Irvine Co. is paying a record price for a skyscraper in San Francisco, evidence that the city's commercial real estate market is recovering from the tech crash.
The big Orange County land developer's agreement to spend more than $400 million for the 31-story JP Morgan Chase Building in the city's financial district is a vote of confidence in San Francisco's economic comeback, fueled in part by renewed expansion of the Bay Area's technology sector.
"San Francisco is a dynamic environment and a lot of people in these tech companies want to live and work in the city," said Colin Yasukochi, national director of research at real estate brokerage Grubb & Ellis. "The first half of 2006 has been the best market in at least 10 years" for San Francisco office landlords.
Financial service companies have been expanding for several months, followed by a boom in leasing by tech companies, he said. Office vacancy has dropped to less than 15% from its peak of 24% in 2002.
About 300 technology-related companies have signed leases in San Francisco since 2004, including start-up firms and branch offices of companies based elsewhere, he said. Typical tech tenants lease what landlords consider small blocks of space, about 7,500 square feet, where they pack in 30 to 50 employees.
The 665,000-square-foot building at 560 Mission St. that Irvine Co. is buying is rented to financial service giant JP Morgan Chase, which signed a 15-year lease in early 2000 when the dot-com boom was at its peak and rents were significantly higher than they are now.
JP Morgan's expensive lease and the fact that the 4-year-old building was designed by well-known architect Cesar Pelli made it attractive to investors, Yasukochi said. Irvine Co. is paying close to $700 a square foot for the property, surpassing the previous record of $606 set last year by the sale of an office building in Mission Bay rented to Gap Inc.
The building is in escrow, said people with knowledge of the transaction, who asked not to be identified because the deal hadn't closed. Executives at Irvine Co. and the Morgan building's owners -- Texas office developer Hines and the California Public Employees' Retirement System -- declined to comment.
Irvine Co. is paying more than it would cost to erect a new building of the same size, but that would be easier said than done in development-wary San Francisco, where there are many barriers to new construction, said Grant Lammersen, an investment sales broker at Cushman & Wakefield.
"To get something built is really, really, really difficult," Lammersen said.
Privately held Irvine Co. is controlled by developer Donald Bren, who is ranked 38th on the Forbes list of wealthy Americans with an estimated fortune of $5.7 billion.
The company's holdings in Orange County date to 1864 and include 93,000 acres, about one-fifth of the county's total land area.
The company has overseen the development of large tracts of housing and a host of big commercial projects, including the Newport Center office and retail complex in Newport Beach, the Irvine Spectrum shopping and entertainment center and the Market Place in Tustin.
The company also owns about 400 office properties from San Diego to Silicon Valley. The Morgan building would be its first in San Francisco.