Brandywine bails!

So it was just a few years ago that Prentiss Properties (which is now Brandywine) was on a tear, scooping up what felt like every other property in the Lake Merritt office district, building their own little Shorenstein-like empire over there.

It was exciting! They picked up 2101 Webster (then considered a steal at only $64.75 million). They were expanding into downtown proper, with the acquisition of 1333 Broadway. They built Oakland’s first spec office building in more than a decade! Back then, Brandywine’s representatives couldn’t stop crowing about Oakland, saying things like:

We’re very excited about the Oakland market,” she said. “We’ve invested quite a bit in Oakland, and we believe that Oakland is just in a really good position now for Class A, top-level space.

Of course, once Center 21 finished construction last fall and still, as far as I know, hasn’t been able to find a tenant, the attitude changed. Now, instead of the boosterish optimism, you’ve got CEO Gerald H. Sweeney telling newspapers:

As we assessed Oakland, it felt more toward the lower-growth, higher-capital-consuming curve. It’s a good market but we viewed it as one of the markets we’d like to exit.

Ouch!! Now Brandywine is selling the bulk of their Oakland properties: the Ordway Building, 1901 Harrison, 1333 Broadway, 2101 Webster, and Center 21. That’s about 1.7 million square feet of office space. The deal also includes a 15-year purchase option for land next to the Ordway.

This is just so sad. Brandywine definitely has some issues with its portfolio that have nothing to do with Oakland, so the most positive way to look at this would be that they just needed to get some cash from somewhere, and they just happened to pick us. The thing is, it really doesn’t feel like that. The sale comes with a $7 million impairment charge, due to the portfolio’s reduced value in relation to Brandywine’s investment. The $412.5 million sale also includes a two year interest free loan of $40 million. This whole package just screams “We can’t get out of town fast enough.”

Things in Oakland are feeling pretty grim lately, and losing major investors is never good news. But hey, there’s an upside to everything. Well, maybe not everything, but to this at least, and that’s that we get to welcome CIM Group, current owner of the downtown Marriott and Courtyard by Marriott, to the market in a big way. I don’t know much about CIM Group. In fact all I really know is that I found their press release (PDF!) about acquiring the Marriott a little delusional, but I suppose people less cynical than me would call it optimistic. In any case, it’s good to see someone still has some confidence in this town.

27 thoughts on “Brandywine bails!

  1. Chris Kidd

    The big question for me is: does this foreshadow a greater exodus of development investors in Oakland? Or are the ones currently involved too deeply entrenched to pull out now? I’d hate to see more ’14th & Jackson’s springing up around downtown.

  2. Joanna/OnTheGoJo

    Did 14th & Jefferson (Olson Co project) officially get abandoned? We didn’t have our monthly construction meeting in June, so I haven’t gotten any updates. And last I’d heard, 14th & Jefferson was back at work, but I haven’t seen any changes (or anyone working) when I was last by there a few weeks ago.

    The issue of abandonment came up during the JLS Redevelopment plan discussions because we’d just seen the Sierra Condo (3rd/4th/Oak) go but midway through. Luckily, it was only stopped for 6-8 months before someone else came along and bought the unfinished project. But what happened there is that design and other concessions were made for the buyer because the City (rightfully) didn’t want to see it sit as an empty, unfinished shell.

  3. Joanna/OnTheGoJo

    Urgh, I just realized that my third sentence said “Jefferson” when I meant “Jackson”. Two “J” president streets at the same 14th Street cross. I had heard that the Jefferson/14th project was abandoned, but that the Jackson/14th project had been revived, but have yet to see any sign that it is actually back on track.

    The Ellington at 2nd/3rd/Broadway has definately been put on a MAJOR slowdown – they were supposed to have tenants start moving in back in March/April – but they have not abandoned the project. Last I heard (6 weeks ago) was that they had made many interior design changes based on feedback from potential buyers.

    The 377 2nd Street/Embarcadero (known informally in the neighborhood as the “Mingles Project”) has cleared their legal battles with Mingles (John Ivey et al), but have apparently decided to hold off on starting construction.

