everything it can to
drive long-term interest rates lower, and well the central
bankers may. This does not mean, however, that the Fed
can control the appetite of bondholders who will move
their money faster than you can say the word “arbitrage.”
Bond traders are a lucky bunch; oceans of liquidity and mountains of transparent data upon which
to make informed trade decisions. They don’t care
if interest rates in any sector or country are going
up or down, only that they can get a jump on the
market moves and ride the wave to the beach to
paddle out for the next wave. If a bond trader sees a
Buying properties today believing that the markets
have returned to normal is a one-way ticket
to disappointment.
Successful value-added repositioning of real estate
does indeed dramatically increase income, but even
these projects will attain a stabilized occupancy and be
subject to interest-rate risk. The trick with value-added
projects is to sell them at the apex of the increasing income curve and move on to the next project. However,
this business model is more akin to development than
pure investing, so we are back to the characteristics of
a bond, where rates go up, and values go down.
All of us who have been in commercial real estate
more than a decade can vividly remember the havoc
high interest rates wrought on the ability to transact
deals. We all also remember that the historical average
of the 10-year Treasury for the last 30 years is 7.11 percent and 6.82 percent since 1962. In the last 20 years
the average has been 5.45 percent—pretty darn cheap.
But sooner or later this metric will revert to the mean,
and we are likely to find ourselves ecstatic having the
10-year Treasury being a touch under 6 percent.
Additionally, the historic spread between cap
rates and the 10-year Treasury has been restored to
36 theregistrysf.com
march 2 0 1 1
trend, he or she can place a bet with a few deft keystrokes, print the trade confirmation and go enjoy
lunch. Real estate practitioners aren’t so lucky. The
time measurement between the decision to sell and
actually getting a check is measured by geologists
with carbon-dating technology. If an investor owns an
acquisition acquired at an 8 percent capitalization rate,
and interest rates begin to move up, the moment to
make the sell decision has long passed.
Going long on commercial real estate by acquiring
at today’s capitalization rates is a bet that interest
rates will stay flat and that the economy (or at least
the rent roll of the asset) will grow. Few are predicting
that interest rates will fall and even if rates fall, only
incremental movements in the 20 basis-point to 30
basis-point range are realistic. This is a bet with only
two outcomes. Status quo or worlds of woe!
Apologies in advance for being redundant, but
stabilized income-producing commercial real estate
is a bond. Buying properties today believing that the
markets have returned to normal is a one-way ticket
to disappointment. Whether you call this market
distressed, turbulent, volatile or insane, the only way
to hedge the risk of rising interest rates (other than a
fully amortizing loan) is to acquire stabilized assets
at a price that can insulate the investor from interest
rates reverting to the historical average.
The arithmetic on this calculation is worth a mention. Should interest rates rise to their historic average
and cap rates follow and settle into their historic average of 9.5 percent, an owner with a property acquired
at an 8 percent capitalization rate would experience
a 15 percent decrease in value should the market reprice the property at a 9.5 percent capitalization rate.
This decrease in value can, of course, be offset by
an increase in income, but it’s not a symmetrical increase. Holding vacancy and operating expense percentages constant means that gross potential income
must grow 19 percent to support growth of effective income to offset the drop in value of 15 percent.
Does anyone believe in this market that rents can grow
roughly 20 percent in the next three to five years? If you
do, then this level of rent growth will offset the potential
decline in asset value and bring you even with your acquisition value—an outcome likely to cause most investors to whimper with fatigue and yearn for cash.
If you don’t believe this rate of rent growth is in
the cards, you can be comforted by the fact that many
other investors are sitting on the sidelines with you
waiting for the bid-ask spread to narrow towards the
bid, so that the significant risk of rising interest rates
can be offset by a lower acquisition basis.
Coach Lombardi was a huge proponent of teamwork. “Individual commitment to a group effort—
that is what makes a team work, a company work,
a society work, a civilization work,” he said. Is the
Federal Reserve on the same team with commercial
real estate practitioners? The answer, for the moment, is probably ‘yes,’ because low interest rates are
causing commercial property prices to reflate, which
helps banks rebuild their balance sheets. As soon as
this task is accomplished, however, expect star quarterback Teddy “10-Year” T-Bill to become eligible to
become a free agent and to seek what all free agents
seek: the highest price. In this case, that is the cost of
interest to service Teddy’s lavish lifestyle. It is as fundamental to monetary policy as blocking and tackling
are to football. n
Peter Ingersoll can be reached at
peter@safeharbourequity.com.
retail
Let Us Now Praise
Famous Architects
And let us remind not-so-famous developers
to seek business counsel elsewhere.
