December 2014 ULI Case Studies Sponsored by 680 Folsom Street QUICK FACTS Location San Francisco, California Project type Office buildings Site size 1.54 acres Land uses Office, retail, restaurants, parking Keywords/special features Renovation, facade recladding, large floor plates, seismic retrofit, high floor-to-floor heights, high-density tenants, resilient design, tech-oriented tenants, roof deck, REIT, green building, sustainable development Websites www.bostonproperties.com/properties/ san-francisco-area www.tmgpartners.com/portfolio Project address 680 Folsom Street San Francisco, CA 94107 Owner/developer Boston Properties Four Embarcadero Center San Francisco, CA 94111 STEELBLUE www.bostonproperties.com The 680 Folsom redevelopment includes three structures: an office/retail building (foreground), a 14-story renovated office tower, and a separate three-story office building (not shown) behind and to the left of the tower. Developer TMG Partners 100 Bush Street, 26th Floor PROJECT SUMMARY San Francisco, CA 94104 www.tmgpartners.com Originally built in 1964, 680 Folsom Street is 14-story office building Development financial partner with 468,783 square feet of rentable space that has been completely Rockwood Capital Two Embarcadero Center, Suite 2360 renovated and seismically retrofitted, and was reopened in January San Francisco, CA 94111 2014. The building is the principal structure in a three-building complex www.rockwoodcap.com that includes an adjacent three-story office building and a two-story Architect SOM retail/office building, both also renovated as part of the overall project One Front Street, Suite 2400 San Francisco, CA 94111 acquisition and development plan. Renovation of 680 Folsom involved www.som.com removal and replacement of nearly everything in the building except Structural engineer the steel frame. Also, two floors were added, as were four horizontal Tipping Mar (now Tipping Structural Engineers) www.tippingmar.com additions. The building complex was sold during construction to Boston Properties, a major real estate investment trust (REIT). www.uli.org/casestudies 680 Folsom Street Case Study 1 The Site and the Idea Francisco. The site also offers easy automobile access to and from Interstate 80, which runs The building site is on Folsom Street between parallel to Folsom Street about two blocks to Third and Hawthorne streets in the central SoMa the east, allowing auto commuters to reach the (South of Market Street) area of downtown San building easily and avoid the more congested Francisco, also referred to as Multimedia Gulch. It is adjacent to the Moscone Convention Center parts of the central city. and overlooks the Yerba Buena Gardens area that encompasses the Moscone Center. The Development Background area has emerged over the past decade as a In March 2007, the site and buildings were desirable location for technology company ten- offered for sale by Pacific Bell. TMG Partners ants looking to move operations into the city, bid on the package, but it went to another de- where many of their employees live. Since about velopment partnership, which began a pro- 2004, the area has also become an increasingly cess of redeveloping the buildings. Not being popular place to live in San Francisco, especially selected proved fortuitous for TMG Partners for tech and media workers. Major tech-oriented because March 2007, just before the finan- tenants that have located or will be locating to cial crisis, was not a good time to be investing the area include Twitter and Salesforce. in office buildings. The development partner- The 12-story 680 Folsom building was ship that purchased the buildings was unable built in 1964 as a corporate office for Pacific to complete its redevelopment because of the The 680 Folsom building was expanded both vertically, with the addition of two floors, and horizontally, including Bell; by 2007, it was generally obsolete for recession, but did move the project through an an extension to both the front and side of the building, office use and also contained a great deal of entitlement process that allowed expansion of highlighted in this image. asbestos. But the large floor plates made the 680 Folsom by around 100,000 square feet. building attractive and interesting as a reno- That entitlement was approved in spring 2008. Old and outdated office buildings in desirable vation project. The original facade was not The owner also completed some asbestos downtown locations offer interesting opportuni- attractive, consisting of heavy and outdated removal and abatement work on 680 Folsom, ties and options for developers in many cities, concrete panels with narrow windows. The site which left the interior largely gutted and with but they can present challenging construction also included an adjacent three-story build- no working elevators. decisions. In some situations, the buildings have ing with a similar dated facade, 50 Hawthorne Work on the building ceased, and the been converted to residential uses. In others, Street, and a two-level parking structure dating development partnership