Creative office projects Adaptive reuse generates staggering returns for investors Creative office properties generally have the Not all creative office properties adhere to a strict common characteristics of newer workplace profile; some are single-tenant buildings, some design: open floorplans, natural lighting, exposed are multi-tenant campuses and some are mixed- CREATIVE OFFICE PROJECTS interiors such as brick walls and bow truss use projects with major retail, residential or even ceilings, informal common spaces for closer hotel components. Usually the composition is Adaptive reuse generates collaboration, amenities such as cafes and rec determined by whatever mix of uses appeals Staggering returns for investors rooms and increased focus on sustainability. to the developer financially. No matter the mix, in many cases, the renovation/conversion of March 2017 a major creative office project helps kick off increased property and business investment in “What is new this cycle is the neighborhoods in which they are located and attract hundreds or thousands of high-paid The term “creative office” is a subset of value-add adaptive reuse which typically encompasses the workers to the area. This is the case with Twitter conversion of a property from non-office (e.g., industrial or retail use) to office use. It has become an the sheer volume of creative in San Francisco’s Market Square/Tenderloin increasingly popular value-add strategy due to two primary drivers: neighborhood and Google in Chicago’s Fulton office exits nationally Market/River West submarket.
One, TAMI (technology, advertising, media and Two, compared to the previous cycle which was Based on staggering exit pricing of some major information) sector companies and coworking primarily driven by suburban growth, office at core/core plus pricing.” creative office projects around the country, this operators have led the charge on office leasing leasing and absorption has mostly returned type of value-add strategy – on this large scale – and net absorption this cycle, compared to FIRE to cities where tenants can take advantage of is now being considered by many local/regional/ (financial services, insurance and real estate) live/work/play environments. With the decline Although they’ve received a lot of attention national developers, either via direct investment companies a decade ago. TAMI sector companies of manufacturing nationally, many functionally recently, creative office conversions are not new; or joint-venture partnerships with equity partners. are increasingly millennial-focused and look obsolete industrial properties have been targets take for example, Chelsea Market in New York Conversely, stabilized creative office properties at differentiated office product for branding, for creative office conversion due to their City or the Ferry Building in San Francisco, both are now on the radar of many national and recruiting, employee retention and perceived urban location. That said, suburban properties delivered more than a decade ago with high- international institutional buyers who are paying authenticity. And while TAMI companies have have seen creative office conversions, as well, profile office components. What is new this traditional trophy Class A pricing for these types of led this demand, traditional office users in the assuming the right mix of tenant demand, cycle is the sheer volume of creative office exits assets, usually based on the credit-worthiness of professional and business services sectors are project cost and local business incentives exist. nationally at core/core plus pricing. the tenant, as well as the location of the project. beginning to take notice, as well.
This is a TRANSWESTERN interactive document Noteworthy CREATIVE OFFICE PROJECTS SAN FRANCISCO BAY AREA SEATTLE PORTLAND DENVER CHICAGO BOSTON Market Square Maritime Building Meier & Frank Building INDUSTRY RiNo Station 1K Fulton One Lovejoy Wharf 888 Brannan Hillshire Brands Headquarters New GE Headquarters Uptown Station Innovation & Design building (IDB)
SE NEW JERSEY Bell Works PDX
BOS NEW YORK NYC Falchi Building CHI Twitter NYC NJ 77 Flushing Ave. SF DEN Watchtower Building
LA PHX ATLANTA ATL Atlanta Dairies DAL Ponce City Market LOS ANGELES PHOENIX AUSTIN AUS Playa Jefferson The HUB Seaholm Power Plant The Reserve Saint Elmo Market District The Ford Building SA HOU Columbia Square SAN ANTONIO HOUSTON DALLAS The Press Pearl Imperial Market The Brewery Building Factory Six03 EXITS ($50M+) & PROJECTS UNDER DEVELOPMENT (100,000+ SF)
COMPLETE UNDER DEVELOPMENT
Transwestern MARCH 2017 3 completed PROJECTS Seaholm Power Plant One Lovejoy Wharf 1K Fulton Hillshire Brands Headquarters Playa Jefferson $124M $150M $303.6M $97.5M $165M
AUSTIN BOSTON CHICAGO CHICAGO LOS ANGELES
800 Cesar Chavez Street 160 N. Washington Street 1000 W. Fulton Street 400 S. Jefferson Street 12777 W. Jefferson Boulevard Seaholm district North station River West/fulton market West Loop Playa Vista