By John McNellis
“Warning:
A design
professional is
like a loaded
.45—take
lessons before
employing.”
38 theregistrysf.com
march 2 0 1 1
T
he Registry is devoting this issue to design—to celebrating Northern California’s premier architects and
designers, their creations and ideas. Your correspondent endorses these richly deserved acknowledgments; without a commitment to architectural innovation and excellence,
without wide recognition of our best and brightest designers,
our world might easily resemble the outskirts of Moscow, that
endless, post-apocalyptic forest of gray, pitted concrete.
Also, let’s face it, architects are always the coolest guys
in the room—everybody likes them. They know the latest
vacation spot (usually some islet in the Indian Ocean).
They’ve got the hippest glasses and the best quote from
the New York Review of Books; they’re well-spoken. (City
councils love them.) They’re urbane and witty, and they
have that dash of the professorial that implies intellectual
depth. And what other straight men dress so stylishly?
(The Registry recommends that design professionals read
no further; the balance of this column is technical information
intended for real estate owners, lenders and developers.)
All true, but—and here’s the tricky part writing for a magazine that absolutely dotes on design professionals—every
last one of them, especially the architects, should come with
a printed warning. Perhaps as simple as tobacco’s: “Warning:
Architects Kill.” Or more elaborately: “Warning: A design professional is like a loaded .45—take lessons before employing.”
On the one hand, the marriage of a skilled developer and a
top-flight architect may prove wondrous, often producing glorious offspring: A building, an entire project, swiftly designed
that not only fits well with its surroundings but is embraced by
its community and is profitable from the beginning.
On the other, a neophyte developer or amateur owner—
especially one with ego—will likely as not get his project finished, but the chances of turning a profit any quicker than
the Great Pyramids (4,500 years before becoming tourist
attractions) are slim.
Why? Because, like other artists, an architect is ultimately
in the business of pleasing her clients, and if a developer insists that a shopping center look like the Ponte Vecchio, the
architect will design it thus, complete with a water feature
that moats the center, guarding it from any would-be shoppers. Or if the developer made a first fortune in the nursery
business and happens to be overly fond of landscaping, an
architect will design and install a 10-foot, wrought-iron
fence around his project, thereby protecting the petunias
and everything else in the center from pesky visitors.
These two clownish—but true—examples (both from
the Central Valley) illustrate the point—if you don’t know
what you’re doing, your architect won’t save you. A recent
example: a mixed-use development with quality condominiums over ground floor retail in the north county; this
well-designed effort had a flaw so obviously fatal that both
owner and architect should have seen it on the first site
visit—it was virtually on top of a firehouse. Who would buy
a home knowingly running a risk of 3:00 a.m. wake-up calls
from careening fire trucks? Apparently, nobody. The condos
didn’t sell, and the project went back to the lender.
Yet the fault, dear Brutus, lies not in our star architects,
but in ourselves. We cannot rely on architects to tell us that
second-floor retail works as often as life is spontaneously
created. Or that shops facing 90 degrees away from their
anchor tenant’s front door are the commercial equivalent of
purgatory, just maybe a bit more dead. And we must learn
the hard way what happens when we jack up our buildable
area by penciling in too many compact parking spots.
As plausible as the existence of a real Lassie, there may
indeed be an architect out there who will go find help if you
fall down a well, but counting on either wouldn’t be prudent.
Why bring this up today? Why color this great issue
with a field report?
Why, because every year some cocky property owner
comes to visit us and the conversation goes like this:
McPartners: “You might consider hiring an experienced
developer—developing a successful shopping center only
looks easier than tic-tac-toe.”
Property owner about to acquire experience just after
he needs it: “Thanks, man, but we’ve got it covered. We
have asked around, and we’re hiring the best architect, the
number-one engineer, blah, blah, blah—we are ready to roll.
Just wanted to see if you guys would pay too much for this
fabulous development opportunity.”
OK, hotshot designers (we know you’re still reading): Do
yourselves and your inexperienced client a big favor. When
you finish spinning out your ideas for the world’s coolest
design, advise her to seek professional development expertise. She can either hire it for a small fortune or lose a large
one learning it on the job. n
Numbers
Talking About
My Generation
By Sharon Simonson
For years, Hollywood stars and Washington’s elite have bemoaned the public
scrutiny of their private lives and the enforced transparency of their actions.