    The Colony Project (name will probably be changed) at 2nd & Harrison is full speed ahead – it’s a Mike Reynolds project. He did a great job with Aqua Via (2nd/Madison) and will undoubtedly do what he usually does and rent it out first, and later take it condo, just as he has done with Aqua Via. (which has not gone condo yet) He won’t have to file to go condo later because of how he builds in the first place. I think it’s actually a really good idea for working out the kinks.

    200 Second Street has not made the 51% mark, but is starting to lease units. So are other properties such as 288 Third, Broadway Grand, and the Jade. Considering that the rental market is still fairly strong and the housing market isn’t, this makes sense to me. Plus, some people might move in and decide they want to buy their unit. Or, they’ll figure out before buying that this is or isn’t the neighborhood for them. (which I see a lot)

  4. Carlos Plazola

    It is not that I dislike Dan Lindheim as a human being. He is nice enough, and I’m sure if we drank a beer together, we’d enjoy each other’s company. I am an advocate for replacing him as Director of CEDA and now City Administrator because this is exactly the type of thing (Brandywine leaving) that we need to prevent, and I don’t believe Lindheim is capable of leadng the charge to restore investor confidence in Oakland.

    Dan Cushing, Senior Vice President at Brandywine, was very active in Oakland as the mayor was inagurated and has remained so up until recent days, I assume hopeful that Oakland would partner with him to help him lease up his building and bring a vision to the area near Center 21.

    To keep investors interested in Oakland during these challenging times will take 1)valuing them as participants in Oakland’s future (I have not seen Lindheim value anyone in the investment community), 2) assessing their needs (haven’t seent this either), 3) developing plans that address their needs for the short and long term, and 4) implementing plans to make Oakland continuously viable for them (not seeing much implementation coming out of the mayor’s office, period).

    We need their investments to grow our budget to provide better services for our residents.

  5. Doug Boxer

    It’s tough to see the forrest through the trees right now but things will improve.

    The downtown area with it’s three BART stops will be critical to the future of Oakland. Global warming is going to alter radically our land use planning. This is going to happen quickly. (See today’s Wall Street Journal re: Sacramento). The transportation corridors will be key to this change.

    Meanwhile the short term might look troubling but we have top-notch developers like Shorentsein, SKS and Swig who have sought or already received entitlements to build Class A office buildings (all will be LEED certified) here. There is momentum here that will be hard to stop.

    Keep your chin up!

  6. V Smoothe Post author

    I don’t think that anyone would argue that our market fundamentals are good, great even, but at some point, you have to look around and ask why nobody is leasing what should be incredibly desireable space. I was as excited about the SKS project as anyone, but they’ve clearly lost confidence that building on spec in what is probably the best location downtown is a good bet. I’m keeping my fingers crossed that 1100 Broadway happens, but if the project evaporates…well, it wouldn’t be the first time.

  7. Max Allstadt

    1100 is quite possibly the best project on the table in this town.

    A while back I lamented that the proposed CBD design guidelines were a great way to make sure award winning architecture would stay out of Oakland. 1100 violates those guidelines as best as I can tell. Right now, the only project in this town that will get published in a major architectural rag is the Cathedral, and that’s only because SOM has pull. It’s not really very inspiring, at least on the outside.

    Chair Boxer – Speaking of entitlements: vote to extend them! (if you haven’t already). We’ve got so much on the boards that can’t be built in this economy, it adds insult to injury if people will have to shell out to re-entitle projects that were already approved.

  8. Carlos Plazola

    Doug, agreed. So much potential. Everything’s in our favor. Oakland needs strong, visionary leadership to hold steady and put all the pieces together, and then, I sincerely beleive, we can be one of the greatest cities in the world. We have everything going for us.

    Max, the Oakland Builders Alliace has recommended language for a three year blanket extension on all entitlements acquired through next year (in addition to the 2 by-right, and 1 year additional extension per letter request) and is working with council to find a sponsor. We believe we have one. We hope to bring it forth in September or October of this year. Stay tuned.

