Embed Size (px)
Citation preview
Creative offiCe projeCtsAdAptive reuse generAtes stAggering returns for investors
Creative office properties generally have the common characteristics of newer workplace design: open floorplans, natural lighting, exposed interiors such as brick walls and bow truss ceilings, informal common spaces for closer collaboration, amenities such as cafes and rec rooms and increased focus on sustainability.
Although they’ve received a lot of attentionrecently, creative office conversions are not new;take for example, Chelsea Market in New York City or the Ferry Building in San Francisco, both delivered more than a decade ago with high-profile office components. What is new this cycle is the sheer volume of creative office exits nationally at core/core plus pricing.
AdAptive reuse generAtes stAggering returns for investorsMarch 2017
Creative offiCe projeCts
This is a TRANSWESTERN interactive document
One, TAMI (technology, advertising, media andinformation) sector companies and coworking operators have led the charge on office leasing and net absorption this cycle, compared to FIRE (financial services, insurance and real estate) companies a decade ago. TAMI sector companies are increasingly millennial-focused and look at differentiated office product for branding, recruiting, employee retention and perceived authenticity. And while TAMI companies have led this demand, traditional office users in the professional and business services sectors are beginning to take notice, as well.
Two, compared to the previous cycle which was primarily driven by suburban growth, office leasing and absorption has mostly returned to cities where tenants can take advantage of live/work/play environments. With the decline of manufacturing nationally, many functionally obsolete industrial properties have been targets for creative office conversion due to their urban location. That said, suburban properties have seen creative office conversions, as well, assuming the right mix of tenant demand, project cost and local business incentives exist.
Not all creative office properties adhere to a strict profile; some are single-tenant buildings, some are multi-tenant campuses and some are mixed-use projects with major retail, residential or even hotel components. Usually the composition is determined by whatever mix of uses appeals to the developer financially. No matter the mix, in many cases, the renovation/conversion of a major creative office project helps kick off increased property and business investment in the neighborhoods in which they are located and attract hundreds or thousands of high-paid workers to the area. This is the case with Twitter in San Francisco’s Market Square/Tenderloin neighborhood and Google in Chicago’s Fulton Market/River West submarket.
Based on staggering exit pricing of some major creative office projects around the country, this type of value-add strategy – on this large scale – is now being considered by many local/regional/national developers, either via direct investment or joint-venture partnerships with equity partners. Conversely, stabilized creative office properties are now on the radar of many national and international institutional buyers who are paying traditional trophy Class A pricing for these types of assets, usually based on the credit-worthiness of the tenant, as well as the location of the project.
The term “creative office” is a subset of value-add adaptive reuse which typically encompasses the conversion of a property from non-office (e.g., industrial or retail use) to office use. It has become an increasingly popular value-add strategy due to two primary drivers:
“What is new this cycle isthe sheer volume of creative
office exits nationallyat core/core plus pricing.”
LOS ANGELESPlaya Jefferson
The Reserve
The Ford Building
Columbia Square
The Press
NEW YORK
SAN FRANCISCO BAY AREA
HOUSTON
NEW JERSEY
CHICAGO
Imperial Market
Market Square
PORTLANDMeier & Frank Building
SEATTLEMaritime Building
DENVERINDUSTRY RiNo Station
888 Brannan
Uptown Station
1K Fulton
Hillshire Brands Headquarters
Bell Works
ATLANTA
BOSTONOne Lovejoy Wharf
New GE Headquarters
Innovation & Design building (IDB)
DALLASThe Brewery Building
Factory Six03
SAN ANTONIOPearl
AUSTINSeaholm Power Plant
Saint Elmo Market District
PHOENIXThe HUB
77 Flushing Ave.
Watchtower Building
Twitter NYC
Falchi Building
Atlanta Dairies
Ponce City Market
COMPLETE UNDER DEVELOPMENT
EXITS ($50M+) & PROJECTS UNDER DEVELOPMENT (100,000+ SF)
NoteWorthy Creative offiCe projeCts
NyC
Nj
La
atL
Bos
Chi
hoU
pDX
DeN
sa
DaL
aUs
sf
se
phX
MARCH 2017 3TranswesTern
AUSTIN BOSTON CHICAGO CHICAGO
seaholm power plant one Lovejoy Wharf 1K fulton hillshire Brands headquarters
800 Cesar Chavez Street Seaholm diStriCt
Size: 209,176 square feetYear built: 1950-1955Development rights awarded: 2008Original sale price: N/AYear renovated: 2015
Exit sale price: $124M, $592/sf (ground lease)Exit sale date: September 2016Buyer: Clarion PartnersSeller: Southwest Strategies and CIM Group
This decommissioned power plant was
converted to a mixed-use project, comprising
152,834 square feet of creative office and
56,342 square feet of retail/restaurant space.
