Urban Land - Volume 64 / Number 10
Special Section: Northern California
Bay Rebound
by Mark Hornberger, FAIA
Special Section: It is primarily housing that is driving signs of recovery in northern California.
Northern California is a sweeping territory that conjures postcard images of giant redwoods, sunny vineyards, expansive bridges, and the iconic cable car. It is also home to world-class universities, leading technology companies, a vigorous tourism industry, and a diverse mix of real estate developments. The economic heart of the region is the Bay Area, which comprises three distinct metropolitan zones: the city of San Francisco, the Peninsula, and the East Bay. The state capital, Sacramento, is another active economic center.
The NASDAQ crash of March 2000 popped the technology bubble that had fueled developments in every sector, from R&D and office to hotel rooms and single-family homes. While fallout from the dot.com debacle can still be felt throughout the entire Bay Area—the region lost roughly 10 percent of annual average employment from 2000 to 2004 and Silicon Valley’s Santa Clara County lost 20 percent, according to the Center for Continuing Study of the California Economy—distinct signs of recovery are visible in every market.
What is leading the way out of the decline differs by area, but new housing is the strongest contributor to improved markets, defying all expectations and outpacing many other metropolitan markets. At the Sedway Group, the San Francisco–based division of CB Richard Ellis Consulting, Terry Margerum and Elliot Stein, senior managing directors, and Mary Smitheram-Sheldon, managing director, note, “There are two types of projects driving development now. First is the huge wave of conversions to condominiums that includes everything from apartments to industrial buildings to offices and hotels. The second is homes, both in smaller urban infill projects and in large-scale developments of single-family houses further out from the centers.”
The demand for housing has spurred new interest in underused corporate, R&D, and industrial sites. In many instances, corporate demand for space has stagnated or the corporate user has moved to another, less valuable location, leaving acres of parking and other usable land. “Even as the market has stabilized with a slow absorption of space, uses have to change for properties to retain value,” explains Warren Sattler, senior managing director in the Palo Alto office of the national real estate firm Studley, who works with property owners to add or maximize value. “We help companies realize the value of their real estate holdings by identifying alternate uses and facilitating the reentitlement process. It is an important opportunity for companies to consider as markets evolve,” he adds.
As an example, this spring Goodwill Industries of Silicon Valley offered its 16-acre campus in San Jose for sale to a housing developer for $60 million. The competition among the area’s homebuilders for the right build has been intense, although the final sale is likely to be contingent on the city of San Jose’s willingness to rezone the property’s use from light industrial to residential. As of this writing, the final sale is still in negotiation.
According to newspaper reports, cities throughout the Santa Clara Valley have been besieged by requests to allow changes in uses as industrial values have declined and residential values and demand have soared. Municipal governments have been slow to respond; meanwhile, others, including the regional transit agencies, recognize the momentum not just for housing but also for the densification of hubs in communities along their lines. “SamTrans [San Mateo Transit], BART [Bay Area Rapid Transit], and VTA Santa Clara [Valley Transit Authority] have all sought joint ventures with developers, through ground leases or sales, to create housing on their properties at busy stations. Other transit-oriented developments near the stations are also on the rise,” says Margerum.
In spite of the challenges inherent in negotiating with multiple government agencies, including the navy, the state, the cities, and diverse stakeholder groups, the redevelopment of former military bases in the region is fertile ground not only for homebuilding, but also for the development of whole new neighborhoods. Base Realignment and Closing (BRAC) projects account for a considerable portion of the large-scale residential and mixed-use developments around the Bay Area. The region’s long history as a center for naval operations and shipbuilding has yielded some of the most intriguing opportunities for redevelopment, including the much-talked-about Letterman Digital Arts Center, the new 865,000-square-foot complex that is home to LucasFilm and its Industrial Light & Magic and LucasArts divisions on 23 acres at the Presidio, a former military base inside the city limits of San Francisco.
One of the most active developers in military base conversions is Lennar Corporation of Miami through its northern California urban development division, based in San Francisco. With projects underway at Mare Island in Vallejo and Hunter’s Point in San Francisco, Anthony Flanagan, president of the firm’s urban development division, knows what it takes to succeed on the BRAC projects. “It is a long and complicated process. It takes time to move from entitlement to implementation, working with a matrix of relationships and convincing all of them that we understand their issues,” he says. “We see the conversions as urban development. These are large properties of nearly 500 acres where the issues include variation, as opposed to a singular configuration of properties, and the synergy of uses, whether they are part of the project or adjacent to the site.”
These are increasingly important considerations, as Sandy D’Elia of San Francisco–based designers and planners EDAW notes. “People are more interested in living in defined communities than before, so the nature of residential development is changing,” she says. “For a number of reasons, developments are becoming denser, and more emphasis is placed on the community-building nature of the residential projects.”