For Generation Y—a.k.a. the Echo Boomers and the Millennials—life lived during
the largest expansion of telecommunications technology in history is largely
amounting to the same thing. With hundreds of Facebook “friends” watching
each Millennial’s daily moves and commenting, it is like starring in your own movie,
says Timothy Cornwell, a principal with The Concord Group in San Francisco.
The Concord Group advises developers and others in the real estate industry;
among its services are demographic and lifestyle-trend forecasting.
“For so much of this generation, what they value in themselves is what their
friends think is cool,” Cornwell says. “What is the cachet of my workplace in
terms of how my friends think about it? There is a moment when we think to
ourselves, ‘When I put the information on Facebook, am I proud?‘”
The rise of the Echo Boomers is almost certainly the most significant demographic development in a decade. It has been the subject of wide discussion
among developers, landlords and employers as its first members, born in the late
1970s, come of age. Apartment developers anticipate a flood of household unbundling as the economy improves and 20-something Millennials rent their first
pads. Home builders are watching to see if the urban lifestyle that the Millennials
now prefer will carry through to first home purchases.
Meanwhile, employers are eager to recruit the brightest, most ambitious and
educated minds among this tech-savvy crew. That competition is evident in their
location choices and in the layout and design of their corporate interiors.
Millennials have been taught from early life that their needs matter, Cornwell
says. Demands from their employers will include not just basics such as good access to public transit, nice restaurants and a workplace that respects autonomy.
“Millennials more often ask themselves, ‘Am I doing a job where I make a positive
impact on the world and a positive impact on my world?’” Cornwell says.
Composition of Labor
Millennials Entering Workforce
4,500,000
60%
4,000,000
50%
40%
3,500,000
Millenials Entering Workforce
3,000,000
Boomers Retiring
30%
20%
10%
2,500,000
20
11
20
13
20
15
20
17
20
19
20
21
20
23
20
25
20
27
20
29
by the
0%
1950
1960
Under 34
1970
35-54
1980
1990
2000
2010
55+
Over the next 20 years, based on an assumption (obviously over-broad) that
most folks enter the workplace at age 22 and leave at age 65, the Millennials
will replace Baby Boomers on a nearly one-to-one basis. This year, for instance,
3.9 million Millennials will turn 22 even as 2.9 million Baby Boomers reach age
65, according to Concord Group research. Next year, 4.04 million Millennials will
turn 22 and another 3.4 million Baby Boomers will retire, and so the story goes.
Born in 1980, Cornwell himself is an early Echo Boomer. “Gen-Yers are really
nervous about large-scale corporate machines that don’t respect your individuality,” he says. “Flexibility and cool-factor for a lot of us are the name of the game.
“If you say to a Gen-Yer, ‘Your life will be to wake up in the morning, get coffee like everyone else and then head for your cube farm,’ that is a nightmare,”
he says.
The emphasis on open floor plans, the mix of playful and more serious elements and a pulling away from the 9 a.m. to 5 p.m. structured workweek are all
workplace attributes that should appeal to his brethren, he adds. n
e
R
’s
rob
es
AR
y
t
i
l
a
ide
l
l Co
ntia
um
Natural light
Walk-in closets
Great rooms
Laundry rooms on main
level of home
Bonus storage spaces
(e.g., under staircases)
Double-pane windows
Pet-friendly buildings
Home offices
Elevators
Tankless water heaters
Double-headed showers
South-facing gardens
Bedrooms all on one floor
Master with en-suite bath
Eat-in kitchen with island
Deck off kitchen
HATE List
Useless, small “Juliet” balconies
Reverse floor plans (where public rooms
are above sleeping quarters)
Buildings with valet parking
Tandem parking
Pedestal sinks with no counter space
Homes without interior garage access
Low ceilings
Wall-to-wall carpet
School district woes
Pocket doors
Low-flow toilets
Popcorn ceilings
Rotational parking
High HOA’s
Single family homes with
no outdoor space
Electric ranges, ovens
Narrow hallways, staircases
through which furniture won’t fit
The Cinderella home
surrounded by ugly step-sisters
Poorly thought out sight lines for views
Bad placement of heating/
air conditioning ducts
march 2 0 1 1
Practicality rules.