Approximately 112,000 square feet is leased
to athenahealth, Inc., while the retail space is
anchored by Trader Joe’s and Under Armour.
160 N. Washington StreetNorth StatioN
Size: 232,000 square feetYear built: 1900Original sale date: December 2012Original sale price: $22.5M, $54/sfYear renovated: 2015
Exit sale price: $150M, $647/sfExit sale date: March 2016Buyer: Union Investment Real Estate GmbHSeller: The Beal Companies and The Related Companies
This former Hoffman building warehouse was
renovated to creative office and now serves as
the corporate headquarters for Converse, Inc.
1000 W. Fulton Streetriver WeSt/FultoN market
Size: 531,190 square feetYear built: 1923Original sale date: November 2012Original sale price: $12M, $27/sfYear renovated: 2015
Exit sale price: $303.6M, $572/sfExit sale date: June 2016Buyer: American Realty AdvisorsSeller: Sterling Bay Company
This former Fulton Market cold storage
warehouse was renovated to creative office
space and leased to Google for the company’s
Midwest headquarters. Other tenants include
SRAM International and Sandbox.
400 S. Jefferson StreetWeSt loop
Size: 233,869 square feetYear built: 1946Original sale date: January 2012Original sale price: $10M, $47/sfYear renovated: 2013
Exit sale price: $97.5M, $417/sfExit sale date: May 2013Buyer: Cole Corporate Income TrustSeller: Sterling Bay Companies
This vacant manufacturing facility was
renovated to creative office spare. It is leased
to Hillshire Brands (formerly known as The Sara
Lee Corporation).
$ 1 24 M $ 1 5 0 M $ 3 0 3 . 6 M $ 9 7. 5 M
CoMpLeteD projeCts
LOS ANGELES
playa jefferson
12777 W. Jefferson Boulevard playa viSta
Size: 195,668 square feetYear built: 1978Original sale date: August 2011Original sale price: $33M, $169/sfYear renovated: 2013
Exit sale price: $165M, $843/sfExit sale date: July 2016Buyer: Rockwood CapitalSeller: Vantage Property Investors
This former back-office flex call center for
Citibank was renovated to creative office.
Current tenants include Facebook and Onicom
Media.
$ 1 6 5 M
MARCH 2017 4TranswesTern
LOS ANGELES NEW YORK SAN FRANCISCO SAN FRANCISCO
the reserve twitter NyC Market square 888 Brannan
13031 W. Jefferson Boulevard playa viSta
Size: 399,373 square feetYear built: 1971Original sale date: July 2011Original sale price: $43.9M, $116/sfYear renovated: 2013
Exit sale price: $316M, $791/sfExit sale date: January 2015Buyer: InvescoSeller: Shorenstein Properties and Worthe Real Estate Group
This former U.S. Postal Service sorting facility
was renovated to creative office space. It is
leased to Microsoft, Verizon, TMZ and Sony
PlayStation.
245-249 W. 17th Street ChelSea
Size: 281,294 square feetYear built: 1909Original sale date: November 2012Original sale price: $75.8M, $269/sf Year renovated: 2014
Exist sale price: $335M, $1,191/sfExit sale date: August 2014Buyer: New York REITSeller: Atlas Capital Group
This former vacant warehouse was originally
built for Siegel Cooper department store. It was
renovated to creative office space and is now
leased to Twitter.
1355 market Streetmid-market
Size: 1.1 million square feetYear built: 1937Original sale date: March 2011Original sale price: $120M, $112/sfYear renovated: 2013
Exit sale price: $917.4M, $859/sfExit sale date: August 2015Buyer: JP Morgan Asset ManagementSeller: Shorenstein Properties
This former wholesale furniture mart was
renovated to creative office and now serves as
the corporate headquarters for Twitter.
888 Brannan StreetSoma (South oF market)
Size: 444,000 square feetYear built: 1920Original sale date: May 2011Original sale price: $36.5M $82/sfYear renovated: 2013
Exit sale price: $185.9M, $419/sfExit sale date: May 2014Buyer: Beacon Capital PartnersSeller: Vantage Property Investors
The former San Francisco Gift Center &
Jewelry Mart was renovated to creative office
and is leased to AirBNB for its corporate
headquarters. In September 2015, the property
was subsequently traded to TIAA for $307
million, or $691/sf.
