Upfront: Economic resurgence

Marin benefits from tech push-out

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Kaiser Foundation Health Plan recently purchased a 148,000-square-foot office building in San Rafael. Photo courtesy of Loopnet.com.

by Joseph Mayton

Editor’s note: This story is under review following reports of challenges to the veracity of Joseph Mayton’s reporting for other publications.

Kaiser Foundation Health Plan’s purchase of a 148,000-square-foot office building in San Rafael has highlighted the growing interest of companies to move to the North Bay in an effort to acquire more space and avoid the high prices of San Francisco. With a $22 million price tag, the purchase may appear high, but Kaiser says it will give them more opportunities to serve the local communities of Marin and Sonoma counties.

Judy Coffey, senior vice president and area manager at Kaiser Permanente Marin-Sonoma, says that the new building will “allow us to serve our members and patients” in the region. The building at 1650 Los Gamos Drive in San Rafael is part of Kaiser’s continued expansion and goals of reaching more patients and clients.

“Over the next two years, we’ll be working with the city of San Rafael and our physicians and staff to plan and provide medical services in this newest medical office building,” Coffey says.

Kaiser told the Pacific Sun that the company was in the preliminary stages of development of the space, and would not provide any details on how the health provider will rework and redesign it.

With some 70 percent of the building available for lease when Kaiser made the purchase, it should allow the company to manage the space without being forced to evict, if necessary, any current lessees. At present, Genworth Financial and the education nonprofit 10,000 Degrees call 1650 Los Gamos Drive home.

It is unclear what will happen to those two entities.

This is not the first time that Los Gamos Drive has experienced an expensive turnover. According to Marin County officials, the office building at 1600 Los Gamos Drive was purchased for $28.4 million in 2011 and nearby BioMarin Pharmaceutical purchased the San Rafael Corporate Center for $116.5 million in early 2014.

Local reports say that the total cost of the county’s acquisition and improvement of 1600 Los Gamos was $82 million.

The vacancy rate for Class A office space—such as at 1650 Los Gamos—was about 20 percent countywide at the end of June. This is good news for many companies who are looking to keep infrastructure costs low, but are struggling to make it work in nearby San Francisco, where both commercial and residential prices have skyrocketed to unprecedented levels in the past few years.

The tech boom in Silicon Valley has resulted in the price increases that have disrupted the status quo for many across the Bay Area. Recent exoduses of the Cartoon Art Museum and the California Institute of Regenerative Medicine, a stem cell research agency, have highlighted the struggles of nonprofits and businesses alike in maintaining their San Francisco addresses.

The Institute had been in San Francisco for a decade, but announced that it was leaving for Oakland following the expiration of its 10-year free rent deal with the city, which expires in November. Spokesman Kevin McCormack says that to rent a comparable space would cost around $1.5 million each year, but in Oakland rent drops by half.

He added that when the Institute was looking to relocate, Marin was a contender, but Oakland eventually won out due to proximity to central urban areas.

Statistics published by The Information show that commercial rent per square-foot in San Francisco has nearly doubled in four years, from $34.02 in 2010 to $64.45 presently. In the third quarter of 2000, at the peak of the dot-com bubble, per square-foot commercial rent hit $67.20.

San Francisco Mayor Ed Lee’s office has pushed forward on initiatives to assist nonprofits to remain in the city, but it is proving difficult. His office says that they are doing “all that we can at the moment to assist the many requests for assistance that are coming in as rent prices soar.”

The Kaiser purchase may be the latest big deal to go through in Marin, but another prime location is currently on the market and has already sparked interest from San Francisco investors. The north San Rafael hilltop landmark building at 1 Thorndale Drive is reportedly set to be bought by a commercial investor from San Francisco, although details of the deal are only slowly emerging.

It is an interesting time for Marin’s most affluent office space, with some 40 percent changing ownership in the past three years alone, says San Rafael-based Newmark Cornish & Carey. The North Bay Business Journal reports that 1.8 million square feet has also been sold off in the same time period, “potentially expanding to two million square feet should the pending sales of 1 Thorndale and 100 Wood Hollow in Novato go forward.”

According to Marin officials, who were not authorized to speak to the media due to the purchase by Otto Finlay Investments being in escrow for $15.5 million, the deal is expected to be finalized by the end of the year.

“It should happen by mid-December if all goes well,” one official with knowledge of the deal says.

Marin has experienced an economic resurgence of late, largely as a result of the tech push-out spillover. It is also bringing with that same economic boom middle-class San Franciscans who have been pushed out by soaring rental prices. In many ways it’s a win-win for Marin and the North Bay, where rents are lower than the big city and allow for companies like Kaiser to draw a workforce from the area.

Martin Ghosin, a 29-year-old developer who works three days a week in Santa Clara, says that he left his home closer to work so he could help the company look for office space in Marin. “We are still looking, but we have a number of options and hopefully soon so I can stop commuting those three days, but I will say I have more space and the rent is much less than it would have been if I stayed down south.”

For him and others, the move to Marin means warmer weather and larger spaces. And now with the growing influx of companies like Kaiser and investment firms putting large sums of cash toward developing properties, the economic opportunities and jobs on tap are helping to re-establish Marin as a potential alternative to the exorbitant costs of staying in San Francisco and Silicon Valley.

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