INTO FOCUS
Chairman of development stalwart TMG gives his take on what lies ahead for the Bay Area as the commercial real estate market continues to surge
Michael Covarrubias is a key player on both the finance and building sides of the development coin. He spent 17 years with Union Bank, including a stint as a decision-maker in the bank’s construction lending unit. Since 1988, Covarrubias has been with development stalwart TMG Partners and is TMG’s chairman and chief executive officer.
If there’s a big commercial real estate market in the Bay Area, San Francisco-based TMG is in it. This news organization recently talked with Covarrubias about the nine-county region’s development scene, and in particular, the picture in downtown San Jose and downtown Oakland.
Q How hot is the current commercial real estate market in the Bay Area?
A No one likes to say it’s different this time. But the corollary is that it’s always different. This market is different from the dot-com era.
Q In what ways is it different? How does the upswing compare with the dot-com period? Is it the FAANGs — the Facebook, Amazon, Apple, Netflix,
Google tech companies?
A The magnitude and breadth of the FAANGs and the almost-FAANGs has never been seen before in the Bay Area. They are highly capitalized. They are very aggressive in their growth efforts. Their appetite to increase their employees is something unlike we have ever seen.
Q How do you assess the downtown sectors of the Bay Area’s three largest cities?
A San Francisco has essentially been out of large blocks of space for about three years. Oakland is the beneficiary of that, as is downtown San Jose.
Q How long have you been active outside of the downtown San Francisco market?
A We went to San Jose and Oakland three years ago. We entered both those markets even though that was 2015, when there were worries about how long the economic recovery would last. We thought there were several more years of economic expansion.
Q
What are your major efforts in downtown Oakland?
A
We bought three major assets in Oakland and earlier this year we sold 1330 Broadway downtown. We will still be in Oakland after this deal. We are bringing two other assets to the market this year.
Q
What are your plans in downtown San Jose?
A
In San Jose, we have our Platform 16 office project, consisting of 1 million square feet of offices, a fully entitled project. We are now starting to think about how to activate that development. We are having conversations with tenants and capital partners.
Q
What’s the development expense for Platform 16?
A
It will cost $800 million to $900 million to build that campus. That is a big project.
Q
What are the pluses and minuses of downtown Oakland?
A
The bones of Oakland have always been great. Transportation, freeway and BART access, the waterfront, proximity to San Francisco, a workforce that draws from the east, the north and the south. What Oakland lacked was the momentum to create a 24-hour city. They tried office buildings, but those didn’t work. They tried retail and that didn’t work.
Q
Have things begun to change for the better in downtown Oakland? A
You have the Uptown district, the artists, the theaters, the nonprofits, great restaurants and safety is increasing. Under Mayor (Libby) Schaaf, crime has gone down dramatically. And then you add the bonus round. San Francisco’s downtown is full.
Q
What are the pluses and minuses of downtown San Jose?
A
I’ve had a lot of experience with San Jose. San Jose was on its way to being a very complete place when the 2008 economic crash happened. Everything that was being planned went up in smoke. A lot of projects were foreclosed or abandoned.
Q
How are things improved now in downtown San Jose? A
Now you have the transit hub at Diridon station. That station is the most multi-modal transit hub in the entire Bay Area. It has Caltrain, Amtrak, light rail, the ACE Train, and BART is coming to that station. Companies want to be on the Caltrain line, next to BART, and in an urban environment. If we get high-speed rail from the Central Valley and Los Angeles, that will all add to Diridon station.
Q
How much of a difference is all this activity at the train station, Google’s interest in the area, going to make for downtown San Jose?
A
San Jose is finally going to have its day. If it all comes to pass, Google will be the anchor of a complete revitalization of the downtown. Google creates the need for more housing, the need for more retail, more restaurants. All of it will be focused on transit. BART will open up so much for so many corridors.
Q
Are big infill developments such as your proposed Platform 16 office campus in downtown San Jose the future in the Bay Area?
A
Fixing transportation is a slow process. You can’t build a new bridge everywhere, or double-deck all the freeways. But you can put people’s jobs near where they live. That is done through BART or Caltrain. The traffic is beyond horrible, and the goal is less traffic on the freeway. That is why infill development is an answer. You are going to have growth, you have to find creative ways to accommodate the growth. You can’t put a lid on boiling water and expect it to stop. Make buildings bigger and more efficient, put them in places where people can take BART, Caltrain or light rail. me, “What’s the weight of the chicken?” When I said it weighed two pounds, she adjusted the power level and set the timer for 22 minutes.
Alexa can also microwave popcorn, for which she’ll also ask the weight, unless you specify in advance by saying “microwave 3 ounces of popcorn.” Being Amazon, you can also have Alexa reorder popcorn for you. Amazon rarely misses an opportunity to try to sell you something, which I suspect may be one of the reasons why the microwave and some other Alexa-enabled devices like the Echo Dot are so affordable.
At this price point the AmazonBasics microwave is a good choice if you need a new microwave oven. But, chances are you don’t and I certainly don’t think it’s enough of a game changer to warrant replacing a perfectly good microwave you may already have. In fact, I would almost consider it a novelty item if all you do with your current microwave is reheat pizza and defrost frozen food, though I do admit that the voice-activated defrost is kind of cool for people like me who have no idea how to set the power levels for defrosting in a typical microwave.
My sense is that Amazon is using the microwave to test the waters and gain inroads into people’s kitchens, just as its voice-activated Fire TV gets them into living rooms. It wouldn’t surprise me to see voice built into other devices and appliances, getting us to the point where we don’t have to touch anything to cook a meal. Combine that with online food shopping (Amazon owns Whole Foods), and we may someday be able to use our voices to order and cook our meals without having to worry about recipes. Given my rather limited kitchen skills, this might be a good thing, but Alexa will need a great deal more artificial intelligence before she can even think about making meals as good as those from my wife.