$ 3 1 6 M $ 3 3 5 M $ 9 1 7. 4 M $ 1 8 5 . 9 M
:
NoteWorthy Creative offiCe projeCtsCoMpLeteD projeCts
NEW YORK
falchi Building
31-00 47th avenue, long island CityNorthWeSt QueeNS
Size: 711,194 square feetYear built: 1920Original sale date: May 2012Original sale price: $81.2M, $114/sfYear renovated: 2016
Exit sale price: $255M, $359/sfExit sale date: December 2016Buyer: SavannaSeller: Jamestown Properties
This former storage and distribution facility
for Gimbels Brothers department store was
converted to offices in the 1980s, and then
further renovated to creative office use in
recent years. It is now leased to the City of New
York, Uber, Lyft and Spaces (Regus).
$ 2 5 5 M
MARCH 2017 5TranswesTern
ATLANTA
675 ponce de leon avenue Ne midtoWN/perShiNg poiNt
Size: 2 million square feet
Year built: 1926
Developer: Jamestown Properties
Project: Former Sears Roebuck &
Co. factory and distribution facility
renovated to mixed-use creative,
retail and residential. Leased to
athenahealth, Inc., MailChimp
and Cardlytics.
ponce City MarketAUSTIN
4323 Congress avenueSouth auStiN
Size: 140,000 square feet
Year built: 1954
Developer: Maker Bros.
Project: Former school bus warehouse
and office furniture store. Proposed
renovation to mixed-use space with
100,000 square feet of creative office
and a 40,000-square-foot food hall.
saint elmo Market DistrictBOSTON
5 & 6 Necco CourtFort poiNt
Size: 410,000 square feet
Year built: 1907
Developer: General Electric
Project: Former Boston Wharf
Company warehouses being
converted to General Electric’s new
corporate headquarters. Project
includes a new 293,000-square-foot
office building.
New Ge headquarters
DALLAS
603 munger avenueWeSt eNd
Size: 215,440 square feet
Year built: 1903
Developer: Granite Properties
Project: Former Brown Cracker &
Candy Co, Sunshine Biscuit Factory
and West End Marketplace building
renovated to creative office with 25,000
square feet leased to Blue Cross Blue
Shield Innovation.
factory six03DENVER
3825 lafayette Streetriver North
Size: 145,945 square feet
Year built: 1969
Developer: Clarion Partners and
INDUSTRY Denver
Project: Former cold storage
warehouse property being renovated
to creative office.
iNDUstry riNo stationHOUSTON
198 kempner StreetSugar laNd
Size: 855,000 square feet
Year built: 1950
Developer: Imperial Market
Development LLC
Project: Former Imperial Sugar Refinery
being renovated to mixed-use retail,
creative office, residential and hotel.
imperial MarketLOS ANGELES
777 S. Santa Fe avenuedoWNtoWN artS diStriCt
Size: 257,028 square feet
Year built: 1914
Developer: Shorenstein Properties
Project: Former Ford Motor Company
factory being renovated to creative
office. Property is 100% pre-leased to
Warner Music Group, which will be
relocating from Burbank.
the ford Building
ATLANTA
777 memorial drivereyNoldStoWN
Size: 200,611 square feet
Year built: 1945
Developer: Pace Properties
Project: Former Atlanta Dairies
Cooperative being renovated to
creative office and multifamily.
atlanta DairiesBOSTON
21-25 drydock avenueSeaport diStriCt
Size: 825,552 square feet
Year built: 1918
Developer: Jamestown Properties
Project: Former warehouse for the
South Boston Army Base is being
renovated to mixed-use creative office.
innovation & Design Building (iDB)
DALLAS
703 mckinney avenueWeSt eNd
Size: 180,000 square feet
Year built: 1890
Developer: Provident Realty Advisors
Project: Former brewery being
converted to creative office with a new
high-rise apartment tower next door.
the Brewery Building
projeCts UNDer DeveLopMeNt
MARCH 2017 6TranswesTern
NEW YORK
Brooklyn Navy yard, Building 77BrooklyN Navy yard
Size: 1.2 million square feet
Year built: 1940
Developer: Brooklyn Navy Yard
Development Corporation
Project: This windowless storage
facility is being renovated to creative
office and will be the future location of
the Brooklyn Brewery.
77 flushing ave.