By Rob La Eace
n
LOVE List
40 theregistrysf.com
No Parking, No Deal
I
t’s still winter, but spring is in the air. Spring—a
time for love and baseball. Put love and baseball together and you end up with a quote from
Tommy Lasorda, the vilified manager of the Dodgers.
At the last Giants game played at Candlestick
Park, Lasorda was allowed to say a few words to Giants fans. As they booed, he took the microphone. “I
finally figured it out,” he said. “You don’t hate me. You
hate yourselves because you love me!”
San Franciscans love their homes—for the most
part. With our legacy of notable architects, many reserve a special spot in their hearts for the innovative
men and women of home design. From Julia Morgan
to Willis Polk, from Bernard Maybeck to George
A. Applegarth, some of the
most brilliant minds of the
architectural world have left
a mark. Even the best intentions sometimes fail, however.
Not every design is a winner.
There are things people love
about their homes, and things
they would love to change.
I queried colleagues and
friends about “loves” and
“hates” in homes in an informal survey via the office intranet, Facebook and other,
more terrestrial locales. I’ve
noticed that with nearly all homebuyers in San Francisco over a certain age, there are three essential items
a home must have. I’ve termed them the “deal-killer
triad.” Most folks paying $500,000 and up, who have
graced our planet for 35 years or longer, simply won’t
live in a home, let alone buy it, if it does not have
parking, in-unit laundry and ample closet space. It
makes sense, too, that these amenities are deal-killers
because for the most part there is no way to remedy
their absence. Not surprisingly, perhaps 40 percent
of loves and hates relate to these three attributes.
Another popular love is pet-friendly buildings.
About one in four San Francisco households has a dog.
Throw cats (not recommended at the same time) into
the mix, and it’s easy to see how the demand arises.
Also increasing in demand are elevator buildings. As
the first of the Baby Boomers retire, our aging society
will require more housing friendly to those who cannot (or do not) want to grapple with stairs.
But enough about love. Let’s look at what people
hate about homes. Perhaps one of the most interesting
qualities on the hate list is not really even a characteristic of a home at all: School-district policy that does
not guarantee children attend the school nearest their
homes. I can see how that would chap one’s parental
hide—particularly if a compelling factor in why you
chose to live where you did is the school district.
Handfuls of others say that they hold no love for
popcorn ceilings, kitchens closed off to the dining
area and wall-to-wall carpeting. Well, I guess not everyone
wants to feel he lives on the set
of “Charlie’s Angels!”
And what of the architects
who don’t seem to consider
how the home they are designing will actually be used? My
condo building is a great example. The wall heater-ducts
are in precisely the location
where people will place their
couch. Hmmm, thought the
architect, where should I put
this mechanism that spews
high amounts of heat and reaches temperatures
guaranteed to ignite common household combustibles? Oh I know, by gum! It shall go where the couch
will be!
It’s fun to jest, but there are lessons behind even
a casual survey of homeowners and homebuyers. As
industry professionals, our goal is to give our clients
what they want. And the only way to learn is by asking. It is also our job to pay attention to what sells
and, also, to what does not. Understanding both allows us to increase our value. And isn’t that what it’s
all about? Now, play ball! n
Most folks paying
$500,000 and up
simply won’t live in a
home, let alone buy
it, if it does not have
parking, in-unit
laundry and ample
closet space.
Rob La Eace can be reached at 415.290.7228 or
rob@roblaeace.com.
Real
S C E N E
O F
T H E
S E E N
Right (front row l-r, then back row l-r):
Lisa Bottom (Gensler); Karen Kelly (Trimm Way);
Ali Burger (Skyline Construction); Nancy Michaels
(Skyline Construction); Heidi James (Embarcadero
YMCA); Grace Reddy (Embarcadero YMCA) &
Leina Zimmerman (Skyline Construction)
Below (l-r):
Chetta Sinclair (Cushman & Wakefield); Nancy Graham
(Knoll); Vivian Hsiao (Gensler) & Kim Dale (Gensler)
red kick-off event
The Real Estate Divas of the Bay Area (RED) kicked off the
year with its first event co-sponsored by Skyline Construction
and Gensler at the Embarcadero YMCA in San Francisco.
Seventy influential women in real estate gathered to hear
nutritionist Karen Kelly provide tips on health and fitness for
the new year, while mixing and mingling with industry peers.
RED raised $1,500 for the Embarcadero YMCA in a charity
raffle which will support its many programs including Youth
Chance High School and after-school programs for underprivileged children.
