By Meghan Hall
After four years of planning and wrought-out debates over project details, Hines has secured formal approval for an 806-foot tower adjacent to the Salesforce Transit Center. However, with Salesforce now out of the picture, Hines will face the prospect of construction without an anchor tenant in tow at a time when vacancy in San Francisco has skyrocketed.
The Parcel F project, located at 542-550 Howard, will include 275,674 square feet of Class A office space, 433,556 gross square feet of luxury condominiums and a 247,765 square foot, five-star hotel. Parcel F is also just one of three projects that will connect directly to the Salesforce Transit Center’s 5.4-acre rooftop park.
A joint partnership including Urban Pacific Development, Broad Street Principal Investments, an affiliate of Goldman Sachs, and Hines acquired Parcel F from the Transbay Joint Powers Authority (TJPA) in July 2016. The project has been in the works continuously since.
San Francisco Supervisors voted 10-1 to approve the project. The sole rejection came from Supervisor Aaron Peskin, District Three. Peskin rejected the proposal under a bid to require Hines to obtain building permits within three years. Peskin argued that such a requirement would permit the City to pursue community benefits from the developer.
Upon approval Hines is seeking to raise $1 billion this year from a variety of lenders, according to Hines’ COO and Deputy Head of Markets, Cameron Falconer. Hines is aiming to break ground this year.
“We are committed,” explained Falconer. “It will be a wonderful addition to the city.”
Pursuing construction without an anchor tenant can be a gamble. Salesforce, the city’s largest private employer, withdrew from its lease at the beginning of March. The announcement that Hines no longer had an initial lease commitment in hand comes shortly after Salesforce announced its employees would have the option to work remotely full time, even when it became safe to resume in-office work.
Many others have also walked away from their San Francisco offices, including Yelp, who posted its 162,000 square foot space at 140 Montgomery to the sublease market. Others who have walked away from commitments include Pinterest, who terminated its lease for 490,000 square feet at 88 Bluxome St., and Uber, who has been softly marketing its spaces at is prepares for a move to Mission Bay. Currently, half of the San Francisco office market is comprised of available sublease space, according to recent data from brokerage firm Cushman & Wakefield. Sublease space is still on the rise and has surpassed levels hit during the Great Financial Crisis of 2008 and 2009.
Year-to-date absorption by the end of the fourth quarter came to a negative 4.69 million square feet as companies refrained from making major real estate decisions. Asking rents are also continuing to adjust. While asking rents still remain some of the highest in the nation, the overall asking rent fell to $75.11 per square foot across all asset classes—an eight percent decrease year-over-year. Class A asking rates remained slightly higher, at $78.39 per square foot.
It is against this backdrop that Hines will begin work on its latest tower. Parcel F is one of the last sites available for development of a high-rise of this scale in downtown San Francisco. Upon completion, the project will be the fourth tallest building in the City, making a dramatic impact on its skyline. The tower has been designed by Pelli Clarke Pelli Architects, who also designed the Salesforce Tower and terminal, along with HKS Architects, the architect of record.