621 SW 5th avenueCeNtral BuSiNeSS diStriCt
Size: 208,520 square feet
Year built: 1908
Developer: Sterling Bay Companies
and KBS Realty Advisors
Project: Proposed renovation of
building’s first five floors to creative
office. Space is currently a Macy’s
department store that will be closing.
PORTLAND
Meier & frank Building
200 e. grayson StreetmidtoWN
Size: 1million square feet
Year built: 1883
Developer: Silver Ventures
Project: Former Pearl Brewery
industrial complex renovated to
mixed-use creative office, retail,
multifamily and hotel.
SAN ANTONIO
pearlSF BAY AREA
1955 BroadwayoaklaNd CeNtral BuSiNeSS diStriCt
Size: 370,000 square feet
Year built: 1929
Developer: Uber & Lane Partners
Project: Vacant Sears department store
being renovated to creative office for
Uber, which acquired the property for
$123.5 million in September 2015 for
its new corporate headquarters.
Uptown station
6121 W. Sunset BoulevardhollyWood
Size: 635,000 square feet
Year built: 1938
Developer: Kilroy Realty
Project: Former CBS Studios
renovated to mixed-use creative office
and residential campus. Site is new
West Coast headquarters of Viacom
and NeueHouse.
LOS ANGELES
Columbia squareNEW JERSEY
101 Crawfords Corner roadholmdel
Size: 1.3 million square feet
Year built: 1962
Developer: Somerset Development
Project: Former Bell Labs R&D campus
being renovated to mixed-use creative
office, retail and hotel. Approximately
350,000 square feet of office leased to
iCIMS.
Bell WorksNEW YORK
25, 30, 50 & 58 Columbia heights and 55 Furman StreetBrooklyN heightS
Size: 739,000 square feet
Year built: 1924
Developer: Kushner Companies,
LIVWRK and CIM Group
Project: Former Jehovah’s Witnesses
buildings being renovated to creative
office.
Watchtower Building
PHOENIX
2701 e. ryan roadChaNdler
Size: 290,785 square feet
Year built: 2009
Developer: Walton Street Capital
Project: Former Covance Laboratories
lab building being renovated to
creative office campus.
the hUB
911 Western avenuepioNeer SQuare/WaterFroNt
Size: 211,722 square feet
Year built: 1910
Developer: Beacon Capital Partners
Project: Former Pacific Warehouse
building being converted to creative
office and recently leased to Big
Fish Games for its new corporate
headquarters.
SEATTLE
Maritime Building
1340-1360 S. Coast driveCoSta meSa
Size: 350,000 square feet
Year built: 1965
Developer: Tribune Company &
Kearny Real Estate
Project: Former Los Angeles Times
printing press facility being renovated
to creative office campus.
LOS ANGELES
the press
projeCts UNDer DeveLopMeNt
MARCH 2017 7TranswesTern
aBout uSTranswestern advises clients on real estate strategy, lease-up and disposition of commercial assets, property and project management, portfolio strategy, debt and equity financing, and development.
traNSWeSterN reSearChIn markets across the country, Transwestern research professionals produce sophisticated data analyses, local market reports and insight on national trends that help clients make informed real estate decisions.
authorSMichael [email protected]
Sandy [email protected]
additioNal CoNtriButorSChase Bourdelaise,Jeff Buckingham, Matthew Dolly,Yesenia Dominguez, Dina Gouveia,Karen Judson, Darrell Magnuson, Keith Pierce, Palak Raval,Stuart Showers, Ryan Tharp
No siMpLe forMULa for sUCCessBased on these examples, it may appear that a conversion to creative office is an easy recipe for high returns. However, many of these projects were acquired and developed under very different economic conditions than exist today. Rising land, building and construction costs – especially in hot neighborhoods – may add more risk when compared to a few years ago, when we were at a different point in the real estate cycle.
Other factors that should weigh into project analyses include:
n Undertaking adaptive reuse can result in all sorts of hidden costs not considered when modeling a project financially. Issues such as structural retrofitting and upgrading older or non-existent HVAC systems can add significant dollars and time to a project.
n Location still matters, and while there is nothing wrong with being a first-mover into a submarket that is expected to change, developers and their financial partners need to perform appropriate due diligence to determine if existing and/or future tenant demand is real.
n Creative office build-outs highly modified by users may be difficult to market if the tenant moves on to a bigger space or, conversely, downsizes.
n There is more creative office space in the market today due to the popularity of the concept, and landlords who own existing office buildings or are doing ground-up development must increasingly consider strategic property enhancements and creative office-associated tenant amenities to stay competitive in the marketplace.
transwestern.com