Size: 209,176 square feet Size: 232,000 square feet Size: 531,190 square feet Size: 233,869 square feet Size: 195,668 square feet Year built: 1950-1955 Year built: 1900 Year built: 1923 Year built: 1946 Year built: 1978 Development rights awarded: 2008 Original sale date: December 2012 Original sale date: November 2012 Original sale date: January 2012 Original sale date: August 2011 Original sale price: N/A Original sale price: $22.5M, $54/sf Original sale price: $12M, $27/sf Original sale price: $10M, $47/sf Original sale price: $33M, $169/sf Year renovated: 2015 Year renovated: 2015 Year renovated: 2015 Year renovated: 2013 Year renovated: 2013
Exit sale price: $124M, $592/sf (ground lease) Exit sale price: $150M, $647/sf Exit sale price: $303.6M, $572/sf Exit sale price: $97.5M, $417/sf Exit sale price: $165M, $843/sf Exit sale date: September 2016 Exit sale date: March 2016 Exit sale date: June 2016 Exit sale date: May 2013 Exit sale date: July 2016 Buyer: Clarion Partners Buyer: Union Investment Real Estate GmbH Buyer: American Realty Advisors Buyer: Cole Corporate Income Trust Buyer: Rockwood Capital Seller: Southwest Strategies and CIM Group Seller: The Beal Companies and The Related Seller: Sterling Bay Company Seller: Sterling Bay Companies Seller: Vantage Property Investors Companies This decommissioned power plant was This former Fulton Market cold storage This vacant manufacturing facility was This former back-office flex call center for converted to a mixed-use project, comprising This former Hoffman building warehouse was warehouse was renovated to creative office renovated to creative office spare. It is leased Citibank was renovated to creative office. 152,834 square feet of creative office and renovated to creative office and now serves as space and leased to Google for the company’s to Hillshire Brands (formerly known as The Sara Current tenants include Facebook and Onicom 56,342 square feet of retail/restaurant space. the corporate headquarters for Converse, Inc. Midwest headquarters. Other tenants include Lee Corporation). Media. Approximately 112,000 square feet is leased SRAM International and Sandbox. to athenahealth, Inc., while the retail space is anchored by Trader Joe’s and Under Armour.
Transwestern MARCH 2017 4 : noteworthycom pClREATIVEeted PROJE OFFICCTSE PROJECTS The Reserve Falchi Building Twitter NYC Market Square 888 Brannan $316M $255M $335M $917.4M $185.9M
LOS ANGELES NEW YORK NEW YORK SAN FRANCISCO SAN FRANCISCO
13031 W. Jefferson Boulevard 31-00 47th Avenue, Long Island City 245-249 W. 17th Street 1355 Market Street 888 Brannan Street Playa Vista NORTHWEST QUEENS Chelsea Mid-market SOMA (SOUTH OF MARKET)
Size: 399,373 square feet Size: 711,194 square feet Size: 281,294 square feet Size: 1.1 million square feet Size: 444,000 square feet Year built: 1971 Year built: 1920 Year built: 1909 Year built: 1937 Year built: 1920 Original sale date: July 2011 Original sale date: May 2012 Original sale date: November 2012 Original sale date: March 2011 Original sale date: May 2011 Original sale price: $43.9M, $116/sf Original sale price: $81.2M, $114/sf Original sale price: $75.8M, $269/sf Original sale price: $120M, $112/sf Original sale price: $36.5M $82/sf Year renovated: 2013 Year renovated: 2016 Year renovated: 2014 Year renovated: 2013 Year renovated: 2013
Exit sale price: $316M, $791/sf Exit sale price: $255M, $359/sf Exist sale price: $335M, $1,191/sf Exit sale price: $917.4M, $859/sf Exit sale price: $185.9M, $419/sf Exit sale date: January 2015 Exit sale date: December 2016 Exit sale date: August 2014 Exit sale date: August 2015 Exit sale date: May 2014 Buyer: Invesco Buyer: Savanna Buyer: New York REIT Buyer: JP Morgan Asset Management Buyer: Beacon Capital Partners Seller: Shorenstein Properties and Worthe Real Seller: Jamestown Properties Seller: Atlas Capital Group Seller: Shorenstein Properties Seller: Vantage Property Investors Estate Group This former storage and distribution facility This former vacant warehouse was originally This former wholesale furniture mart was The former San Francisco Gift Center & This former U.S. Postal Service sorting facility for Gimbels Brothers department store was built for Siegel Cooper department store. It was renovated to creative office and now serves as Jewelry Mart was renovated to creative office was renovated to creative office space. It is converted to offices in the 1980s, and then renovated to creative office space and is now the corporate headquarters for Twitter. and is leased to AirBNB for its corporate leased to Microsoft, Verizon, TMZ and Sony further renovated to creative office use in leased to Twitter. headquarters. In September 2015, the property PlayStation. recent years. It is now leased to the City of New was subsequently traded to TIAA for $307 York, Uber, Lyft and Spaces (Regus). million, or $691/sf.
