Bishop Ranch’s Transformation With Sunset Development CEO

Alexander Mehran Jr. is the third generation of his family to run the Sunset Development Company, the San Ramon-based developer and owner behind the 585-acre Bishop Ranch office park, about an hour east of San Francisco. But even though he grew up in the office development world and has been at Sunset Development since 2009, following a stint in New York at Goldman Sachs, Mehran told The Real Deal he still can’t predict what will happen in the Bay Area’s uncertain office market.

“I threw a dart at the wall,” he joked, when explaining how he decided which of his family’s office properties should be razed to create 300,000 square feet of retail and entertainment at Bishop Ranch’s CityCenter, which opened in 2018, as well as 8,000 planned new housing units.

“It’s roughly half of what we had,” he said of the company’s current 8 million square feet of commercial space. “It’s the best stuff. I think that as [we] move forward, more people will want to be here. That’s a complete guess. I have no idea.”

But Mehran said he is sure that adding a residential component — including a recently opened 177-unit luxury senior assisted living facility from Belmont Village and 404 for-sale single-family homes and duplexes by SummerHill Homes — will be “accretive” to the rest of the community, even if it also means giving up some long-held control.

Residential development will take the place of office parks in parts of Bishop Ranch (Sunset Development Company)

“I know that adding people is going to drive the place forward,” he said. “I know that some people have to be owners, and that’s a scary thing. We’ve only had a handful of owners for 40 years here: Chevron, Toyota, Pac Bell and us.”

Sunset sold land to Chevron and Pacific Bell in the early 1980s only to buy it back as both companies downsized and relocated over the last decade. PacBell, now AT&T, sold its 1.8 million-square-foot former headquarters for $250 million in 2014 and Chevron followed, selling its over 1 million-square-foot headquarters for $175 million in 2022.

Today, both are tenants in the former PacBell space, which is now dubbed Lakeside as it overlooks the man-made Annabel Lake. Since the pandemic, AT&T has listed large subleases on the 900,000 square feet they agreed to lease back at Lakeside as part of the sale. The former Chevron HQ is now called The Orchards, and the 92-acre property is working its way through the planning process to become a mix of office, retail and 2,500 new homes.

The dramatic downsize from two of Bishop Ranch’s biggest players is indicative of broader market trends, and Mehran said developers and owners need to accept that the time where companies were wowed by full-building opportunities is likely coming to a close. When HR firm Robert Half moved from its own 250,000-square-foot building at Bishop Ranch to 70,000 square feet in Lakeside, that was “a big blow,” he said. But he also wasn’t waiting around for another single company to take its place.

“Strategically, it’s pretty easy for me to just cut it up and multitenant it,” he said, adding that these days having a completely empty office building isn’t exactly a strong calling card. “If you’re walking around with a customer and you’re like, ‘Oh we’ve got this whole building,’ it’s like, ‘Whoa, these guys are in trouble.’”

Sunset has also recently begun turning empty offices into turnkey spec suites, which can have lease terms for as short as one year. Mehran said they have rented quickly even at a $1 per-square-foot premium. He’d rather take the shorter-term lease, but put in finishes he knows many tenants will like, instead of something bespoke for a tenant who eventually moves on.

“I’ve just seen a lot of customers build things that don’t matter in five years or don’t really provide value,” he said.

Sunset is also transforming other underutilized spaces into amenities like gyms, restaurants and coffee spots. Flourish opened in The Orchards last fall and the cafe-style coworking space has everything from private Zoom rooms to conference and collaboration space, as well as a full coffee bar, breakfast and lunch menus, and evening events. Another Flourish with a plant theme is already in the works in the Sycamore office complex of Bishop Ranch and will open in the near future.

“What I learned with the big building, Lakeside, was if you don’t have things like this people don’t want to be there,” Mehran said.

Some may want the gourmet coffee experience, others the extra conference space or the ability to entertain clients. Whatever tenants need, Mehran wants to be able to provide it because in today’s highly competitive office world, he said, developers can’t risk being caught without everything on tenants’ lengthy checklists.

“It’s a binary thing,” he said. “It’s between a one and a zero of, ‘Am I going to sign a lease and have an office or am I not?’” he said.

Changing Bishop Ranch also means finding new financing partners “who believe in you and allow you to make that shift,” Mehran said. Sunset has a long-standing relationship with Wells Fargo, which financed its purchase of Lakeside and the development of CityCenter, but it recently broadened to CitiGroup and Comerica, Mehran said.

It’s not easy getting a loan on offices, given the level of distress in the space and “it takes a long time for fear to exit these institutions,” Mehran said. But the new leases he’s been signing since 2022 seem like strong indications that people are figuring out their post-pandemic requirements, he said.

In all the uncertainty, Mehran said he’s keeping his eye on the long term, since that’s what Sunset does best.

“I like progress,” he said. “We have a lot of energy behind us and what we’re doing is very tricky and has consequences for the next many, many decades. But we have a really thoughtful team and I believe in it.”