By Meghan Hall
A three-story research and development building in San Francisco’s Mission District—with significant yard space—has been posted for sale. After completing a $6.2 million renovation of the property, owner BUILD has decided to place the asset on the market, with guidance pricing for investors around $23 million, according to a source with knowledge of the asset.
Located at 2741 16th Street, the property sits near the heart of San Francisco. The asset is currently being marketed for sale by brokerage firm Newmark Knight Frank. NKF did not immediately return The Registry’s request for comment.
The building totals 22,421 square feet and the yard totals about 25,000 square feet, states an offering memorandum obtained by The Registry. San Francisco-based BUILD acquired the property in 2017 for $11.5 million, according to project documents. Originally, the building had long been owned and used by Comcast. BUILD then undertook an extensive repositioning and modernization of the building that included seismic upgrades, a new elevator, upgraded power and interiors, and a new, expansive roof deck. Renovations were completed in 2019. In the end, BRIDGE spent $4.371 million, or about $195 per square foot, on base renovations. Tenant TI Investment came in at $1.041 million, or about $46 per square foot, and the tenant improvement allowance came in at $796,000, or $35 per square foot.
“It’s a unique property in that you’ve got the building itself and then you got the yard,” the source, who preferred to remain unnamed to protect business relationships, said. “If you look around, almost all of the yard space has been redeveloped into buildings or it is used by PG&E, Comcast, or other users. It’s really hard to find space with a yard.”
NKF notes that the within a half-mile of the property, 2741 16th Street is the only asset with significant yard space that is not corporately owned or currently undergoing redevelopment. Additionally, demand for yard space is strong as a result of its rarity. Tenant demand for R&D with yard space is more than 600,000 square feet, 300,000 square feet of which comes from autonomous vehicle companies.
Currently, both the building and yard are 100 percent leased to Ouster, Inc. Ouster, a developer and manufacturer of lidar technology, with its clients spanning more than 15 industries and 50 countries. In June of this year, the company has raised $111 million in Series B funding from venture capital firms such as COX Enterprises, Constellation Technology Ventures, Fontinalis Partners and TAO Capital Partners. Ouster also recently signed a four-year lease extension; in all, the company has seven years of lease term remaining, with a lease expiration of August 2027.
The property’s future owner could either continue to lease the building and affiliated parking lot, or redevelop the remaining portion of the lot. PDR zoning allows for light industrial uses or individually demised small office units—up to 99,000 square feet of additional space.
Demand for R&D space within San Francisco has also increased rapidly over the past several years. While there is currently just under 675,000 square feet of R&D space on the market, tenant requirements exceed two million square feet—204 percent more demand than availability. Even though inventory has increased by 94 percent since 2017, vacancy has lowered 80 percent, ushering up asking rates by two percent each quarter. How the R&D market and property will continue to fare remains to be seen.
“Pre-pandemic, I think investors were looking for yield, and where the yield was was in riskier deals. People were more than happy to accept that risk in the whole capital spectrum,” explained the source. “Deals that were stabilized didn’t get as much attention. That’s flipped on its head; capital is more skittish in buildings where there is lease-up risk or construction risk because there’s so little volume of deals. It’s really tough to say where the market is today.”