Energized Emeryville Attracts Retail Landlord Interest

By Jon Peterson

East Bay travelers might be urged not to blink as they pass through the region’s micro-city of Emeryville for fear they just might miss it.

EmeryvillePublicMarket_SpeedingtrainBut market watchers say the 1.25-square-mile urban enclave, best known for its large biotech and life science industrial base, has a far larger presence than its size might indicate when it comes to its retail strength: Landlords dominate the Emeryville retail marketplace simply because there are not enough available storefronts to accommodate merchant demand to be there.

“Right now there are more retailers who are looking for space in Emeryville than there are spaces available for them to occupy,” said Jeff Berkes, West Coast president of Maryland-based Federal Realty Investment Trust. “It was a big factor in our recent purchase of the East Bay Bridge shopping center.”

Federal has just paid $116.6 million to acquire the 438,000-square-foot property from a joint venture of Dallas-based TPG Capital and Oakland-based Catellus Development Corp. The property faces 40th Street in Emeryville and has visibility from the U.S. 580 MacArthur Freeway. It was built in 1994, and occupancy at the time of the sale was 99.7 percent.

The purchase by Federal Realty represents the second major retail asset to sell in Emeryville in the past few months. In November, City Center Realty Partners and Angelo Gordon & Co. bought the Emeryville Public Market located at 5959 Shellmound St. At the end of last year, apartment owner and developer Equity Residential, as part of its much larger acquisition of a portion of the Archstone Enterprise LP portfolio, also bought a 175-unit apartment complex in Emeryville that is now under construction.

Emeryville “is a very dense market that is growth-controlled but has plenty of demand from tenants,” said John Sechser, senior vice president and director of retail properties for the Transwestern brokerage house in its Walnut Creek office. “It’s a very positive market with no crime issues and strong transportation features.”

Federal Realty’s regional flagship property is the 647,000-square-foot Santana Row development in San Jose, where Berkes has his offices. The center represents the single largest capital investment for Federal at more than $609 million so far, with another $300 million on tap, according to filings with the U.S. Securities and Exchange Commission and comments by its chief executive to analysts on its most recent conference call. But that is not all that Federal is doing in the Bay Area.

The company paid approximately $100 million for the Westgate Shopping Center in San Jose in 2004 and has spent millions more upgrading it. It has brought Brooks Brothers and H&M to a Post Street building it owns in San Francisco. Both are prominent tenants in Santana Row as well.

The company also has substantial ownership in downtown Los Gatos, one of the most healthy, small-town downtown clusters in the Bay Area.

The East Bay Bridge property attracts traffic from Albany to the north, the Berkeley Hills to east and the southern part of Alameda for the south. The primary trade area has a population of 600,000 people while a million people live in the secondary trade area.

“We look for properties that are in a great location, have high barriers to entry, have a strong trade area and that will allow us to increase the value and cash flow of the property at some point in the future. The East Bay Bridge property met all of these qualifications,” Berkes said.

Many of the tenants also have rents that are far below market primarily because leases were signed nearly 20 years ago. “Some of the tenants in the property have rents that are 50 percent of market, and some others are two-thirds or three-quarters of today’s market rents,” Berkes said.

An existing tenant also is Office Max, one of three office supply stores in the immediate vicinity. “I would guess that one of these stores might be gone at some point in the future, and if this happens in our property it could lead to a re-leasing opportunity,” he said.

Federal Realty is also looking at potential long-term change. The property as it stands now is a single-story retail complex with surface parking, Berkes said. “We think that this might not be the best and highest use over the long term, and a higher density project is something that might be something to consider.”

The acquisition represents Federal’s first shopping-center purchase in the East Bay since January 2005 when it acquired the 242,000-square-foot Crow Canyon Commons in San Ramon, a Lucky grocery-anchored center with a Loehmann’s department store and Rite Aid Pharmacy.

The San Francisco Bay Area remains a Federal Realty target market. The company is looking for all kinds of retail except for enclosed regional malls including its staple property type, grocery-anchored retail, plus lifestyle centers, regional community centers and mixed-use assets with a strong retail component.

West Coast Commercial Real Estate News