  9. Chris Kidd

    It’s a fine line to walk.

    On one hand, it’s important to work with projects that are stalled out and under construction to make sure they get completed. Abandoned projects quickly become blight downtown and depress the areas immediately around them. No matter how positively positioned we are as a civic area, enough blighted abandoned projects will absolutely gut downtown. Investors won’t want to come in and current tenants won’t want to stay. Part of it is even the perception of blight. Most of the reason Oakland has a bad rep is just because people THINK it does. It’s absolutely essential that we work with our current business partners to make them feel valued and help them get done whatever is necesary to get their projects finished.

    On the other hand, we can’t just throw caution to the wind when it comes to development. For all its warts and bumps, I’m still convinced that the current version of the CBD zoning has merit and will help develop our downtown transit corridor in the best way to position it for the future. I’m all for urban in-fill and development, just not in a willy-nilly manner. I also worry about inducing a boom-town effect. Creating more office and residential space is the right thing to be doing downtown, but I worry about reaching a saturation point and having the bottom fall out because too much came online too quickly(especially with our current economy).

    So let’s walk that tightrope. We should be doing everything we can in the short term to make current projects a success without compromising our vision of the future.

  10. Doug Boxer

    I agree that leadership is what’s needed. Coherent vision, consistent messaging to the investment community and community buy-in. You need to be able to explain why you are doing things so that the people of Oakland are comfortable with it.

    Keep your eyes open on what’s happening downtown. We didn’t get into this mess overnight and it won’t be solved overnight. We need long-term vision and a little bit of patience. There are some rumblings of BIG companies coming to downtown Oakland. Levi’s has put the word out that they may move from SF and there are others that would follow if we can snag them. Again, LEADERSHIP is what is needed here and now. Our City leaders should be communicating w/ the Haas family to know they are welcome, welcome, welcome over here.

    By the way, I am now no longer Chair of the PC. Michael Colbruno now has that honor.

  11. dto510

    Chris, what exactly is “best” about the proposed CBD zoning versus the General Plan’s mixed-use vision? Please consider that the CBD proposal includes form guidelines that could preclude architectural diversity, lot-size and coverage restrictions that could render many lots unbuildable, a reaffirmation of the outdated 1960s use categories that could stifle entrepreneurship, and overall height and density restrictions not found in the General Plan that would certainly restrict growth in Oakland’s (and perhaps the Bay Area’s) most transit-oriented district.

  12. Ryan Tate

    CIM are big fans of Yusuf Bey’s security guards, apparently. Or at least according to Marriott spokesman Chris Daly in this East Bay Express article, who said the hotel’s “new managers” (CIM) were thinking of keeping them on because they do such a swell job (when not murdering journalists):


    After being told of the various ties between the Marriott’s security company and the bakery, which was closed by health authorities after hundreds of cops raided it on August 3, Daly suddenly revealed that the hotel’s new managers, who took over in June, have decided to put the security contract out to bid. This, he maintained, had nothing to do with this paper’s inquiries or with Bailey’s death. He added that the Marriott may continue to use UD Security: “They actually helped apprehend someone who mugged one of our guests recently,” he said

    http://www.eastbayexpress.com/news/your_black_muslim_hotel/Content?oid=486884

  13. SettinItStraight

    Carlos and Doug: I can’t believe the two of you missed the obvious in the recent CIM purchase of Brandywine’s assets — investment in Oakland’s downtown is alive and well! CIM, also the proud owners of the Marriott Hotel which they are about to invest $30 million into to complete a major renovation, will assume $95.6 million of Brandywine’s debt and is required to pay $316.9 million in cash at close of escrow — of which $40 million Brandywine will carry interest free for two years. Yeah, poor Brandywine — they really took it in the shorts on this deal!!!

    Oh — and so did the City. Expect somewhere around $6 million in City Transfer Tax to fill the City’s coffers. Yeah, a really bad omen.

