SAN RAFAEL – About 158,000 square feet of new offices is set to be ready for tenants in downtown San Rafael, and one of the builders says there already is serious interest in leasing nearly 18 percent of the new space.
The $84 million second phase to San Rafael Corporate Center, which includes two office buildings and a parking garage, is testing demand for class A office space in the central San Rafael market and certified “green” accommodations. Nearly 42 percent of that 754,000-square-foot class A San Rafael submarket was available for lease at the end of the second quarter, according to commercial real estate brokerage Orion Partners.
The garage was finished this month. The first building, located at 770 Lindaro St., is set for completion in September, and an adjacent building at 790 Lindaro is slated to be ready in October. A third and final phase with an 80,000-square-foot building as well as a second parking garage will be built sometime in the next five years.
Three undisclosed Marin County companies are in various stages of signing letters of intent to lease some of the new space or are planning their offices, with space needs totaling 28,000 square feet, according to Wick Polite, president and chief executive officer of San Rafael-based Seagate Properties Inc. In 2007, Seagate and the asset management division of New York-based JPMorgan Chase & Co. purchased the 13-acre property with 158,000 square feet in two existing office buildings.
“There are a lot of people looking around and waiting on the sidelines for the past year waiting to find out what’s happening with their businesses,” Mr. Polite said. “A year ago they were holding off, and I think the result is that they are getting serious to committing to space needs.”
The three active prospects are interested in leasing more space than they currently occupy, and in one case it would be twice as much space, according to Trevor Buck, one of the NAI BT Commercial agents marketing the property.
“Most of the activity for the new space is coming from Corte Madera, Larkspur/Greenbrae or San Rafael,” he said. “There are tenants in the markets with leases rolling six to 12 months out and are looking to upgrade their space.”
Higher-end office rents overall have been decreasing in the past 18 months compared with 1999 levels, first because of consolidation among residential real estate-related operations and then after a general slowdown in all industries, according to local real estate experts.
Part of the recent rent retrenchment has come from some large property owners eager to maintain certain levels of occupancy have been approaching tenants long before leases expire to offer deals to keep tenants in the building or in business, according to market sources.
Some local real estate experts have expressed concern about the asking rental rates for the new San Rafael Corporate Center space, which start at $3.50 to $4 a square foot monthly on a full-service basis, when some class A rents in central and southern Marin are around $3. The asking rental rate for the existing corporate center space is $3.25.
However, the ownership of the corporate center isn’t worried about chasing the market, according to Mr. Polite.
“We think we will wait until we achieve a lease rate we think is sensible, rather than compete on price with a 20-year-old building in Larkspur Landing or downtown San Rafael,” he said. “We’re very low-leveraged, and economically very secure, so we don’t need to take everything coming in the door.”
He pointed to the $124 billion JPMorgan fund of which the property is a part. The bank recently started marketing for sale 23 office properties in eight states, including two in California, totaling 7.1 million square feet, according to the Wall Street Journal.
Mr. Polite said Seagate passed up on a “very large” tenant and a few small ones for the new corporate center space because it “didn’t want to get into the mud and grovel.”
Real estate sources report larger-scale space being offered on several-year terms at between $1 and $2 a square foot per month at Marin Commons in north San Rafael and the Fireman’s Fund campus in Novato, both of which have large amounts of available space.
The existing two buildings at San Rafael Corporate Center were finished in 2001 at the end of three-year boom in Marin commercial real estate that saw southern county rents soar. Equity Office Properties Trust sold the property to Sterling American and Hines in 2005.
Seagate, which owns about a half-billion dollars of Marin real estate, including Montecito Plaza Shopping Center, planned to build the remaining three buildings with a high level of environmentally friendly features. When the company was updating old drawings for the new buildings in late 2007, Seagate figured it could achieve Silver-level Leadership in Energy and Environmental Design (LEED) certification, the second of four levels, easily in just building to modern codes.
After upgrading the glazing and mechanical systems to meet the LEED checklist, it became apparent the second phase could achieve Gold-level certification, according to Mr. Polite. Other LEED-related features include showers and bike storage to encourage less commuting by car.
By going through a precertification process, verified during construction by LEED consultant Kema of Oakland, the project could achieve certification upon city approval to start letting tenants move in.
The LEED process also allowed for “value engineering” the project, which along with aggressive subcontractor bids brought the project to completion $500,000 to $600,000 below budget, according to Mr. Polite. Other aggressive bids came from providers for the recycled and sustainably sourced materials such as steel from Montana and wood from the South Bay.
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