Higher Education's Property Dance, New Bet on Oakland

The Bay Area might be home of the Smeeze, and this might be the season for the Monster Mash, but San Francisco saw major higher education players this week bring their own, surprising moves to the dance floor.

The Wharton School of Business, the Philadelphia-based wing of the University of Pennsylvania that educated President Donald Trump, is now renting from him. Wharton is shuffling its San Francisco campus into the city’s Financial District, according to the San Francisco Chronicle. The Ivy League school’s masters of business administration program has held a presence in San Francisco for 25 years, and plans to begin its next chapter at 345 Montgomery St, in a building known as The Cube.

The striking, 80,000-square-foot building is part of the larger Bank of America Center, which is owned by Vornado Realty Trust and the Trump Organization, according to the Chronicle. As part of the shuffle, Wharton plans to vacate its current campus at 2 Harrison St., where it shares a building with Google.

A mile south, the tango between San Francisco and Vanderbilt University appears to be heating up. The Chronicle last week reported that the dons of the Nashville-based school have set their sights on Fifth and Mission, home of the newspaper’s own headquarters and the 5M mixed-use development.

San Francisco civic leaders have long discussed resuscitating the city’s downtown from its pandemic pains with an increased presence of higher learning institutions–but they can’t count on the homegrown Academy of Art University to follow the same beat.

The private, for-profit university is reportedly looking to sell off 10 of its properties in the city’s urban core.

Even if you take higher education out of the mix, the city’s real estate markets have enjoyed a recent surge thanks to artificial intelligence, which has rents a’soaring and offices a’leasing.

The hi-tech rush for the office sector has largely been a flight to quality, however, boosting Class A office buildings but leaving questions for some of the city’s older stock.

The Newhall Building stands as a severe example. Built in 1908, the 12-story, Lewis Parsons Hobart-designed building at 260 California Street, was appraised in 2015 at $32 million. Today, it’s worth $13 million, a 60% drop in value.

The property owner, Swift Realty Partners, owes about $17 million on the loan it took out to purchase the building a decade ago. The address recently lost Google as a tenant, despite the tech giant signing onto major leases elsewhere in the city. And Citibank, another of the building’s major tenants, will vacate the space early next year as it prepares to occupy a shiny new space in the Financial District.

Older office buildings bottoming out in value has the potential to bring pain upon lenders and landlords alike. But it may also bring a rare opportunity, according to the authors of a report published last month.

Led by the Milan-based architecture firm OBR, “Revitalizing Downtown San Francisco Through Architecture” is a collaborative, multinational effort between design and real estate firms San Francisco and Italy that hits upon an oft-mused topic in urban planning: adaptive re-use.

Brett Terpeluk and Valerie Beauchamp, of the participating Studio Terpeluk, argue that landowners have “not yet felt the full impact of the staggering 37% commercial vacancy rate,” and that the only clear response is to convert offices into housing.

Adaptive reuse has been long-discussed but rarely pursued due to complexity and cost of making offices suitable for living. However, Terpeluk argues the pandemic’s paradigm shift for office space offers the perfect opportunity.

“It is time to re-examine the enormous potential of infrastructural reuse, from environmental, urban, and economic perspectives,” the authors write. “We are at a pivotal moment of change.”

Over in Oakland, the reality of San Francisco’s residential surge has caught the attention of one major East Bay developer. Signature Development founder Michael Ghielmetti has been at work on the Brooklyn Basin since 2001, breaking ground in 2014, and delivering roughly 1,700 housing units along Oakland’s waterfront since then.

He told The Real Deal that he is transitioning the 371-unit Caspian apartment building into condos, ranging from $349,000 to $799,000.

“We’re seeing San Francisco really coming out hot, and I think it’s six to 12 months ahead of Oakland, because that’s typically been the pattern,” Ghielmetti said. “Typically San Francisco gets to price points that are more challenging, whether you’re an office tenant or … a residential renter, and you start to get priced out. And then you have choices, where do you go? Marin County isn’t cheaper. The Peninsula is not cheaper. So, historically, people have come to the East Bay.”