Transwestern MARCH 2017 5 Projects Under Development Atlanta Dairies Ponce City Market Saint Elmo Market District New GE Headquarters Innovation & Design Building (IDB)
ATLANTA ATLANTA AUSTIN BOSTON BOSTON
777 Memorial Drive 675 Ponce de Leon Avenue NE 4323 Congress Avenue 5 & 6 Necco Court 21-25 Drydock Avenue Reynoldstown Midtown/Pershing Point South Austin Fort Point Seaport District
Size: 200,611 square feet Size: 2 million square feet Size: 140,000 square feet Size: 410,000 square feet Size: 825,552 square feet Year built: 1945 Year built: 1926 Year built: 1954 Year built: 1907 Year built: 1918 Developer: Pace Properties Developer: Jamestown Properties Developer: Maker Bros. Developer: General Electric Developer: Jamestown Properties Project: Former Atlanta Dairies Project: Former Sears Roebuck & Project: Former school bus warehouse Project: Former Boston Wharf Project: Former warehouse for the Cooperative being renovated to Co. factory and distribution facility and office furniture store. Proposed Company warehouses being South Boston Army Base is being creative office and multifamily. renovated to mixed-use creative, renovation to mixed-use space with converted to General Electric’s new renovated to mixed-use creative office. retail and residential. Leased to 100,000 square feet of creative office corporate headquarters. Project athenahealth, Inc., MailChimp and a 40,000-square-foot food hall. includes a new 293,000-square-foot and Cardlytics. office building.
The Brewery Building Factory Six03 INDUSTRY RiNo Station Imperial Market The Ford Building
DALLAS DALLAS DENVER HOUSTON LOS ANGELES
703 McKinney Avenue 603 Munger Avenue 3825 Lafayette Street 198 Kempner Street 777 S. Santa Fe Avenue West End West End River North Sugar Land Downtown Arts District
Size: 180,000 square feet Size: 215,440 square feet Size: 145,945 square feet Size: 855,000 square feet Size: 257,028 square feet Year built: 1890 Year built: 1903 Year built: 1969 Year built: 1950 Year built: 1914 Developer: Provident Realty Advisors Developer: Granite Properties Developer: Clarion Partners and Developer: Imperial Market Developer: Shorenstein Properties Project: Former brewery being Project: Former Brown Cracker & INDUSTRY Denver Development LLC Project: Former Ford Motor Company converted to creative office with a new Candy Co, Sunshine Biscuit Factory Project: Former cold storage Project: Former Imperial Sugar Refinery factory being renovated to creative high-rise apartment tower next door. and West End Marketplace building warehouse property being renovated being renovated to mixed-use retail, office. Property is 100% pre-leased to renovated to creative office with 25,000 to creative office. creative office, residential and hotel. Warner Music Group, which will be square feet leased to Blue Cross Blue relocating from Burbank. Shield Innovation.
