Sunset Office Plaza, Another Heated Livermore Debate

Sunset Office PlazaLivermore has once again found itself in a very divided and passionate conversation. The topic this time around? Redevelopment of a 40-year-old office/medical plaza. Nevermind the fact that most cities across the nation would pay people to buy homes and rent commercial space. Our isolated corner of the country is one of the first and only to experience new development and redevelopment since the economy took a dive. But I digress.

I will start with a quick synopses of the owner/developer. Sunset Development Company, a well-known Tri-Valley, family owned operation. They also own and developed  Bishop Ranch in San Ramon. Bishop Ranch is a widely successful 10 million square foot office project consisting of Fortune 500 companies including: Bank of West, Chevron, JPMorgan Chase, and Ford. When the economy crashed Bishop Ranch experienced lackluster leasing activity and tenants vacating, just like everyone else. What has not been told is the story of successful leasing that has taken place since 2011. The park has experienced close to, if not more than, half a million square feet of new leases and expansions in the past few years, leaving it near full occupancy.

Sunset Office Plaza in Livermore is located on a main thoroughfare and consists of 10 buildings and 75,000 square feet of rentable space. The 14-acre site is surrounded by residential and located across from a grocery anchored shopping center. The office plaza no longer makes economic sense. Rents are not high enough to offset property management, maintenance, and plaza’s aging infrastructure. The question becomes: What is the highest and best use?

If you have been keeping with my blog, you will note Livermore is still lagging in terms of retail shopping center leasing, having the highest vacancy rates in the area. Certainly adding more retail space is not a winning proposition. The only thing more depressed than retail is office space. What is thriving you may ask? Residential. The site naturally lends to residential due to the highly valued school district and ideal South side location. With the lack of new residential building the past few years, inventory is low and multiple offers are common making residential the highest and best use.

What will happen to the tenants in plaza? There is plenty of office, medical, and retail space that needs to be leased all over town. This has been one of, if not the least expensive places to rent for years. Tenants should be happy to have been able to capitalize on this opportunity for as long as they have. It is unreasonable for people to expect the plaza to remain as-is, especially if economics do not make sense. Real estate is a business and just like any other business, it needs to make money in-order to survive.

Apartments, townhomes, or single family is the next question. Neighboring home-owners never like apartments and multiple story townhomes in our sleepy community have not been popular outside of downtown. How about a little devils advocate: While many find building apartments offensive, are residents taking into the consideration the massive expense to rent? Those who rent are not the same demographic you might remember in years past. Did you know a search on Craigslist only revealed a couple of homes, and only one 3 bedroom 2 bath in the South side of town. This duplex (attached home) is renting $2,550 per month! No doubt a new construction rental would be more expensive. Would high-end rentals really devalue and bring the shady characters everyone fears?

For now it seems Sunset has scratched the plans for multi-family units and is on track with single family homes. In my humble opinion, any residential use is going to be better for the neighborhood and community that what currently exists. It all comes down to what the highest and best use for the land because in the end, the highest and best use will boost surrounding property values which will lend to a stronger and more robust local economy.

What are your thoughts?

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About thestorefront

Commercial Real Estate Broker in the San Francisco Bay Area specializing in retail sales and leasing.

2 thoughts on “Sunset Office Plaza, Another Heated Livermore Debate

  1. I say building a mini-storage!!! We don”t have enough of those yet everywhere, and they complement residential so well. Just kidding, sarcasm, sarcasm…But they are consistently well leased. Anyhoo, I love mixed-use residential projects, retail on the first floor, residential on the second. Probably not a likely fit in South Livermore anytime soon, but they are so welcoming and fun.

  2. So rents are not high enough to offset property management, maintenance and the aging infra structure? The plaza no longer makes economic sense, vacancies are too high. According to Sunset, that is. Well, you know what they say, “trust, but verify”! You want to cry poverty as an excuse to re zone OUR town, then open your books – prove you’re losing money.
    If Sunset doesn’t want to do that, then put it on the market! Let’s get someone in here to properly manage it, do the necessary upgrades. (No significant upgrades in 40 years and Sunset is disappointed vacancies are high? And of course the rumors about closing the plaza have been heard for the last few years, is it any surprise that a doctor or dentist or other professional doesn’t want to incur the costs of moving again if the rumors turn out to be true? Of course they’re not going to rent here.)
    No, we all know Sunset is still making money, but it’s such a little piece of their empire they don’t really want it anymore. It’s worth a lot more to them as housing, but not just any housing – high density housing is where the money is. (When you think about it, it takes a lot of gall for them to make this high density housing request, when it was originally zoned low density the first time they successfully petitioned to convert it to office/commercial back in 1973!)

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