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September 12, 2016

Exclusive: Construction starts on rare 260,000-square-foot East Bay office, R&D highrise

San Francisco Business Times

Roland Li

Wareham Development has started construction on a commercial highrise in Emeryville, one of the largest additions to the East Bay's skyline in a decade.

The nine-story project, EmeryStation West, was approved six years ago and will have 260,000 square feet of space for offices and research labs. The building is moving forward without any tenants.

EmeryStation West is one of the only new office buildings to begin construction in the East Bay during the current economic boom. Despite growing rents, high construction costs have made new commercial development rare, since office rents need to be about $60 per square foot or more, according to brokers.

Wareham Development is confident that tenant growth, particularly in the life sciences sector, will fill the building. The developer already owns over 1.5 million square feet of office and lab space in its Emeryville campus portfolio, with over 98 percent occupancy, said Geoff Sears, partner of Wareham Development, based in San Rafael.

"We're highly confident that a lot of tenants in the campus and from elsewhere will see the value in the building," said Sears. "Our core focus is the research business. There is a lot of demand there."

Sears declined to disclose exact construction costs, but said they would be "over $100 million." The building's asking gross rents will be more than $60 per square foot annually. Sears expects construction to last about 18 months and is targeting an opening by the end of 2017.

"We can tell when people are doing well and need more space," said Sears. "Almost every time we've added, it's always been speculative. That's never easy to do, but we look at it as a campus." The developer is comfortable starting construction without lease commitments in part because the rest of its portfolio is nearly full.

Life science companies often don't know their space needs in the next few years because of uncertainty in funding and research progress. "External funding means shorter time horizons for research firms," said Sears.

Wareham also completed a 110,853-square-foot office and life sciences building at 740 Heinz Ave. in Berkeley last year, starting construction with no tenants. Drug company Aduro (NASDAQ: ADRO) leased the entire building. Aside from that project, as well as Wareham's EmeryStation Greenway, there has been no major ground-up office development in Emeryville, Berkeley or Oakland since 2009.

The project includes a transit center, with connections to AC Transit buses and the free shuttle EmeryGoRound. The project is adjacent to a 675-space parking structure and just north of the Emeryville Amtrak station. Wareham Development is financing most of the building's cost, but it is also receiving $4.2 million from Emeryville's former redevelopment agency funding, $4.2 million in Caltrans and $850,000 from a federal grant. The public funding is related to the transit center.

Brokers Timothy Mason, James Bennett and Eric Bluestein of Kidder Mathews are leasing the building. Perkins + Will is the architect. DPR Construction is the general contractor for the building. Gould Evans is the architect and Build Group is the general contractor on the nearby parking structure.

Emeryville and Berkeley's life science market, defined as buildings with at least 35 percent wet lab space, had an availability rate of just 1.21 percent in the second quarter, according to brokerage Newmark Cornish & Carey. San Francisco had no available space, while South San Francisco had an availability rate of 6.38 percent.

One of the only other new East Bay office projects moving forward is Westlake Urban's San Leandro Tech Campus, which has leased 132,000 square feet to OSIsoft.

For the full story, go to San Francisco Business Times.

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