    Brandywine is having serious debt problems throughout their national real estate holdings — their Oakland properties represented a great opportunity for them reduce debt elsewhere. Nothing sinister about this. More importantly, CIM has incredible development experience across their substantial office and retail investments (check out their L.A. holdings and the substantive redevelopment they’ve accomplished there!). Instead of kvetching about how this sale is evidence of Oakland’s demise, we should be celebrating the huge confidence that this transaction shouts out about Oakland’s commercial real estate market.

    And Smoothe — you’re not. SKS NEVER intended to build a spec building. They’ve made it clear from the beginning that they will not build without a major anchor tenant. Stay tuned…..

    And because you don’t hear anything on the street, don’t assume that City staff isn’t on the major attraction efforts that are looking at Oakland. Staff is very much on it, working with these companies to show them why Oakland is the best place for them to do business.

    Of course — it would be helpful if our City Council would give staff some attraction tools, like the tax incentives mentioned by our Mayor in a recent Business Times article, to offset the crime issues that are as much perception as reality for the typical downtown employee. These companies always want to know what Oakland plans to do for them in exchange for bringing in all those new jobs – of course!

    Finally, Ryan — oh brother. You had to find something to get at CIM about? They inherited that security team from the former owners — who never put a cent into the hotel. They’re new to Oakland — Give them credit for being able to learn, something some of our long time politicans should do more of.

    Perspective — and some facts — help to inform the conversation!

  14. V Smoothe Post author

    SettinItStraight –

    If SKS never intended to build a 1100 on spec, it might have been a good idea for them not to say at multiple public meetings that they were planning on doing so.

  15. InsideOak

    straight, you really couldn’t be more clueless about this town. for anyone who actually works with this stuff, your comment makes us laugh

  16. Mario R.

    If SettinItStraight and his friends at the city are so working so hard on business attraction they maybe they should let someone, anyone really, in the business or real estate industry know about it. Anyone who thinks that sale price was a good deal for either Brandywine or Oakland has an awful lot to learn about the market out here, baby.

  17. SpinninItStraight

    SettinItStraight -
    Yep, real estate deals in which the seller takes a $7 million impairment charge are always a GREAT thing for everyone involved. Yeah…

    I’d like to think the buyer got a good deal, but considering the Bay Area commericial real estate market has really just begun to decline I have to think they are early. I find it hard to believe that the residential market can continue to get pummeled while the commercial market escapes unscathed. Not bloody likely.

  18. Ethan

    Thanks for being honest about the Planning Commission’s task being one of patronizingly explaining the developers’ dream to neighborhood groups until they submit, or give up, sell their homes and just move out of Oakland to — frankly — better communities.

    (You wrote: “…..Coherent vision, consistent messaging to the investment community and community buy-in. You need to be able to explain why you are doing things so that the people of Oakland are comfortable with it. ”

    Transit corridors yadda yadda — oh please. ABAG’s administration of the State’s General Plan has been a colossal failure. Why stand up and salute it when — on ABAG’s watch — ranches, orchards and open space in Northern California are now covered suburban and strip malls?

    Perhaps I would feel better if the developers lived downtown, or in Temescal or near Lake Merritt instead of Black Hawk, where the sewers and infrastructure are NOT ancient and there is a sufficient police force. Perhaps over there tax assessments for gardeners in parks actually increased the number of gardeners rather than decrease them.

    We were all wooed with the Big Lie that developer money would raise the bar, financial resources would be flowing for the services that we need. Instead, the current residents — not the future residents that developers will someday rent their units to — are SOCKED with EVER increasing ASSESSMENTS….that gain us NOTHING.

    No one at City Hall seems to be championing the cause of the little guy, the regular Joe or Jane or already live here.

    With each passing day, the newspapers uncover more corruption. Brandywine, the canaries in the coal mine, bail out, the condo market is glutted and buildings remain incomplete and shrink wrapped …and our schools still suck.

    Oakland is still being treated like a two dollar ho’.

