Posted: Oct 5, 2007, 3:23 PM
Join Date: Jun 2006
Location: San Francisco & Tucson
Mission Bay: Broad-based "Intellectual Center"
Alexandria shifts gears at Mission Bay
San Francisco Business Times - by J.K. Dineen
In a shift with profound implications for San Francisco's Mission Bay, Alexandria Real Estate Equities will broaden the marketing of its 2.7 million-square-foot campus to target traditional technology firms in addition to life science tenants, the company said.
While the rapidly developing neighborhood has long been conceived of as a biotechnology cluster built around University of California, San Francisco's new Mission Bay campus, Alexandria Executive Vice President Steve Richardson said it has become increasingly clear that the area would also appeal to Silicon Valley firms looking for a city presence.
He also sees Mission Bay as natural fit for clean energy and Web 2.0 start-ups that have driven much of San Francisco's ongoing commercial real estate boom.
Richardson pointed to Silicon Valley heavyweights like Google, which took 210,000 square feet in San Francisco earlier this year. Cisco recently signed a lease at Mission Bay's China Basin. Microsoft, Yahoo and Autodesk are also growing in the city.
"There is no doubt that Silicon Valley is coming to San Francisco," said Richardson. "We're really looking at Mission Bay more broadly as an intellectual center."
As part of the new strategy, Alexandria, a real estate investment trust, has hired a team of eight life-science and high-tech specialists from both Cornish & Carey's dominant Silicon Valley offices and GVA Kidder Mathew's San Francisco operation, which has been the most active leasing firm in Mission Bay. The unusual double-brokerage combo will allow Alexandria to pursue the biggest tenants in both life-science and technology, said Richardson.
"It will be two halves of the whole coming together in a powerful way," he said.
The former Alexandria Center for Life Sciences will be renamed the Alexandria Center for Science and Technology at Mission Bay.
While there are a handful of tech tenants scattered across Alexandria's 12 million square foot national portfolio, this marks the first time the biotech heavyweight has actively courted them.
Still bullish on biotech
Richardson said the decision to change Alexandria's approach to Mission Bay does not reflect a dissatisfaction with life science demand in Mission Bay. The speculative 1700 Owens St., completed in November 2006, was largely leased six months after completion. It houses Merck-owned Sirna Therapeutics, Pharmion Corp. and three top life science venture capital groups.
"We're right on track where we wanted to be," said Richardson.
Alexandria has no plans to slow its aggressive building schedule, Richardson said. The firm has just completed driving piles on the next speculative building, the 165,000-square-foot 1500 Owens St., which is slated for completion in late 2008. Alexandria has begun pre-development pile testing on Parcel 26, a lot along Third Street that will eventually be home to a pair of interlocked 105,000-square-foot buildings and a 200,000-square-foot tower.
The next wave of buildings --1500 Owens and the Parcel 26 structures -- will be constructed with a "robust, Class A shell" adaptable to either heavy life science research or the sort of open, high-ceiling creative space technology firms are drawn to. Rather than have certain areas designated as life science and others as tech, the developer will allow the market to dictate uses.
"I think a good, solid share will be tech and a good solid share will be life sciences as well," he said.
Jesse Blout, Mayor Gavin Newsom's director of Workforce and Economic Development, said the Mission Bay zoning is highly flexible, allowing everything from manufacturing to traditional Class A office.
He said he was not surprised that Alexandria is "hedging their bet on use."
"The biotech market is still there, but I understand the need of Alexandria to diversify its marketing effort to include the healthy demand for office space in San Francisco from the leading Silicon Valley companies."
In addition, Blout said the city is looking at allowing life science along Third Street as part of the Eastern Neighborhoods rezoning.
"People are going to realize there is more to biotech in San Francisco than Mission Bay," he said.
New competitive landscape
The decision suddenly places Alexandria smack in the middle of developers and owners looking to snag tenants from San Francisco's burgeoning Web 2.0 community as well as Silicon Valley players looking to cater to city-dwelling workers. In Mission Bay, two office projects are under development -- Lowe Enterprises' 500 Terry Francois Blvd. and McCarthy Cook's 175,000-square-foot expansion of China Basin. Both will be complete at the end of the year.
To a lesser extent, Alexandria may also compete against new downtown highrises like Tishman Speyer's 555 Mission St., Lincoln Property's 350 Bush St., and Beacon Capital Partner's 535 Mission St., all of which are more likely to appeal to traditional downtown users.
Kidder Mathews broker Skip Whitney, a Mission Bay pioneer working on the assignment with James Bennett, Tim Mason, and Janice Hennessey, said the days when downtown and SoMa brokers can dismiss Mission Bay as a specialized backwater for lab space are over.
"That is no longer the case," said Whitney. "This is a primary location."
The challenge, however, will be to sell the Mission Bay story to Silicon Valley tenants, most of whom are unaware of a burgeoning UCSF campus as well as the thousands of units of apartments and condos that are being built in the neighborhood, said Jay Phillips, who is part of Alexandria's Cornish & Carey team. That group includes Terry Haught, Jack Troedson, and Peninsula biotech specialist Randy Scott.
"People in the South Bay have a vision of Mission Bay that is years old -- they have no idea what is gong on there," said Phillips
Phillips said Cornish & Carey is tracking more than 6 million square feet of tenant demand in Silicon Valley. He said he hears increasingly from executives who feel they have tapped out the Silicon Valley talent pool and are looking to accommodate employees commuting from the city.
"You can only draw from an outlying area for so long -- eventually you have to bring the mountain to Mohammad," said Phillips.
Richardson emphasized that the repositioning also recognizes the corporate tenants' increasing focus on sustainable practices. Not only will all of the Mission Bay buildings seek the stamp of approval of the Leadership in Energy and Environmental Design's Green Building Rating System, S.F.-based employees will have the opportunity to commute on foot, bike or public transit.
Even in the suburban Peninsula and Silicon Valley markets, the amount of fully entitled space that could be constructed in Mission Bay is unusual. Given demand, Alexandria could immediately build out 2.2 million square feet in more than a dozen buildings on four separate sites ringing the UCSF campus. An additional 500,000 square feet could eventually be added along the western fringe of the neighborhood.
"There are not going to be any opportunity for large blocks of space in the South Bay -- they are going to have to look in other areas to grow," said Phillips. "I think the time has come -- San Francisco is a great market and Mission Bay is one of the only games in town. Alexandria has been very prudent to open it up."
NAI BT Commercial broker David Klein called the move "a reasonable bet." He said the quick access to Interstate 280 and the low-slung campus style development would appeal to Silicon Valley tenants.
"Mission Bay is low-density with natural light from four sides, which really allows a greater density of work stations," he said. "It really promotes cubicle farms."
With cranes jostling for space on the skyline and dirt lots still lying fallow, Haught said Mission Bay reminds him of San Jose's North First Street a decade ago.
"Now it's in the middle of the golden triangle," he said. "Look at the possibilities -- it's the biggest assignment I've worked on. You don't get 2.2 million square feet too often."
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