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Investor Buys Industrial In Gentrifying Mission District

By Sharon Simonson

A joint venture of San Francisco’s Swire Properties and Friedkin Investment Co. has acquired 400 Alabama St. in San Francisco’s Eastern Neighborhoods district, paying $8.1 million, or $158 a foot, according to CBRE Group Inc.

The seller was Elliott & Lucca Properties LLC. Elliott Lucca is a handbag and accessory maker. The brand is one of three owned by The Sak Brand Group.

The 51,270-square-foot office and warehouse building is the West Coast headquarters for The Sak Brand, which has agreed to lease the building from the new owners until the middle of next year as Sak transitions to a new location outside the city.

Sak is a 24-year-old handbag and accessory maker that sells its goods nationally and internationally primarily via department and specialty stores.

Steve Swire of Swire Properties said he is delighted with the location and the building itself, which he describes as structurally stout and aesthetically appealing: “I look at many buildings, and there is no building more beautiful than this building in terms of its high ceilings and light,” he said.

The sale illustrates the effects of continued strong demand for investment properties in San Francisco, with investors reaching out from the South of Market district into the rapidly gentrifying areas to SoMa’s east and north, said CBRE’s Don LeBuhn and David Noravian, who represented the seller.

That includes the city’s Mid-Market District, where Twitter Inc. has its new headquarters; Showplace Square, traditional home to the city’s design and furniture industry but now also social networking game-maker Zynga Inc.; the Mission and Potrero Hill.

CBRE’s Luke Ogelsby also represented the seller in the deal.

Unlike SoMa, which largely supports office users, under city regulations 400 Alabama’s use is restricted to “production, distribution and repair,” an industrial zoning that limits office use inside a building, Noravian said.

After initially resisting the office-use restrictions imposed by the city’s Eastern Neighborhood’s program, which affects industrial properties in the Mission, Potrero Hill and the Central Waterfront neighborhoods to SoMa’s south and east, landlords are rethinking their attitudes, LeBuhn said. “There has been a movement among developers to embrace the PDR uses and work with the city,” he said. “The expectation is that in an improved building environment, tenants will pay higher rent, and by virtue of what is happening overall, PDR rents are going up.”

The location, near the intersection of 16th and Harrison streets, connects the building directly to the Mission District, Potrero Hill and U.S. 101, Swire said. It also has a great vibe. “I am very excited about the energy in the neighborhood. It’s a good mix of housing, industrial and creative technology, media uses and art. It is very vibrant with lots of trees, just a nice place to walk around.”

Under current entitlements, the city permits another two stories to be added to the structure, which he believes the building could accommodate with limited seismic upgrading, Swire said. There are no plans to undertake that expansion right away, though Swire notes that the partners could deliver nearly 100,000 square feet under one roof including at least one floor for office use should the right tenant emerge. Current research at the city shows a history of office use on at least a full floor of the structure, which the city’s regulations would allow to continue, he said.

PDR uses are broadly defined as those that support the city’s driving industries, including high technology, tourism and financial and legal services, according to the city. That includes art activities and performance spaces as well as wholesale furniture sales and design activities.

His understanding is that the category permits activities such as contract manufacturers and prototype designers and makers, working for companies such as Apple Inc. or a car manufacturer. The design arm for the manufacturing operations of a global electronics company should be able to locate in the building, too, Swire said. “It can’t be someone who is just going to make software. It has to be someone who also makes hardware and is assembling it or designing it,” he said.

“There has always been active demand for the building, and according to the prior owners, if you place an ad on Craigslist, users pop up,” he said.

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