Bloomberg News

Salesforce Said Planning San Francisco Sale as Prices Climb (1)

March 11, 2014

Salesforce.com Inc. (CRM:US), the biggest maker of customer-management software, is preparing to put up for sale 14 acres (5.7 hectares) of land in San Francisco’s Mission Bay area, said a person with knowledge of the plans.

The property, which Salesforce purchased in 2010 for $278 million with intentions to build a new headquarters, has been sitting undeveloped after the company instead opted to lease space at towers in the city. The land may lure such potential buyers as technology firms in search of office space or Chinese developers seeking U.S investments, according to the person, who asked not to be identified because the plans are private.

“We’re always investigating our options,” Jane Hynes, a Salesforce spokeswoman, said in a telephone interview when asked about plans to sell the property. She wouldn’t comment further.

A sale of the Mission Bay land, situated along Third Street across from the University of California, San Francisco’s life-science research campus, would come amid increased appetite for property in San Francisco and other major cities viewed as the safest investment locations, said Greg MacKinnon, director of research for the Pension Real Estate Association, a Hartford, Connecticut-based trade group for institutional members including Invesco Ltd., BlackRock Inc. and Morgan Stanley.

“A lot of capital has been looking to get invested in the major gateway markets where prices have risen substantially and returns have narrowed,” MacKinnon said in a telephone interview. “San Francisco has been a very hot market, and it might be attractive for certain kinds of investors.”

Rents Rising

San Francisco is the “center of the U.S. new economy,” with projected rent growth of 32 percent over five years and the average capitalization rate dropping to 4.7 percent, the lowest yield among markets including Manhattan and West Los Angeles, research firm Green Street Advisors Inc. said in a Jan. 22 report. A capitalization rate is derived by dividing a property’s net operating income by its purchase price, so it falls as values rise.

Homebuilder KB Home (KBH:US) paid $20.5 million for a parcel near Mission Bay in an August deal that represented a 74 percent increase over the previous transaction for the land in May 2012, according to Valbridge Property Advisors, a San Jose, California-based commercial real estate appraiser.

‘Local Politics’

Salesforce’s property, about 2.5 miles (4 kilometers) south of the city’s financial district, is “certainly worth more than what it sold for before,” Walter Carney, senior managing director at Valbridge, said in a phone interview. A precise valuation would depend on “market conditions, land-use potential and local politics,” he said.

“What does the city want to see, and what would it allow to be developed?” Carney said.

The property was to be the site of an urban campus of almost 2 million square feet (186,000 square meters) of offices, Salesforce Chief Executive Officer Marc Benioff said in a November 2010 statement announcing the land purchase from Alexandria Real Estate Equities Inc. (ARE:US), a real estate investment trust focused on biotechnology offices.

“We are excited to start work on building a new San Francisco global headquarters,” Benioff said in the statement. The Mission Bay campus would “help us continue to attract and retain talented, world-class employees” and provide “an innovative, dynamic environment for our future growth.”

Leasing Spree

Salesforce instead embarked on a leasing spree in downtown San Francisco that included rental deals in 2012 totaling 1.3 million square feet, the most by one company in a year since at least 2000, commercial brokerage CBRE Group Inc. said at the time. Among them were an agreement to fully occupy 450,000 square feet in the 350 Mission St. tower developed by Kilroy Realty Corp. (KRC:US), and leases for a combined 500,000 square feet at 50 Fremont St.

Hiring at Salesforce and other technology firms including Twitter Inc. (TWTR:US) and Uber Inc. have helped lower the San Francisco area’s jobless rate to the lowest in California. Unemployment in San Francisco, San Mateo and Marin counties plunged to 5.1 percent in January from 6.4 percent a year earlier, according to state labor data released last week.

Chinese investors have been seeking U.S. land for development projects amid regulatory restrictions at home and concerns that China’s property market is overheating. Major U.S. cities such as San Francisco are appealing for their relative stability and predictable population growth, as well as their popularity among wealthy Chinese individual buyers that may be attracted to the properties.

Basketball Arena

One potential option for the Salesforce land would be for the National Basketball Association’s Golden State Warriors to build an arena on the site, said the person with knowledge of the potential sale. The team, which plays at Oracle Arena in Oakland, is considering alternatives to a proposed $1 billion waterfront arena at Piers 30-32, south of the Bay Bridge.

“We’re committed as we’ve ever been to Piers 30-32, however we’re not closing our eyes to other potential sites,” P.J. Johnston, a Warriors spokesman, said in a phone interview. Numerous redesigns for the waterfront location have “eaten up enough time so that our opening schedule has been pushed back” beyond the 2017-18 season, he said.

To contact the reporter on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net

To contact the editors responsible for this story: Kara Wetzel at kwetzel@bloomberg.net Daniel Taub


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Companies Mentioned

  • CRM
    (salesforce.com inc)
    • $54.89 USD
    • 0.83
    • 1.51%
  • KBH
    (KB Home)
    • $17.35 USD
    • -0.37
    • -2.13%
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