Left (l-r):
Valerie Lagueux (Packlick Lagueux); Anneli Collins
(CRI) & Nancy McEvers Anderson (Interior Architects)
Above (l-r):
Michelle Lagos
(FME architecture);
Amy Gottlieb
(Delta Dental) &
Jeanne Pytel (Sony)
Above left (l-r):
Laurie Johnson (Hooks A S D)
and Cindy Ogle (Sidemark)
42 theregistrysf.com
march 2 0 1 1
P hotos by S t u art L o ckl e ar P h o t o graphy
Left (l-r):
Shannon Dolan
(Cornish & Carey
Newmark Knight Frank);
Sandy Heistand
(Advent Software) &
Karen Kelly
(Trimm Way)
03Calendar
january february march april may june july august september october november december
1
CREW Silicon Valley will host a walking tour
of San Pedro Square Market starting at 11:30
a.m. at the Theatre on San Pedro Square, 29
North San Pedro St., San Jose. Members $30 and
non-members $80. Visit www.crewsv.org for
more information.
ULI San Francisco will host a brown bag luncheon
called Chinese Real Estate Investment in the Bay
Area from 12 p.m. – 1:15 p.m. at CB Richard Ellis,
101 California St., 44th Floor, San Francisco. Visit
www.ulisf.org for more information.
2
IIDA Northern California Chapter will host
the 2011 Honor Awards starting at 6 p.m. at
Fox Theater, 1807 Telegraph Ave., Oakland.
Members $85 and non-members $185. Visit
www.iida-nc.org for more information.
3
BOMA Silicon Valley will host a membership
luncheon called Creating an Expanded and
Green Airport to Better Serve Silicon Valley
from 11:30 a.m. – 1:30 p.m. at Crowne Plaza, 282
Almaden Blvd., San Jose. Members $50 and
non-members $75. Visit www.boma-sv.org for
more information.
Appraisal Institute Northern California Chapter
will host a North Bay Branch Chapter Workshop
and Networking at Petaluma Community
Center, Petaluma. Visit www.norcal-ai.org for
more information.
SPUR will host an event called Debates Worth
Having: The Future of Redevelopment starting at
5:30 p.m. at 654 Mission St., San Francisco.
Members $0 and non-members $5. Visit
www.spur.org for more information.
4
BOMA Silicon Valley will host a Facilities
Planning and Project Management course
from 8:30 a.m. – 4:30 p.m. at 63 Metro
Drive, San Jose. Members $695 and nonmembers $900. Visit www.boma-sv.org for more
information.
USGBC Northern California Chapter will host
a LEED Green Associate Exam Prep workshop
from 8:30 a.m. – 5 p.m. at Wendel, Rosen, Black
& Dean, LLP, 1111 Broadway, 19th Floor Conference
Center, Oakland. Contact info@usgbc-ncc.org for
more information.
8
USGBC Northern California Chapter will
host an event called CAL Green, LEED and
You from 5:30 p.m. – 8 p.m. at Oshman
Family Jewish Community Center, 3921 Fabian
Way, Albert & Janet Schultz Cultural Arts Hall,
Bldg. F, Palo Alto. Members $15 and
non-members $30. Contact Monica at
funstonm@hdcco.com for more information.
9
10
IFMA Silicon Valley Branch will host a
luncheon called Driving Radical Change
from 11:30 a.m. – 1 p.m. Visit www.ifmasv.org
for more information.
USGBC Northern California Chapter will
host the Sustainable San Mateo County
and Green Building Awards from 5:30
p.m. – 9 p.m. at South San Francisco Conference
Center, 255 S. Airport Blvd., South San Francisco.
Contact Adrienne at Adrienne@sustainablesanmateo.org for more information.
BOMA San Francisco will host a seminar called
The Art of Due Diligence: What Every Real Estate
Manager Needs to Know to be Invaluable from
8:30 a.m. – 10:30 a.m. at SFSU Downtown Center,
835 Market Street, Room 609, San Francisco.
Members $85 and non-members $105. Visit
www.bomasf.org for more information.
BOMA Oakland/East Bay will host a luncheon at
Nathan Renaissance Clubsport in Walnut Creek.
Visit www.bomaoeb.org for more information.
11
ULI San Francisco will host a South Bay
Panel: Who Wants to Build a House? from
7:30 a.m. – 10 a.m. at Rosewood Sand Hill
Hotel, 2825 Sandhill Rd., Menlo Park. Visit
www.ulisf.org for more information.
