Publics Gobble Up Bay Area Real Estate

Plan Bay Area, Communities for a Better Environment, Earthjustice, Sierra Club, Association of Bay Area Governments, Metropolitan Transportation Commission

| By Sharon Simonson |

Publicly traded real estate investment trusts are pouring billions of dollars into the San Francisco Bay Area to acquire, develop and redevelop properties in what many identify as one of only a handful of U.S. metropolitan areas where they are sinking substantial new capital.

In the last 10 business days alone, office REITs Boston Properties Inc. and Kilroy Realty Corp., Pebblebrook Hotel Trust and multifamily behemoths Equity Residential and Essex Property Trust Inc. have disclosed new Bay Area investments reaching $1.5 billion.

All five companies already have significant existing Bay Area portfolios, and most have made other recent Bay Area outlays.

In perhaps the most stunning show of recent confidence, Boston Properties President Douglas Linde and Chairman and Chief Executive Mortimer Zuckerman said that their company would invest nearly $900 million in two San Francisco office developments: the new TransbayTower and 680 Folsom St., both South of Market Street.

But the eye-popping numbers don’t stop there. Equity Residential executives said Oct. 25 the Chicago company would invest approximately $420,000 a unit—more than $100 million total—in the 241-unit Townhouse Plaza and Gardens in downtown San Mateo, according to SeekingAlpha.com. The apartment REIT also bought 102 units in downtown San Francisco on Bluxome Street for not quite $24 million, they said.

The same day, Pebblebrook chiefs said their company had acquired San Francisco’s Hotel Palomar for $58 million, or not quite $300,000 a room. It was the fourth San Francisco buy since 2010 for the newly formed hotel REIT.

Meanwhile on Oct. 23, Kilroy Realty, a Los Angeles-based REIT that has bought aggressively in San Francisco and some in Silicon Valley, said that it, too, was returning to the well. The company paid more than $50 million for less than a half acre next to San Francisco’s new Transbay Transit Center. Kilroy would invest another $200 million to develop a 27-story, 400,000-square-foot “high-image glass office tower with floor-to-ceiling windows” on the site, the company said.

Also on Oct. 23 Palo Alto-based Essex announced it had paid $148 million for the 508-unit Willow Lake Apartments in San Jose. At the same time, the city of San Jose confirmed that Essex is an applicant along with Cupertino developer KT Properties to build a 285-unit high-rise apartment tower in downtown San Jose.

The drumbeat of news from the REIT sector is perhaps not a surprise. Both San Francisco and San Jose reached the peak of the rankings ladder for the Top 20 U.S. commercial real estate and homebuilding markets among this year’s more than 900 survey participants, according to the PwC and Urban Land Institute’s annual “Emerging Trends in Real Estate” 2013 report released Oct. 17.

San Francisco is now considered the best market in the country for commercial investment and development, and homebuilding. Sixty-two percent of the survey participants said San Francisco retail is a good buy—the greatest proportion for any city in the country, beating New York City at not quite 60 percent of respondents and Los Angeles at less than 48 percent of respondents.

San Jose is ranked the third-best metro area for commercial property investment and development and second in terms of its attractiveness for homebuilding, according to “Emerging Trends,” which is now in its 34th iteration.

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