By Meghan Hall
One of the largest adaptive reuse projects in the San Francisco Bay Area has been posted for sale in a major shift in plans for LBG Real Estate Companies. Richmond’s embattled Hilltop Mall, which already has titles procured for a massive overhaul, is now up for sale. The property hit the market at the end of last week, and is so new to market that the sales team and LBG have not settled on guidance pricing yet.
“The reason that we’ve adjusted our business plan is really in response to the COVID-19 pandemic and changes in demand,” explained Doug Beiswenger, founding partner at LBG Real Estate Companies. “There is a very significant change in demand in the life science and biotech; needless to see there is expected to be a tremendous amount of growth in that space because of the pandemic and other reasons…”
LBG originally acquired the property in 2017 for $23.75 million with Aviva Investors after it went into foreclosure. Since then, LBG has been working to rebrand the property into “Hilltop by the Bay,” which features Asian-centric retailers and restaurants, as well as position the asset for large-scale redevelopment.
LBG had planned to build out the property over several phases. In all, the project site is entitled for 9,600 residential units as well as 16.7 million square feet of retail, residential, hotel and medical uses. When LBG originally began hashing out its plans for the project, the company had planned to build between 3,000 and 3,500 residential units, as well as two hotels on the property. The first phases of the property’s repositioning—including renovations to the mall’s exterior and interior—was originally expected to begin this year, with a second phase kicking off at the end of 2020 or beginning of 2021.
In a prior interview with The Registry, LBG Co-Founder Leslie Lundin categorized the redevelopment of the property as “a billion-dollar deal.”
Those plans have shifted significantly and instead, LBG is planning to sell.
Biesenger acknowledged that while current market conditions caused by coronavirus have allowed the life sciences industry to thrive, they have also put an immense amount of pressure on retailers, including those at Hilltop by the Bay. Currently, the property is about 16 percent leased, and even prior to COVID-19, Hilltop by the Bay were less than fifty percent leased. Beiswenger said that the situation ultimately altered LBG’s business strategy.
According to a Newmark Knight Frank offering memorandum obtained by The Registry, the goal is to sell the Property mostly vacant, creating an “ideal canvas” for a developer to pursue redevelopment.
“That, combined with COVID-19 and state orders to shut down…that resulted in completely vacating the closed mall,” stated Beiswenger. “That was necessary anyhow for what our businesses plan has become now as a result of COVID-19.”
NKF and LBG believe that the property would be well suited for a life sciences tenant, and that growing companies will look to take advantage of the property’s location and space.
“What we have to offer is an extremely well-located East Bay location in a mostly two-story format,” said Beiswenger. “One of the biggest attributes of what we have, frankly, is sheer size…We are extremely competitive not only with regard to location and improvement types, but from the fact that [the buildings] are existing and you do not have to build from scratch…”
To build the property’s existing 1.3 million square feet of space today would cost $400 million, estimates Beiswenger.
Currently, life sciences vacancy across the Bay Area stands at just 5.7 percent. There are currently 2.1 million square feet of tenant requirements in the region, with 1.7 million square feet of existing availability. NKF and LBG believe that this demand will continue strong, aided by companies’ decisions to potentially leave denser submarkets. The East Bay, in particular, is well-positioned to absorb the excess demand for life sciences space coming from the San Francisco Peninsula. Bayer is working to expand its presence in the East Bay, with a 30-year plan to create a one million square foot campus with 1,000 employees. Other major companies in the vicinity include Zymergen, who occupies 465,000 square feet, Novartis, who has leased 89,000 square feet and Amyris, who occupies 140,000 square feet of space.
Thus far, there have been several parties interested in acquiring Hilltop by the Bay. However, who ultimately ends up with the property and how it will be developed in the future remains to be seen.
“There may be a lot of different developer types that end up with parts of this property,” stated Beiswenger. “There may be a master developer that ends up with all of the property or there could be a user that wants the entire property…we received a broad array of interest from all of those users.”