Transwestern MARCH 2017 6 Projects Under Development Columbia Square The Press Bell Works 77 Flushing Ave. Watchtower Building
LOS ANGELES LOS ANGELES NEW JERSEY NEW YORK NEW YORK
6121 W. Sunset Boulevard 1340-1360 S. Coast Drive 101 Crawfords Corner Road Brooklyn Navy Yard, Building 77 25, 30, 50 & 58 Columbia Heights and Hollywood Costa Mesa Holmdel Brooklyn Navy Yard 55 Furman Street Brooklyn Heights Size: 635,000 square feet Size: 350,000 square feet Size: 1.3 million square feet Size: 1.2 million square feet Year built: 1938 Year built: 1965 Year built: 1962 Year built: 1940 Size: 739,000 square feet Developer: Kilroy Realty Developer: Tribune Company & Developer: Somerset Development Developer: Brooklyn Navy Yard Year built: 1924 Project: Former CBS Studios Kearny Real Estate Project: Former Bell Labs R&D campus Development Corporation Developer: Kushner Companies, renovated to mixed-use creative office Project: Former Los Angeles Times being renovated to mixed-use creative Project: This windowless storage LIVWRK and CIM Group and residential campus. Site is new printing press facility being renovated office, retail and hotel. Approximately facility is being renovated to creative Project: Former Jehovah’s Witnesses West Coast headquarters of Viacom to creative office campus. 350,000 square feet of office leased to office and will be the future location of buildings being renovated to creative and NeueHouse. iCIMS. the Brooklyn Brewery. office.
The HUB Meier & Frank Building Pearl Maritime Building Uptown Station
PHOENIX PORTLAND SAN ANTONIO SEATTLE SF BAY AREA
2701 E. Ryan Road 621 SW 5th Avenue 200 E. Grayson Street 911 Western Avenue 1955 Broadway Chandler Central Business District Midtown Pioneer Square/Waterfront Oakland Central Business District
Size: 290,785 square feet Size: 208,520 square feet Size: 1million square feet Size: 211,722 square feet Size: 370,000 square feet Year built: 2009 Year built: 1908 Year built: 1883 Year built: 1910 Year built: 1929 Developer: Walton Street Capital Developer: Sterling Bay Companies Developer: Silver Ventures Developer: Beacon Capital Partners Developer: Uber & Lane Partners Project: Former Covance Laboratories and KBS Realty Advisors Project: Former Pearl Brewery Project: Former Pacific Warehouse Project: Vacant Sears department store lab building being renovated to Project: Proposed renovation of industrial complex renovated to building being converted to creative being renovated to creative office for creative office campus. building’s first five floors to creative mixed-use creative office, retail, office and recently leased to Big Uber, which acquired the property for office. Space is currently a Macy’s multifamily and hotel. Fish Games for its new corporate $123.5 million in September 2015 for department store that will be closing. headquarters. its new corporate headquarters.
Transwestern MARCH 2017 7 ABOUT US Transwestern advises clients on real estate strategy, lease-up and disposition of commercial assets, property and project management, NO SIMPLE FORMULA FOR SUCCESS portfolio strategy, debt and equity financing, and development.
Based on these examples, it may appear that a conversion to creative office is an easy recipe for high returns. TRANSWESTERN RESEARCH However, many of these projects were acquired and developed under very different economic conditions than In markets across the country, exist today. Rising land, building and construction costs – especially in hot neighborhoods – may add more risk Transwestern research professionals when compared to a few years ago, when we were at a different point in the real estate cycle. produce sophisticated data analyses, local market reports and insight on national trends that help Other factors that should weigh into project analyses include: clients make informed real estate decisions. 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 AUTHORS significant dollars and time to a project. Michael Soto [email protected] n Location still matters, and while there is nothing wrong with being a first-mover into a submarket that is Sandy McDonald expected to change, developers and their financial partners need to perform appropriate due diligence to [email protected] determine if existing and/or future tenant demand is real. ADDITIONAL CONTRIBUTORS Chase Bourdelaise, n Creative office build-outs highly modified by users may be difficult to market if the tenant moves on to a Jeff Buckingham, Matthew Dolly, bigger space or, conversely, downsizes. Yesenia Dominguez, Dina Gouveia, Karen Judson, Darrell Magnuson, n There is more creative office space in the market today due to the popularity of the concept, and landlords Keith Pierce, Palak Raval, who own existing office buildings or are doing ground-up development must increasingly consider strategic Stuart Showers, Ryan Tharp property enhancements and creative office-associated tenant amenities to stay competitive in the marketplace.
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