was unable to fund they are being demolished and replaced with from 1926 at the corner of Third and Folsom, go-forward costs or pay off or refinance the loan new buildings. Still other buildings have good now renovated as an office/retail building when it matured. As a result, in May 2010 the structural bones but outdated systems and exte- known as 690 Folsom. original owner experienced a maturity default. riors, and therefore offer renovation options. The surrounding neighborhood consists of TMG Partners, which had remained involved in When TMG Partners and Rockwood Capital a mix of commercial and residential buildings. the project during this time, believed the build- acquired the outdated 680 Folsom Street along To the north and west are numerous restau- ings offered considerable potential and pitched with two adjacent buildings in the heart of down- rants, hotels, and other attractions, includ- the opportunity to Rockwood Capital, a private town San Francisco in 2010, all these options ing the San Francisco Museum of Modern equity firm it had worked with on previous deals. were possible. In the end, they chose to redesign Art and the Contemporary Jewish Museum. and reshape the outdated concrete-box 680 Several mid-rise residential buildings are lo- Site acquisition and partnership. In October Folsom by replacing the core and building sys- cated on the other side of Folsom Street, and 2010, near the bottom of the market, the site tems, adding horizontal and vertical space, and a mid-rise office building is directly across and buildings were acquired by Rockwood replacing the concrete facade with a new glass Hawthorne Street from the project. The block Capital and TMG Partners in a short sale for facade that completely revised the structure’s im- on which the building sits also includes a $24 million. TMG Partners, a privately held full- age. A new concrete core was added to optimize mid-rise office building, a parking structure, service development company based in San and seismically strengthen the structure, which and a two-story brick commercial building. Francisco and focused on urban infill projects now exceeds seismic code requirements. The site offers easy access to tran- in the area, has developed a mix of property The renovated structure reads as a more sit: it is a three-minute walk to Caltrain, a types totaling 23 million square feet of office, complex building of varying masses with a mod- commuter-rail line that connects to Silicon research and development, for-sale and multi- ern look. The choice to renovate also proved to Valley, and a six-minute walk to the Bay Area family residential, and retail projects, plus more be the most sustainable approach because it Rapid Transit (BART)/San Francisco Municipal than 400 acres of land, with a portfolio valua- reused essential elements of the building. The Transportation Agency (Muni) Montgomery tion totaling $3.5 billion. Rockwood Capital is a main tower building was leased to two principal Street station, which provides connections to privately held real estate investment and advi- tenants before construction began. the East Bay area as well as other areas of San sory firm that invests in various property types, 2 680 Folsom Street Case Study www.uli.org/casestudies concentrating on investments where it believes it can increase value through re-leasing, repo- sitioning, rehabilitation, development, and other real estate strategies. Development strategies. Following the ac- quisition, TMG and Rockwood began consider- ing various development strategies that would create the optimal value for the site, a process that involved architects, engineers, and contrac- tors in a value engineering process. Numerous options and factors had to be considered, espe- cially as they related to creating a building that would meet or exceed seismic building codes in San Francisco. Several specific programs and development strategies were considered. One was to demol- ish 680 Folsom and build a condominium on the site. This would have involved an extensive approval process that would have taken years to complete. The firms also looked at convert- The original complex included a 1926-era two-story parking garage (foreground) and a dated and obsolete office ing the building to residential use, but “the large building with a concrete facade and narrow windows. floor plates were not ideal for residential,” notes Robert Gray, a partner with Rockwood Capital. Another strategy was to position the site as an expansion opportunity for the Moscone Center. 680 FOLSOM STREET SITE PLAN www.uli.org/casestudies 680 Folsom Street Case Study 3 The strategy finally settled on was the office tion. Notes Robert Pester, senior vice president through renovation at considerably lower cost redevelopment because it offered the opportunity and regional manager with Boston Properties, than would be required to build a new building. to create essentially a new building in a relatively “The structure offered large floor plates and the The property was acquired by Boston Properties short period and at an attractive cost.