Stars Aligned for More Information Tech to Move to Mission Bay

By Jon Peterson

The Sobrato Organization plans to target information-technology companies to occupy the balance of the vacant office square footage at its 500 Terry Francois Blvd. building in San Francisco’s Mission Bay neighborhood.

The leasing strategy promises to inject an even greater IT presence in the life science and biotechnology hub, which is anchored by a new campus for the University of California, San Francisco, and a $1.5 billion hospital for children, women and cancer treatment. The 878,000-square-foot medical center is expected to open in 2015.

Sobrato’s plans follow its successful lease for approximately a third of its 305,000-square-foot Mission Bay building to Meraki Inc., a cloud-networking software and hardware company that has just been acquired by Cisco Systems Inc.

Technology companies will be the sweet spot for marketing efforts to lease the remaining 194,000 square feet available in the building, said Michael Covarrubias, chairman and chief executive of San Francisco-based TMG Partners, which is advising Sobrato on the building’s lease-up.

The Sobrato Organization and TMG announced Nov. 15 the signing of the nearly 112,000-square-foot lease at 500 Terry Francois with San Francisco-based Meraki. The private company has been located at 660 Alabama St. and, according to a 2012 corporate brochure, has seen year-over-year revenue growth of 100 percent. It was founded in 2006 and funded by Sequoia Capital and Google Inc. It has more than doubled this year to 330 employees.

Meraki is expected to occupy the fourth and fifth floors of 500 Terry Francois in mid-2013 under a 10-year lease. The value of the lease has not been disclosed.

Cisco executives told investors and analysts on Nov. 19 after the acquisition was announced that Meraki would remain in San Francisco, with its leadership team expected to remain in place. Aside from gaining a constellation of products aimed at helping mid-sized enterprises with their information technology needs—a market in which it is not as established—Cisco gains Meraki’s exceptional talent, they said. Cisco is San Jose-based and is a major employer in the South Bay. Exclusive negotiations with Meraki have been ongoing since September, the Cisco executives said.

Mission Bay is a 303-acre redevelopment area championed by the City and County of San Francisco. It is planned for 6,000 housing units, 4.4 million square feet dedicated to office and life-science use, 41 acres of parks and open space, and the UCSF research campus and hospital.

Yet, Mission Bay is gaining stature as an attractive alternative for IT companies in San Francisco as it gains amenities necessary for people to see it as a true neighborhood, Covarrubias and others said. The trend gained major prominence in late 2010 when life-science real estate investment trust Alexandria Real Estate Equities Inc. said it had sold a Mission Bay site entitled for two million square feet of development to enterprise cloud-services company Salesforce.com Inc. for $278 million, all cash.

Alexandria remains a major Mission Bay property owner, and it is unclear what Salesforce now intends to do with its land after a massive leasing effort a year ago in existing San Francisco buildings.

“I think that there were many factors that attracted Meraki to our building. It will have high ceilings, as there won’t be any air conditioning units hanging down from above to block any views. Outside of the building, we have an area for both the storage of bikes and bike racks, so employees will be able to ride their bicycles to work,” said Mike Field, Sobrato’s director of commercial real estate. Housing also is rising close to their building, he said. “There is a new Starbucks within one or two blocks.”

Technology companies and their leasing preferences also were a topic of discussion at the 35th Annual Real Estate & Economics Symposium staged by the University of California, Berkeley, Fisher Center for Real Estate & Urban Economics in San Francisco on Nov. 19.

“Just a generic office building will not work,” said Joe Lewis, president of Santa Clara-based Orchard Commercial, a high-profile South Bay property management company. “You need to have public transportation nearby. These tenants want 30,000-square-foot to 50,000-square-foot floors plates with open spaces. There needs to be food places nearby, so that the tech employees can walk to and then talk with each other about new ideas for projects. They have a desire to have housing nearby, so they can walk to work and bring their dogs or ride a bicycle.”

Photography by Chad Ziemendorf