The most successful projects include a mix of uses—residential, retail, hospitality, and cultural venues—designed to create true neighborhoods with the kind of first-rate amenities and attractions that will draw people to the development. At Mare Island, Lennar restored many of the historic buildings to preserve the character on the site, and the master plan for the Hunter’s Point Shipyard identifies four districts, each contributing in its own distinctive way to the overall success the community: Lockwood Landing, an artists’ community with a museum and restaurants along the water; a Film and Media Production District; an Industrial District with flexible land available for light industry; and the Hill Neighborhoods with views of the bay, the San Francisco skyline, and the East Bay hills.
San Francisco’s ability to attract visitors from around the world has made tourism the city’s biggest industry, and has helped lift the local economy with several new hotel developments. “The activity center of the city is shifting south,” notes John Buss, president of San Francisco–based Hampshire Development and the development manager for the InterContinental San Francisco. “In the 19th century it was Nob Hill, in the 20th century it was Union Square, today it is Yerba Buena Gardens. The operator has another San Francisco property, the Mark Hopkins on Nob Hill. But, with the expansion of the Moscone West Convention Center and cultural offerings available here, it is important for them to be in this neighborhood,” he says.
Other hotels have been moving in the area since the Marriott opened on the day of the Loma Prieta earthquake in 1989. More recently, the Four Seasons and the W Hotel have arrived, and the St. Regis is scheduled to open this November. Buss is working with the owners of the property, Continental Development of El Segundo, California, to bring the new 32-story, 543-room hotel on line in 2007. Currently, the 2.5-acre site is home to a Wells Fargo Data Center, built by Continental in 1973; the new hotel will replace the current parking lot—a redevelopment move that is emblematic of the area’s changing fortunes.
In another neighborhood, favored by tourists near Fisherman’s Wharf, sits Ghirardelli Square, one of the first successful adaptive use projects that paved the way for festival markets across the country. While the four stories of vertical retail space worked well for nearly 20 years, today the upper floors are filled with small office tenants. Retail, concentrated on the plaza level, is still thriving. However, the high cost of maintaining the building, including a seismic upgrade, necessitated a rethinking of uses.
“The most iconic parts of the building are the unreinforced brick structures that need the most work,” says Joe Nootbaaar, principal of JMA Ventures, the San Francisco–based firm that owns the National Historic Landmark property. “We needed an economic plan that was in harmony with the urban design needs of the site. By replacing the upper levels with hospitality, we will also bring new vitality to the plaza, as hotel guests use the restaurants and shops.” The proposed project would convert over 100,000 square feet of office and retail space, and preserve the historic and architectural character of the exterior to maintain a unified design identity for the entire site.
San Francisco’s historic architecture is a valuable asset, but it is critical for the development community to find compatible uses for these often fragile and seemingly inflexible buildings. As Nootbaar says of Ghirardelli Square, “It is an important piece of the urban fabric that speaks to the authenticity of the place.”
Historic renovation is also behind development activity in Oakland, with the announcement that the restoration of downtown’s landmark Fox Theater would go forward with a substantial amount of the office space in the building to be used by the Oakland School for the Arts. Other developments in the area include the University of California’s request for proposals (RFP) for a new downtown Oakland headquarters that includes speculative space and new laboratory development in west Berkeley and Emeryville.
Among the region’s incomparable assets are its miles and miles of waterfront. For years, much of the shoreline was dedicated to industrial uses; today, the surrounding cities are reclaiming the docksides for living, working, and playing, with usable open space that reconnects the city with the waterfront. “Both in San Francisco at Mission Bay, and in Oakland for the Oakland trails projects, we are working on creating waterfronts for humanely scaled, mixed-use communities, and for improved quality of life with adequate parks and waterfront access,” says D’Elia.
A surprising economic hot spot is Sacramento. “Downtown has never seen as much activity,” quips Anthony Giannoni, president of the Christofer Company, a real estate development firm based in Sacramento. “Ten years ago, the picture was very bleak. Today, downtown is the place to be, with new housing options, entertainment, and the wonderful old buildings at the core.” Downtown Sacramento’s success is a tale of hard work and changing demographics. Local government and the city’s Downtown Partnership, a private, nonprofit organization dedicated to improving the central business district, generated the economic development dollars and the political will to encourage redevelopment. The city also benefits from its rediscovery by empty nesters from the surrounding suburbs and by young professionals who wanted to live, work, and play in town.
Currently, Giannoni is developing the second phase of the Meridian Plaza Office Complex with the Allen Group of Carlsbad, California (Phase I, a 12-story, 240,000-square-foot office complex, opened in 2003). Phase II is a 300,000-square-foot mixed-use tower that includes a four-star hotel, residential units, and office space. “Meridian Plaza II really completes the eastern end of the K Street Corridor, our entertainment district. The building will connect to the convention center, and is adjacent to the community theater, restaurants, and nightlife—all within a few blocks. It’s a new way to live in Sacramento,” says Giannoni.
As the region steadily rebounds from a serious economic setback, it is important to remember, as Sattler explains, “The Bay Area is the home of venture capital, where money seeks innovation. The culture of the place is one of creation.” As a quick survey of projects around the region reveals, real estate development, too, thrives in a place that nurtures innovation and reinvention.
Mark Hornberger is principal and director of design for Hornberger + Worstell, Inc., a San Francisco–based architecture firm.