If the surging Bay Area economy is helping improve the mood for East Bay real estate, the imminent transformation of UC Berkeley’s real estate portfolio could escalate it to new heights.At the spring conference of the Fisher Center for Real Estate and Urban Economics held earlier this week in San Francisco, Bob Lalanne, the president of San Francisco-based The Lalanne Group, outlined in detail the efforts of UC Berkeley in forming what he called “The Berkeley Real Estate Management Company.” Lalanne, a 25-year veteran of the industry, and a Cal alum, was helping the school in its national search for the head of its real estate and facilities. As a trustee of the UC Berkeley Foundation and chair of its finance committee, Lalanne recalls getting a call from the Chancellor informing him that he, in fact, had been selected for the job.
“Bob, you’ve been a volunteer for many years, you’re here three days a week on campus, you need to take this position. You have no choice. Call your wife and tell her it’s done,” he described the call to the audience who attended the luncheon at the conference where he gave the presentation. And so effective January 13, Lalanne became a state employee with the title of Vice Chancellor for Real Estate.
What preceded the search and his subsequent selection was a sequence of events that transformed UC Berkeley finances. State funding, which at one point had accounted for nearly half of the university’s budget was significantly reduced. The state today funds only about 12 percent of the school’s annual $2.4 billion budget, making the public institution transition its financial model to a private one, raising money from private donors and its vast network of alums.
Its real estate portfolio is vast, and it was only a matter of time before the school realized that it had to consolidate its management under a single role, a method employed by other universities with sizeable real estate assets. The time when funding development on campus included a call to Sacramento is long gone, and UC Berkeley is now effectively on its own.
“When I arrived, I inherited about 400 buildings and about 400 employees,” said Lalanne. The challenge, however, was that there was very little information on those buildings. Asset management reports were non-existent, and custodial costs were unknown. So, the first order of business involved a deep-dive of the school’s assets, housing, retail, land, etc., to understand what opportunities and challenges existed for the university.
Lalanne and the real estate advisory group of trustees that he led realized after the analysis that there was up to $40 million of annual cashflow that could be realized from improved management of the real estate assets.
A group of approximately 60 project managers formed a construction company, known on campus as Capital Projects. This group today does around $400 million in construction projects annually, making it a significant organization in its own right. Lalanne hired Todd Pennington who at one point led the western operations for Bovis Lend Lease to help rebuild campus standards and inspection policies among other things. They initiated a 90/90 program that will create asset management reports for the largest 90 buildings in the next 90 days.
Yet construction and property management are just one aspect of the workload. UC Berkeley leases nearly 500,000 square feet in Berkeley and Oakland at an annual cost of $8 million a year—Lalanne is evaluatig if that capital can be redirected to fund real estate development so that a fiscal outlay can be turned into revenue. He also has to manage a utility operation on campus (UC Berkeley operates its own cogeneration facility), a residential portfolio of 3,000 housing units, an athletic facility as well as retail and hospitality space. In addition, the university owns 15 parking lots, which it can develop for various purposes, all the while managing a 6 percent debt capacity, which limits some of its activities, a figure that is pre-determined and regulated by the state.
The most exciting aspect of this role is perhaps the opportunity presented by the Richmond Bay Research Park, a 130 acre, 5 million square feet research park in Richmond, which the university will be developing over the next few years.
“We’re looking at it as becoming a world-leading multi-disciplinary, international research park, where it’s going to have a different focus; whether it’s green energy, biochemistry, engineering, the information school will probably be out there, and we’re also talking with universities from China and Brazil,” Lalanne said.
The university is expecting CEQA entitlements to be finalized this month and development to begin soon to create a significant revenue generator for the school. There is already roughly one million square feet of lab space in the park. According to Lalanne, Tesla, Inc. uses the facility to test batteries, while an expansion could bring Berkeley Lawrence Lab as a tenant. Further in the future, the university is hoping to develop a facility that would be jointly used with UC San Francisco for bio medical research.
It is an exciting opportunity that Lalanne likened to another research hub in San Francisco. “Like Mission Bay in San Francisco, UC might be some of the tenants, but whereas Catellus owned the dirt under Mission Bay, the UC Berkeley campus owns these 130 acres,” he said.
“We’re looking at that project literally as an office, research and land development opportunity,” Lalanne added. A transformation that will reshape the university and the Bay Area, as a whole, too.
Photo courtesy of UC Berkeley