By Meghan Hall
Located strategically right in between San Francisco and San José, Redwood City has quickly become a major hub for companies such as Oracle, Box, Electronic Arts and Shutterfly as they seek the proximity to the Bay Area’s top talent and other major technology hubs. As a result, Redwood City has seen a sharp decline in vacant office space over the years, but new projects such as Menlo Park, Calif.-based Acclaim’s 100,073 square foot office building located at 855 Main St., are finally breaking ground.
“The project has been a really interesting and fun experience for us, as we see Redwood City developing into a wonderful place for employees to work and for people to live along the Peninsula,” said Gary Johnson, partner at Acclaim Companies.
In November 2018, Acclaim secured a $65.7 million construction loan to finance the development of the project, which is developed alongside W.L. Butler and DES Architects — two Redwood City-based companies — and includes 6,900 square feet of ground floor retail space. The financing came from New York-based Square Mile Capital Management LLC.
Obtaining construction financing in the Bay Area may not be news in and of itself, but this project is starting development on a speculative basis, which is something not many developers in the region would undertake. At the same time, the development is the only speculative office project in Redwood City. While some developers may have more difficulty accumulating funding without a tenant in tow, Square Mile Managing Director Michael Lavipour said that was not a factor in choosing to work with Acclaim.
“This office development is one of the very few new developments in construction or in the planning process in Redwood City,” explained Lavipour. “When we look at speculative office projects we want to make sure they have really good demand generators and fundamentals. This site had all of that.”
Demand for office space on the Peninsula and Redwood City is strong given a general lack of supply of offices, said Lavipour. According to commercial property data collected by Redwood City, the office vacancy rate is currently hovering just below 6 percent, while gross asking rent, according to estimates, could reach as high as $60 per square foot.
The project site is located in the heart of Redwood City’s urban core, with easy access to Philz Coffee, Chipotle and The Patty Shack. 855 Main St. is also the only office development that’s currently in construction along the Caltrain Corridor, according to Johnson. The project itself will also include two levels of below-grade parking, an art gallery on the first level and several outdoor terraces. The project team has plans to keep the 1920s neoclassical façade of the current building and incorporate it into the new development.
The development plans submitted to the city stated that the project was planned for 78,832 square feet of office plus an additional 6,900 square feet of retail. The newest statements from Square Mile Capital Management and Newmark Knight Frank reveal, however, that the square footage for the development is now 100,000 square feet. When asked about the discrepancy of the two, Johnson explained that the difference is attributable in how the city measures the space. Representatives from the city did not return a call in time of this publishing.
The project broke ground in September and should be completed in early 2021. Johnson stated that there has been a lot of interest in the property, and Acclaim is presently negotiating with several potential tenants for the space, although no final leasing agreement has been signed.
“We’ve seen a wide array of interest across the board from tech, law firms, service industries and investment banks, as well,” said Johnson. “There’s been a lot of competition, because the site is so well located, and you can deliver any number of of things to your employees with this site.”
The office project has been in the development pipeline for some time; Acclaim submitted its application for the site back in November 2014, with initial approval for the development coming a few months later in the spring of 2015. However, as development within Redwood City began to take off, the city implemented its Downtown Precise Plan (DTTP), which imposed a 500,000 square foot cap on new office development. Several office developments made their way through the approvals process before Acclaim, and five, 100 percent pre-leased projects were approved and entitled under the DTTP, reaching the cap.
“Trust me, it wasn’t our decision to wait,” said Johnson with a laugh. “It was just the entitlement process took a little bit longer to work through. Under the cap, it would have been a much more abbreviated process.”
To get approval for the project, Acclaim had to procure a General Plan Amendment and a Downtown Precise Plan Amendment to increase the office cap by the building’s square footage. The City Council approved the amendments in June 2018, allowing the project to move forward again after several years.
“Getting a general amendment takes time, and it takes support,” said Johnson. “Really without grassroots support from businesses and retailers and the residents of Redwood City, this project really would not have happened.”