Alexandria Takes $38.8MM Write-off on 541,284 SQFT South San Francisco Project, Former Partner Prologis Will Continue Development

Alexandria Real Estate Equities Prologis South San Francisco ZGF Architects 100 East Grand Ave.

By Kate Snyder and Vladimir Bosanac

Pasadena-based Alexandria Real Estate Equities and San Francisco-based industrial giant Prologis have decided to part ways from their joint venture in South San Francisco. Just weeks after their 541,284 square foot project gained approval from the city’s planning commission, Alexandria announced that it was pulling out of the joint investment and it will recognize a $38.8 million impairment charge to write off its entire investment in the project. The company made this announcement in its Form 10-Q filing with the Securities and Exchange Commission filed on October 24th.

According to a spokesperson at Prologis, Alexandria had an option for a ground lease on the property, and the company defaulted on its obligation and is no longer involved in the project. Prologis, however, will continue will the development, although no further details about the development or the timing of the next steps were provided at this time.

The project at 100 East Grand Ave. in South San Francisco involves the development of a life science campus with two buildings – one 10-story building at 298,827 square feet and one eight-story building at 244,467 square feet – and an eight-story parking garage with 782 parking spaces, according to submitted project plans. In total, the project is estimated to be 541,284 square feet. Alexandria was the applicant for the project, and ZGF Architects is the designer. Prologis is listed as the property owner, according to industry reports.

As presented, the property was expected to consist of about 60 percent research and development laboratory uses and about 40 percent office uses, according to the project plans. Included in the proposal for the 10-story building is also a cafe of approximately 8,800 square feet.

The site location is nestled between East Grand Avenue and the U.S. 101 and is described in proposal documents as a gateway between the 101 and downtown South San Francisco. Nearby are high-density multifamily complexes. The site also has access to transportation services like Caltrain, the U.S. 101, BART and several ferry terminals. Project documents also tout the site’s views of the city to the west, mountains to the north, and bay to the east.

Part of the proposal involves the demolition of existing industrial buildings and infrastructure improvements along Sylvester Road and East Grand Avenue to better incorporate more convenient circulation in the Eastern Neighborhood.

In its third-quarter earnings call in October, Prologis announced that it was lowering its development starts from a range of $4.5 billion to $5 billion to a range between $4.2 billion and $4.6 billion. While the company announced occupancy of its portfolio at 97.8 percent, CEO Hamid Moghadam said in a statement that he was planning to run the company in the near term “assuming an economic slowdown.”

Alexandria, taking a similarly cautious approach to development stated in its earnings document that “the macroeconomic environment has deteriorated and negatively impacted the financial outlook for the [South San Francisco] project.” 

West Coast Commercial Real Estate News