Hines, Transbay Contract for Tower Site Remains Unsigned
Submitted April 20, 2010, 11:44 PM
Global office property developer and owner Hines company has yet to sign an exclusive negotiations agreement with San Francisco’s Transbay Joint Powers Authority despite being selected in September 2007 along with Pelli Clark Pelli Architects as the winning bidder for a plum redevelopment site where it promised to erect a stunning new office tower and public park.
The board for the Transbay Joint Powers Authority approved the ENA in late 2008, said Andrew Schwartz, a partner with San Francisco-based law firm Shute, Mihaly & Weinberger and counsel to the TJPA.
There are no current plans to put the property back out for bid, Schwartz said.
Hines and Pelli Clarke were selected to develop the site following a nearly year-long international design competition. As part of its proposal, Hines said it would build a 1,200-foot office tower—the tallest west of Chicago—and a five-and-a-half-acre public park which would sit atop the new Transbay Transit Center. The company has pulled back from those plans some already, saying the tower would be closer to 1,000 feet with about 1.6 million square feet rather than the original 1.7 million.
Hines is one of the most prominent office building owners in San Francisco. Its holdings include 101 California Street.
“We do realize it’s been a long time. The changes in the real estate markets have been a factor. There also have been other issues which I prefer not to go into at this time,” said Paul Paradis, a senior vice president and project manager for Hines in San Francisco.
“It is not economically feasible now to build new office space in San Francisco. Gross rents are going to have to be much higher and more tenant demand has to happen before new construction can be thought of,” Paradis said.
Gross rents for full-service central-business district Class A offices are more than $20 a square foot below the necessary threshold to support new construction, said Colin Yasukochi, research director for Jones Lang LaSalle in its San Francisco office. Full-service gross rents for central business district Class A office buildings in San Francisco are $37 per square foot now, he said. They need to be in the range of $60 a square foot to $65 a square foot to warrant new office construction assuming a multi-tenant building.
“It will most likely be two to three years before new construction would happen,” said Yasukochi. “The only exception to this would be for a build-to-suit project or a user that would want to have its own new building.”
Hines has Metropolitan Life Insurance Co. as its financial partner on the Transit Tower project.
Office vacancy in San Francisco was at 18 percent through the first quarter, according to Jones Lang. This compares to 15 percent for the same period last year.