  19. Chris Kidd

    Ethan,

    What’s the thrust of your argument? You seem to be all over the place, though I certainly agree with some of it. My main concern would be: what’s your solution? If the current planning/development system is so broken, how do we fix it? At points you seem to be advocating developers who have more community ties (which is a nice goal, though it certainly cuts down on the pool of available developers – and there are some projects that are just too large), and at other points you seem to be advocating a freeze on development in general (to which I say “boo!”. Spinning our wheels in stagnation does nobody any good).

    I’m pretty sure that infrastructure and our sewers and parks and whatnot aren’t the responsibily of developers. That’s the responsility of the city. The city could have charged user fees for development to upgrade those things on their own. That’s what they’ll be doing with the Estuary Specific Plan. I don’t know if it was done in the CBD, but I’m guessing it wasn’t.

    It’s a tough line to walk, wanting to attract development and business while also trying to get out as much juice as you can squeeze for city upgrades.

  20. Sarah

    Mr. Boxer:

    I would have to agree with Ethan. The Planning Commission does seem to treat the folks who already live in the neighborhoods as people who just haven’t seen the light.

    It is patronizing.

    As much as I love my neighborhood — and I have been here for 25 years — there is no way I would EVER buy here. Two decades ago, I reckoned my financial investment to follow my psychic/emotional investment. But there is no way that I will buy a home that ….someday…have windows that will never see the light because of a new development courtesy of the Great God, The California Master Plan.

    The Master Plan. What a joke.

    Global warming isn’t happening because we are not building on transit corridors. Global warming is happening because our dependency on oil and the nation’s failure to develop alternative energies….it’s due to unchecked industrial pollution, made worse by America’s outsourcing manufacturing job to China and Mexico.

    Global warming is made by greed — be it the developers who gobble up prairie lands and pour into land fills remnants of what once were beautiful smaller buildings. It’s the same greed that fuels the consumer to buy cheap, some time poisonous toys made in China with under an American brand time.

    I am tired of being spoon fed the slogans of sustainability by developers and the politicians who pave a way for them.

  21. Joanna/OnTheGoJo

    Chris,

    I have a few ideas. ;)

    We had a developer meet with our neighborhood to discuss their project before it was even started (actually, the first one I’m thinking of hasn’t even broken ground). This process created buy-in from the community and we told the developer what worked and what doesn’t work in the area. They made some changes based on our feedback and explained why they felt other changes were not necessary. But most important of all, we felt that we’d at least been given the chance to be heard in a reasonable and civil setting.

    Before that, there were four projects that all started at around the same time. Right as they were breaking ground we talked them into sending representatives on a tour of five other buildings in the area. From that all four projects improved in some way. Some more than others. 288 Third Street has an incredible roof garden with bbq area, that would not have been so cool had they not seen the one at Tower Lofts. All the buildings got to improve their trash and recycling areas by seeing what had not worked in other buildings. Other buildings got better bicycle storage. These were all things improved after going to the planning commission, after design review, etc.

    What several of the builders & developers didn’t get was how important buy-in from the community is. Ruin our parking and make our lives a living he|| and in turn the neighborhood will fight back and not make things easy for the developer/builder.

    Also, with the storm of building that happened, developers learned what was and wasn’t appealing to potential buyers. Ask the folks at the Ellington why so many interior design issues have changed? Because they’re finally listening to the buyers. The first few major projects could build almost anything and it would sell because there wasn’t much down here. Now people have more to choose from and suddenly the small units with the best views aren’t commanding a significantly higher price. And if the best size has a crap view, it’s not gonna sell. Those projects that have bad units suffer with severe turnover and a lower property value.

    Another idea is to limit the number of projects going on at one time in a particular area. Let’s face it, flooding the Old Oakland, Jack London District, Uptown, and even adding the Eight Orchids project in Chinatown has been a problem for Oakland as a whole. Our city is seen for small units in often crap locations and when you add a sucky market on top of that you get severly lowered property values. Why not build incrementally? Limit the number being built at a time. Supply and demand 101!

