The $250-million-plus 601 City Center will open two years from now, by which time Shorenstein, the investors in its latest fund and equity partner MetLife Real Estate Investments are betting demand will be there, or at least headed that direction. Regardless, Shorenstein president Glenn Shannon is sure he's in the right spot.
"We're not merchant builders, we build to own long term, and so we look for properties that will have durable advantages," he says. "We continue to believe that City Center--being at the heart of the Bay Area economy, sitting on top of a BART station and at the intersection of major highways, and being [less expensive] than other Bay Area markets--is going to be good long-term."
The current economic recession, well, that doesn't much matter if you've already secured your construction loan, which Shorenstein says it has done. "It takes three to four years from entitlement to completion, so you almost never start and finish a project in the same leasing cycle," Shannon tells GlobeSt.com. "When I spoke at the ground breaking, 555 City Center was behind me; we started that in a strong market and completed it in the dot-com bust and it still leased up because it was a new, high-quality property in a great environment with great access to transportation that attracted people in a flight to quality."
While Shorenstein declined to name the construction lender, Shannon tells GlobeSt.com the project is "properly" financed. "Generally, our approach is to use enough financing to enhance returns but never so much that you put a fundamentally good asset at risk in a down market," he says. "We typically do 60% to 65% debt and never went to these super-leveraged strategies that aren't sustainable if you hit a rough patch in the leasing markets."
City Center currently includes 3.5 million sf of office space, 18 eateries, a dozen retail shops and services, an athletic club and parking for 2,840 vehicles. The new building will replace a full-block parking lot bounded by Martin Luther King Jr. Way and 11th, 12th and Jefferson streets.
Shorenstein has been actively planning to develop the site for the site for the past three years. The company originally planned to build office space then switched to residential condos before coming full circle. The company holds an option for one other site at City Center, but no plans as yet.
The design for 601 City Center was created by architect Ted Korth, who also designed 555 City Center. Charles Pankow Builders is the general contractor. The building has been designed to achieve a Gold or Silver LEED rating from the US Green Building Council, which Shannon says corporate and government users are making a priority.
As for competition, Shannon says there is one new building in Jack London Square and another in the Lake Merritt submarket. "We think we are offering a pretty different product," he says. "And when we talk to our leasing guys City Center doesn't compete as much with those two submarkets as you might expect."
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