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Tuesday, April 10, 2012

San Francisco Commercial Real Estate: First Spec Office Building since Recession

by Calculated Risk on 4/10/2012 02:43:00 PM

From Andrew Ross at the San Francisco Chronicle: Hot 'spec' deal 1st in S.F. since recession began

It's not every day that a parking lot goes for $41 million. In cash.
Late last week, New York's Tishman Speyer Properties closed escrow on the space, which, by the end of next year will be transformed into a 10-story, 286,000-square-foot office building ...

Two distinguishing aspects of the deal: It's the first "spec development" (i.e. built from the ground up with no signed tenants) in the city since the onset of the recession in 2007, and no debt financing is involved. The land, architectural plans and construction costs - the latter estimated between $180 million and $185 million - is "funded with all equity," said [Allen Palmer, managing director at Tishman Speyer's San Francisco office].
Last week Reis reported that the office vacancy rate (major markets) declined slightly to 17.2% in Q1 from 17.3% in Q4 2011. Reis noted:
Weak supply growth remains a tailwind for improvement in the office sector. During the first quarter of 2012 only 1.917 million square feet of office space were completed [in the markets Reis tracks]. This represents the lowest quarterly level on record since Reis began tracking quarterly market data in 1999.
There has been some new construction here and there (like the PIMCO tower in Newport Beach), but very little spec building. And this building in San Francisco is being built with no financing.