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Salesforce Tower At 415 Mission St.


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  • 1 month later...

I wonder why Hines didn't do this in their hometown (Houston) instead of the shorter buildings they have going up?

 

Well, this was called the Transbay Tower until salesforce signed a 50% prelease.  Less than two weeks later, LinkedIn leased an entire 26-story new office project in the same submarket.  Terms are sometimes not disclosed, but costar said, "Lease payments associated with the salesforce.com lease will total approximately $560 million over the 15.5 year lease term, the company reported. It also estimates that triple net operating expenses related to the lease, which will also begin in the first quarter of the company's fiscal year 2018, will be approximately $305 million."

 

If Hines could line up people to speak for 714,000 square feet at a time here in Houston, locked in at annual rates above $50 a foot, they would.   Instead, that's equal to the highest anywhere in Texas;  and BG Group Place, their newest, sold outright for less than salesforce will be paying just to rent.

 

But that's not a very enlightening answer in the general case.

 

Risk management is why Hines neglects to do this building here.  The higher you go, the more you have to be able to charge in terms of rent rates per square foot just to cover the costs of construction.  In a low barrier to entry market like Texas, when that price gets sufficiently high, you have a lot of developers begin to seek those premium tenants;  and, by the time you got a huge tower built, the price could have corrected due to the glut of many smaller buildings that took them less time to build.  But in a high barrier to entry market like California or New York, it's going to take any developer several years to do a project, and with that pipeline being longer you can tell the more precisely how vulnerable to price correction you are.  

 

Since the stakes are high there, to begin with, and expectations are less likely to be undermined, it makes some sense to do a high-stakes bet if you are going to be vulnerable at all;  the low-stakes bets are excluded from the San Francisco market altogether.  Houston's more dynamic market still has room for low stakes players (although not so much downtown) and that's a good thing, even if it doesn't lead to fancy projects.  The opportunity cost of losing the little guy is huge, as you can see by the proportion of growth that takes place outside of downtown instead of inside it.

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  • 3 weeks later...

Well, this was called the Transbay Tower until salesforce signed a 50% prelease. Less than two weeks later, LinkedIn leased an entire 26-story new office project in the same submarket. Terms are sometimes not disclosed, but costar said, "Lease payments associated with the salesforce.com lease will total approximately $560 million over the 15.5 year lease term, the company reported. It also estimates that triple net operating expenses related to the lease, which will also begin in the first quarter of the company's fiscal year 2018, will be approximately $305 million."

If Hines could line up people to speak for 714,000 square feet at a time here in Houston, locked in at annual rates above $50 a foot, they would. Instead, that's equal to the highest anywhere in Texas; and BG Group Place, their newest, sold outright for less than salesforce will be paying just to rent.

But that's not a very enlightening answer in the general case.

Risk management is why Hines neglects to do this building here. The higher you go, the more you have to be able to charge in terms of rent rates per square foot just to cover the costs of construction. In a low barrier to entry market like Texas, when that price gets sufficiently high, you have a lot of developers begin to seek those premium tenants; and, by the time you got a huge tower built, the price could have corrected due to the glut of many smaller buildings that took them less time to build. But in a high barrier to entry market like California or New York, it's going to take any developer several years to do a project, and with that pipeline being longer you can tell the more precisely how vulnerable to price correction you are.

Since the stakes are high there, to begin with, and expectations are less likely to be undermined, it makes some sense to do a high-stakes bet if you are going to be vulnerable at all; the low-stakes bets are excluded from the San Francisco market altogether. Houston's more dynamic market still has room for low stakes players (although not so much downtown) and that's a good thing, even if it doesn't lead to fancy projects. The opportunity cost of losing the little guy is huge, as you can see by the proportion of growth that takes place outside of downtown instead of inside it.

This should be required reading for every poster here.

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  • The title was changed to Hines San Francisco Salesforce Tower
  • The title was changed to Salesforce Tower At 415 Mission St.

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