16
17
NAIOP Silicon Valley Chapter will host a
Capital Markets Panel breakfast starting
at 7:30 a.m. at Stanford Faculty Club.
Visit www.naiopsv.org for more information.
CREW East Bay will be hosting an event
called The Commercial Real Estate
Tsunami Has Hit… Here’s How to Survive
It by Tony Wood from 11:30 a.m. – 1:30 p.m. at
Vic Stewart’s in Walnut Creek. Visit
www.eastbaycrew.org for more information.
CoreNet Northern California Chapter will host a
chapter meeting. Visit www.corenetglobal.org for
more information.
Appraisal Institute Northern California Chapter
will host a workshop, chapter meeting and
networking social in Pleasanton. Visit
www.norcal-ai.org for more information.
17-18
CCIM Northern California
Chapter will host a class
called Introduction to
Commercial Real Estate in San Jose from 8 a.m. –
5:30 p.m. at Santa Clara County Assn. of Realtors,
1651 N. First St., San Jose. Ticket price is $395.
Call 866.588.CCIM for more information.
21
SPUR will host the 2011 Good
Government Awards starting at 5:30 p.m.
at North Light Court, San Francisco City
Hall. Ticket price is $75. Contact events@spur.org
for more information.
21–24
Appraisal Institute
Northern California
Chapter will host a Basic
Appraisal Principles course at University of
Phoenix, Oakland. Visit www.norcal-ai.org for
more information
22
USGBC Northern California Chapter
will host the 8th Annual Water
Conservation Showcase from 10:30
a.m. – 7 p.m. at PG&E Center, 852 Howard St.,
San Francisco. Visit www.usgbc-ncc.org for
more information.
23
IFMA Silicon Valley Branch will host
an event called Bio-Mimicry: Designing
Cities and Buildings to Mimic Nature
from 5 p.m. – 8 p.m. Visit www.ifmasv.org for
more information.
28
Appraisal Institute Northern California
Chapter will host the Annual Spring
Conference at Doubletree Hotel
in Modesto. Visit www.norcal-ai.org for
more information.
29
Appraisal Institute Northern California
Chapter will host an event in which
the Fresno area appraisers will gather
at Fort Washington Country Club in Fresno. For
more information call 559.433.9257.
30
IFMA Silicon Valley Branch will host
an event called Vendor Fair – Recipe
for Success and Iron Chef Challenge
from 5 p.m. – 8 p.m. Visit www.ifmasv.org for
more information.
31
USGBC Northern California Chapter will
host a workshop called Part Two:
Investment Analysis of Green Buildings
from 9 a.m. – 4:30 p.m. at Hanson Bridgett, LLP,
425 Market St., 26th Floor, San Francisco.
Members $355 and non-members $445. Visit
www.usgbc-ncc.org for more information.
FINAL OFFER
Listening for the
Echo Boom
❯
By Sharon Simonson
Constance B. Moore
president, chief executive officer and director
BRE Properties Inc.
Though headquartered in the region and celebrating its 40th
anniversary, San Francisco apartment owner BRE Properties Inc. has
historically had no presence south of Menlo Park. That is changing. The
company is buying and building large communities in Sunnyvale, San
Jose and Santa Clara. A long-planned development at the Walnut Creek
BART station also is progressing. As its chief executive officer, Connie
Moore told financial analysts on the company’s year-end 2010 conference call, “It is time for BRE to grow, and 2010 was a very good start.”
Moore has led the real estate investment trust since 2005. Last year, it
reported funds from operations of nearly $100 million, down from $121
million in 2009. BRE directly owns more than 21,300 apartments and
shares ownership for another 4,080. Its portfolio is already Californiacentric, but the company is driving toward greater concentration in the
coastal, metropolitan regions: the Bay Area, San Diego, Los Angeles
and Orange County, as well as Seattle. It is moving out of the Inland
Empire, Sacramento and points further east.
Moore’s father was a South Bay home builder in the 1960s and ’70s,
though Moore says that formative environment did not influence her
decision to become a property maven. Rather, the 55-year-old notes
that she was encouraged to go to college to gain a certain polish and
nab a mate. Instead, she studied business at San Jose State and got a
job at BankAmerica Realty Investors, now BRE. She later attended
Cal-Berkeley, where she earned her master’s degree.