    Look at infrastructure issues BEFORE building high density. Grocery stores, specifically. Is there a place set aside for one? Is the landowner of that spot amenable to a grocery store? Parks are another. We don’t have a park in the Jack London District. In theory we’ll someday have the Webster Green (hah) and that we have Estuary Park and the waterfront. But is there a playground? No. It’s more city access to the water (as it should be) than for the locals. Schools are another. In the JLD, kids go to Chinatown – but I only know 2 kids from our neighborhood that go there. Other people move out as their kids get older (almost everyone I’ve met in the hood that has kids has moved out with very few exceptions) or they get home schooled (we have several that I know of).

    Oh, and then there’s fire department access… that also sucks for our neighborhood since they closed the fire station over by BevMo.

    Parking. Our mixed-use status is used against residents when it makes sense for the City and then is held over businesses when it makes sense for the City. Why not figure out the problems and figure out solutions before giving out all the development access?

    Oh, and the Estuary Policy Plan. What was the point of having a plan if the City was going to ignore it? It makes those that participated in the process feel like it was a waste of time and even for those of us willing to see a compromise felt that we weren’t listened to by the city.

    I’m not at all against development. But I hate seeing projects get built without thinking about the details… some planners are better than others at details. I consider planning’s roll in ground floor retail the biggest disaster of the past ten years.

  22. Chris Kidd

    Joana, you rock my socks. For reals.

    As for the EPP, my understanding is that there wasn’t much implementation because it had no built in mechanisms to create the changes it recommended. Correct me if I’m wrong, but I think Kennedy Tract was the only area that really changed over to what the EPP was proposing (when its zoning was changed to HBX-3).

    Maybe I’m being a bit naive, but I’m pretty psyched to be a part of the current ESP project. It looks like this time the city will actually be able to make their plans happen (the framework of which is based off the EPP; so maybe your efforts weren’t in vain, just 10 years delayed!)

    Can someone chime in as to whether there was any planning done to accomodate more infrastructure for the increased population expected from Jerry Brown’s downtown 10,000? It seems so fundmental to plan for something like that, but living here has shown me that any bungle is possible.

  23. Max Allstadt

    Sarah -

    Which neighborhood do you live in?

    One of the things that drives me absolutely batty is folks who live in single family detached home neighborhoods who complain about growth that changes them. If you’re in a single family detached home near an urban core, growth is inevitable. Resisting it is just a recipe for disappointment.

    As for the environment, a HUGE percentage of American carbon emissions come from homebuilding and homes. By building bigger, we save carbon. By building bigger, we move more people into urban areas where they use less carbon to get from one place to another. By building bigger, we allow more people to afford their own home. “Luxury” condos often cost less than single family detached homes, which are rapidly becoming a luxury item onto themselves.

    Rockridge and Temescal will change and grow over the next decades, and larger buildings will be a part of this. It’s all well and good to try and stop some of the more insensitive aspects of some of these projects. I suggest that you begin by having a more pleasant tone when approaching the planning commissioners. Telling Doug Boxer he’s patronizing you is not a great way to get him to listen.

  24. Chris Kidd

    Agreed, Max. You can’t put the genie back in the bottle once it’s out. We can’t preserve tons of central valley open space and farms and whatnot while still having large amounts of our cities dedicated to single family detached homes. Increasing urban density and infill is one of the best ways to preserve land elsewhere. Between 1970 and 2000, CA’s population grew from 19 million to 33 million. THAT’S why you’ve got big sprawls like Tracy and Fresno; we tried to keep housing a nearly doubled population on the old 50′s-60′s ‘american dream’ model we’ve been trotting out for decades.

    You can’t have it both ways. I’m a strong believer in “be the change you want to see”, but “no change” isn’t a viable option.

    It doesn’t surprise me in the slightest that the planning commission takes a condescending tone. At the times I’ve been there, most of the speakers talk at them (not to them) like they’re the devil incarnate or the brainless tools of special interests. That’d get my hackles up in no time.