News

San Francisco – Mid-Market is red-hot with office building rehabs, but will exposed ceilings and a roof deck be enough to lure a technology company a half-mile north on Van Ness Avenue?

The seven-story 939 Ellis St. will begin leasing next month for 90,000 square feet of refurbished office space in what is the current home of the Bay Area Air Quality Management District. The district plans to occupy the building through 2015.

Long Market Property Partners, which bought the 116,000-square-foot building last spring from the district in a joint venture with Columbia Pacific Partners, had said they envisioned senior housing on the site. Now, they’re diving into the weakest office submarket in the city, but think they could be a bargain for a company that needs to expand in San Francisco by the start of 2016.

“We’re going to be the cheap alternative. We are a secondary location, we understand that,” said DTZ senior vice president Jeffrey Moeller, who is brokering the building.

The Civic Center-Van Ness office submarket had the highest Class A vacancy rate (11.2 percent) and lowest asking rate ($50.38 a square foot) in the city last quarter, according to research by CBRE.

The Ellis Street building, on the edge of Civic Center and Western Addition neighborhoods, also won’t have Muni and BART stations nearby, but a new bus-rapid-transit system is on the way. (Moeller said there will be plenty of parking, though.)

Moeller said the submarket will soon turn into a “relief valve” for a marketplace heated up by technology tenants, which gobbled up 91 percent of the 3.6 million square feet of office space leased last year. That demand drove office rents up 14.2 percent last year, according to CBRE.

“There will be spillover from downtown (and) South of Market areas because there has to be. People won’t necessarily go to Oakland en masse because they still need to be located in San Francisco for business and employees,” Moeller said.

Real estate investors have also targeted old, Class C buildings for renovations lately now that companies like Uber, Twitter and Zendesk have sprouted in old Market Street offices.

A building that’s fully refurbished with new lobbies, elevators, HVAC and 11-foot ceilings could be alluring for a potential 939 Ellis St. tenant. A brochure for the building also pitches 90,000 square feet of “open plan office space” with “building signage available” at the front of the building.

Moeller said the developer hasn’t finalized a budget for renovations for the building, which was constructed in 1961.

Tech companies in the market for 70,000 to 100,000 square feet include GoPro, Castlight, Citrix, Advent Software and Marin Software, according to a market source who didn’t want to be identified.

Moeller said brokers aren’t just focusing on tech companies though. A medical company could be a good fit because California Pacific Medical Center will sit nearby, he said. Condo developments from Oyster Development and Trumark Urban are also in the works a few blocks away.

Long Market Property Partners and Columbia Pacific Partners bought the building for $16.4 million from Bay Area Air Quality Management, according to Real Capital Analytics. Long Market’s other main investment in the area is 995 Market St.

Todd Seneker, managing director of Columbia Pacific Advisors, told the Business Times in May that opportunities for the building ranged from “a strong office renovation opportunity to a change of use to senior housing, a segment that is underserved in downtown San Francisco.