This year, Moore will be recognized by the City of Hope with its top
philanthropic honor, the Spirit of Life Award, on May 5 at the Palace
Hotel in San Francisco. The City of Hope is recognized by the National
Cancer Institute as a national Cancer Center. Cancer Centers receive
federal funding as the preeminent national organizations integrating
patient care and research into treatment, prevention and discovery.
How did you wind up in real estate?
CM ❯ I was a very nerdy business major at San Jose State University
and was hired by a savings and loan at First and San Carlos streets
in downtown San Jose. I worked and went to school. One of my
professors at San Jose State said, ‘There is a REIT in San Francisco.
You should go interview for this analyst position,’ and I got that job.
BRE was my first job out of college, and I was there for six years.
From there, I went to work for a real estate syndicator in Emeryville.
What it is like being a woman in a male-dominated industry?
CM ❯ I have worked with and for men for many years. I guess the
highest compliment I ever got was, ‘You know, Connie, you are just a
regular guy.’ I have never used being a female to get anywhere. If you
are smart and do your job and do what you say you are going to do,
eventually it doesn’t matter.
Who have been your mentors?
CM ❯ There were early ones at BRE who helped me think about
investing in ways I never had. The guy I reported to was Stan Mattison.
He told me, ‘Never rest on your laurels. You get kudos along the way,
but you are always looked at for what you are going to do, not for
what you have done.’ My husband has been in real estate. He was an
operator by trade and understands process and people and discipline.
Particularly in multifamily, this is a game of inches. We are looking for
46 theregistrysf.com
march 2 0 1 1
CONSTANCE B. MOORE
nickels and pennies, so understanding people and process is
very important.
There are great expectations about multifamily performance in the
next several years. What is behind all of the lather?
CM ❯ We have 78 million Echo Boomers entering their prime renting
years. They may have delayed their decisions to create a household,
but as the economy has improved, that has changed. We [at BRE] saw
it in April 2010. Something turned for us in Silicon Valley. We had no
one-bedrooms or studios available in our portfolio. For the next
several years, millions of kids are coming into their prime renting
years, year in and year out, and we are not building enough housing
for them. Building starts are picking up, but anyone with an apartment
portfolio for the next three to five years should be pretty happy.
What if housing prices continue to fall and the migration to
apartments is not as pronounced as expected?
CM ❯ The percent of people in California who own their homes has
been plus or minus 55 percent since 1950. It peaked at about 57
percent during the bubble. Some people have discussed the huge
benefit for multifamily nationally as the home ownership rate moves
down. That is not what is driving our decision to be a multifamily
owner in the Bay Area. Our population continues to grow. We have
large numbers of immigrants, and generally the first generation are
renters. The psychology of owning a home for young people is
changing; the benefits of homeownership are not what they once
were. I heard a quote from a young man recently, ‘Old people think
renting is throwing your money away. I think owning is throwing your
freedom away.’
Are you concerned that there is too much enthusiasm?
CM ❯ I was at a national meeting recently and to say that all of the
apartment people were giddy is an understatement. It is never as
good as you think it is or as bad.
What are your expectations for the future of Fannie and Freddie?
CM ❯ It is the $64 million question. Everyone is trying to figure out
what to do. They have been big lenders to the multifamily industry
and propped up housing. When you talk to people on Capitol Hill,
some don’t know that the GSEs (government sponsored enterprises)
lend to multifamily and that it is a very profitable part of their businesses. Fannie and Freddie were created to keep mortgage [interest]
rates low and extend home ownership. They are now financing a huge
percentage of our housing. We can’t derail the housing market, so it
comes down to how we as a country want to think about it. For us
and most public companies, we are not dependent on them. But for
the multifamily industry as a whole, it creates liquidity and there are
huge benefits for keeping some component of their business.
Talk about your cross-town rival Essex Property Trust Inc.
CM ❯ We are more heavy in Southern California, but our footprints are
very similar. Essex has done an excellent job. Keith Guericke, (former
president and chief executive officer), who has just retired, has
rewarded his shareholders well. Mike (Michael Schall, president and
chief executive) and I have lunch every six months. We are healthy
competitors. We watch each other’s same-store sales very carefully.
We compete for capital, but there is plenty of room for both of us.
Why are you supporting City of Hope?
CM ❯ To the extent that I can shine a bit of light on an organization
that is doing amazing work in cancer research and it helps humanity,
it is a good thing. If somehow, my supporting it helps people to focus
on something they hadn’t thought about, I am glad to do that. n