Inside PG&E’s Premium Price to Buy Oakland Headquarters

Pacific Gas & Electric has agreed to buy its new headquarters in Downtown Oakland for $900 million, or close to $1,000 per square foot. The price represents a huge premium in the Bay Area office market, where recent office sales range from about $120 to $643 per square foot.

But the PG&E deal came with unique circumstances that determined the final price.

The public utility entered a lease-option to buy the building at 300 Lakeside Drive in 2020, with terms negotiated before the pandemic sent the Oakland office market into a tailspin. PG&E agreed to a 30-year lease with an option to purchase at a set price, according to a source who requested anonymity. The lease rate was well above market rate, so “the costs for PG&E to keep the lease versus buying the building made the purchase a more attractive option, even at the high price,” the source told TRD.

The premium price also included upgrades to the facilities to make it a modern Class A building. They included a seismic upgrade, base building work, asbestos remediation and more. All the work will be completed by the time the sale closes in 2025 and PG&E will occupy a fully renovated headquarters.

“Pretty interesting to see this sale close, given how crazy the market is. But the takeaway is that it was a pre-baked deal structured several years ago,” the source said.

PG&E did not respond to requests for comment.

For comparison, Wells Fargo is now closing a deal to sell a 355,000-square-foot office tower in San Francisco for an expected $42.6 million, or $120 per square foot, for a $65 million loss. In August 2021, Swift Real Estate Partners bought a 565,900-square-foot tower at 1111 Broadway in Oakland for $327 million, or $578 per square foot. This fall, Alameda County plans to auction a 192,000-square-foot office building with a minimum bid of $40 million, or $207 per square foot.

PG&E’s move to 300 Lakeside Drive came in conjunction with the sale of its long-time headquarters in San Francisco to Houston-based Hines and the National Pension Service of Korea. The September 2021 deal for the 1.5-million-square-foot campus was for $800 million, or $533 per square foot.

After PG&E sold the building, it entered a 24-month lease at the Lakeside properties, and nine months after that had to decide whether it was going to enter into a long-term lease or exercise the option to purchase.

“Moving the corporate headquarters to the Lakeside building will provide PG&E’s ratepayers with substantial savings over a 40-year timeline at the agreed-upon terms,” PG&E said in public filings in 2021.

In the 2010s, startups looking for space made Oakland one of the hottest office markets in the country, but the pandemic and work-from-home paradigm has reversed that trend, with vacancy now estimated at 36 percent.

The Lakeside building was developed by San Francisco-based TMG Partners, now the seller in the PG&E deal. The developer has major office projects throughout the Bay Area, including the Telegraph Towers in Oakland. TMG also has become a significant contributor to local Democratic political campaigns, with $90,000 in employee and $222,000 in organizational contributions since 2017, according to public records.