Commercial Real Estate Investing From A-Z Should You Invest in Silicon Valley? What Does the Future of Office Space Look Like? What Happened to Office Spaces During the Last Downturn?
In this episode we'll learn if investing Silicon Valley could be a good idea, what happened to office spaces during the last downturn, things an investor should cover when looking at purchasing an office, what types of leases are standard for office space, and what does the future of office space could look like. We're interviewing Eduardo Zepeda, an asset manager and leasing director of a family's holdings, he manages north of $100M in combined assets comprised of multi-tenant office and retail property.
You can read the full interview here: https://montecarlorei.com/should-you-invest-in-silicon-valley-what-does-the-future-of-office-space-look-like-what-happened-to-office-spaces-during-the-last-downturn/
Making a case for investing in Silicon Valley: Why do you like this area?
It’s the perfect storm of supply and demand economics where you have a finite fixed amount of land and a very strong demand not only for housing but also for space to occupy, whether it’s office, industrial or just land to develop and improve. The macroeconomic factors for the Bay Area are very compelling, whether you’re looking for a short term value add project with an exit, or a long term hold, there’s a compelling argument in both cases for investing in this area even during this economic times. The challenge is that prices are very lofty.
What was the vacancy rate like during the 2008 recession and what were some of the major issues that the properties that you were managing were facing?
We were doing deals somewhere in the $20’s/yr/sf, sometimes even in the high teens and there was a lot of inventory space back then. The demand was pretty low, especially compared to now where the vacancy rate in San Francisco is around 5% for office. The demand didn't stay very strong throughout, on a rental rate basis it was quite different than what it is now, from $20/sf back then.
What are offices charging per square foot nowadays?
It depends on the building type, within our portfolio we have multi-tenant, and class B and C properties. Depending on the part of town and the part of the Financial District, or South of Market, anywhere from the high $40’s/sf/year all the way up to the high $60’s- low $70’s for a class B. For a high rise, you can go anywhere from the mid $70’s-low $80’s all the way up to $100’s or higher, depending on the building and the area.
What should investors look for when buying an office building?
1. Get a working knowledge of the building systems: the HVAC , boilers, chillers, electrical, and those types of systems that depending on the way that the leases are structured could be an expense of the landlord, or they could be expensive to the tenant. 2. Having some working knowledge as to the way that they are operating at that property.
3. Have a working knowledge as to the different types of leases that are active in the market, or typical for this kind of building.
4. Know the difference between a full service gross lease, an industrial gross lease, a net lease, or any variation thereof. That's pretty important because it will dictate how much is going to be an expense to you as a landlord.
5. If it's a building that has some vacancy, or that has some holes in the leases in the next one to three years - know what the market is doing in order for you to able to accurately predict what you're going to be able to lease those spaces for on a per sf basis.
Eduardo Zepeda
ez@cma-re.com
https://www.meetup.com/SFREConnection/