Imagine a place where the office space is fully leased, apartments are packed, and residents and workers are lining up in front of beloved neighborhood institutions like Che Fico, Barebottle Brewing, Burma Love or Andytown Coffee Roasters.
It sounds like a pre-pandemic memory of San Francisco, but this scene is actually playing out in Menlo Park, where a developer thinks it has just what the beleaguered Financial District needs to recapture its mojo.
Completed last year by San Francisco developer Presidio Bay Ventures, the 760,000-square-foot project called Springline was meant to create a feeling of being in a large resort, without being at an actual resort, according to Presidio Bay Managing Director Cyrus Sanandaji.
The so-far successful bet is that an atmosphere associated with a relaxing vacation might be the key to getting more people working in person. In addition to two office buildings and 183 apartments, the complex includes a fitness center, a private spa, a golf simulator and a public outdoor gathering space.
With a proof point on the Peninsula, Presidio Bay is now wagering on the same concept to turn around a nearly 60-year-old office tower in San Francisco’s hollowed-out downtown.
Presidio Bay wants to gut and renovate an 11-story office building it picked up at a steep discount last year, located on the corner of Spear and Mission streets. The largely vacant property was purchased for $40.9 million last summer, a price two-thirds less than its previously assessed value.
Sanandaji said the project, dubbed 88 Spear, is about repositioning the property to make it usable and relevant again in today’s post-pandemic market, where commodity office space has fallen out of vogue.
According to plans submitted to the city’s Planning Department earlier this month, chief among the changes will be the construction of an entirely new floor at the top of the building housing an 8,000-square-foot rooftop restaurant and bar.
Presidio Bay also hopes to renovate everything underneath, too, including adding a spa complete with sauna rooms and various swimming pools for floating and plunging; a coworking space; a cafe and bakery; and a full-service gym with room for physical therapy, acupuncture and personal training.
“Five-star hotels don’t even have these perks,” Sanandaji told The Standard. “What’s clear to us is that [real estate] is no longer just a flight to quality, but a flight to experience.”
Despite being years removed from the pandemic shutdowns, San Francisco is still in the early innings of a commercial real estate reset, where office vacancies continue to climb and sales prices are falling. According to real estate firm Cushman & Wakefield, the city’s overall vacancy rate has continued to break records, topping out at roughly 34% at the end of the first quarter.
The term “resort” positioned alongside a productive workplace has drawn some eye rolls from some locals and competitors, but Sanandaji said the idea isn’t to import Hawaii to San Francisco. Instead, it’s about a focus on hospitality to differentiate Presidio Bay’s offerings from the region’s plentiful but increasingly empty office properties.
“You know that sense of relief you get when you arrive at a holiday destination,” he said, adding that 88 Spear will feature nautical theming to honor the history of Matson Navigation constructing the building in 1967. “We want to capture that feeling and deliver it to people.”
“We’re not writing off the office,” he added. “It just can’t be the same way it’s been.”
Presidio Bay isn’t alone in betting on amenities to turn around tired office buildings. Less than a mile away, luxury developer Michael Shvo is taking a similar approach to rehabilitating the famed Transamerica Pyramid.
The data somewhat supports the theory. For “Tier 1” buildings—defined as trophy buildings with premium views and amenities—the vacancy rate and average asking rents are night-and-day compared with the rest of San Francisco, according to Robert Sammons, senior director of research at Cushman & Wakefield.
In his team’s preliminary research, the vacancy rate for such buildings, generally located in the Financial District, was 7.4% last quarter. Meanwhile, the average asking rent of $105 per square foot is 40% higher than the rest of the city. The data does not factor in spaces available for sublease.
“There remains a desire by tenants to occupy the best product possible,” Sammons said. “The upscale amenities in top-tier buildings are certainly a differentiator, but something that wasn’t really necessary in San Francisco pre-pandemic because the market had such a low vacancy rate and tenants were looking for space wherever they could find it.”
An all-inclusive experience
Lauren Crabbe, owner of Andytown Coffee Roasters, said she and her partners didn’t think they were ready to expand outside of San Francisco before they were approached by Presidio Bay about coming to Springline.
“We just didn’t have the bandwidth to learn about another city’s processes,” Crabbe said.
To convince Andytown and other well-known San Francisco businesses to open at the Menlo Park complex, Crabbe said Presidio Bay helped the owners navigate “everything permitting-wise” so they could focus on honing their product and hiring new staff.
“They saw the value of having small local brands, and instead of just waiting and hoping for us to come, they got in and helped us get there,” Crabbe said.
Desmond Tan, owner of Burma Love and Burma Superstar, said his relationship with Presidio Bay this past year has motivated him to challenge other eager brokers, who are also courting him to open additional locations, to bring more to the table in terms of favorable rent conditions, capital improvements and help with local officials.
As for whether the resort model has anything to do with his restaurant’s success at Springline, Tan said while it’s hard to draw a definite conclusion, he felt having a concentrated vibrancy has undoubtedly had a positive knock-on effect.
Sanandaji said he wants to establish a similar relationship with restaurant and bar operators at 88 Spear.
“We view our relationship with them as long-term partnerships,” he said, adding that the company prefers “homegrown” concepts rather than national chains.
Sanandaji said Presidio Bay is aiming to start construction in the first quarter of 2025.