Eden Area Livability Initiative Phase II Economic Development Working Group Meeting #6 Thursday, February 5 th, 2015 6:30 p.m. 8:30 p.m. San Lorenzo Village Homes Association - 377 Paseo Grande, San Lorenzo Meeting Notes I. Welcome, introductions, and icebreaker - Claudia Albano thanked everyone for coming. Everyone introduced themselves. II. Purpose of meeting & agenda review - The purpose of the meeting was to hear from a panel of commercial real estate brokers, who provided their insights on opportunities and challenges for the Eden Area, as well as information about how they market properties. III. Recap of meeting #5 and status update - The last meeting of the EALI Economic Development Working Group was in November and the group worked on a branding activity, identifying aspects that make the Eden Area attractive from the business perspective. IV. Commercial real estate panel - Susan McCue, Economic Development Manager, facilitated a discussion with commercial real estate brokers Mike Tanzillo of MTC Real Estate and Guy Warren of Lee & Associates. Bob Ferraro of CBRE was not able to attend but he provided information to Susan. - The reason for the panel is for the Working Group to get a behind-the-scenes look at how commercial real estate brokers market properties. Question #1: What is your background and how did you become a commercial real estate broker? What are the challenges and rewards of your work? o Response from Mike: I ve been in this field for decades. I started as a broker because I enjoy the challenges of business. The greatest challenge is working with commercial properties where zoning is a major issue. Office space and industrial properties are less challenging to work with, as are apartments. The reward is seeing the businesses I helped start and expand in the area I live in. o Response from Guy: I am from Hayward and went into commercial real estate after coming back to this area after college. I have done industrial sales and research & development (R&D). I ve also worked on leasing or selling office and retail properties. Most of what I do now is land development. I talk to builders and find out where they want to go. The biggest challenge is getting political buy-in for projects and the length of time needed to get approval. Seeing the end product of the work is the biggest reward. o Bob s response was that he also faces challenges with zoning and that properties are harder to move when there is an economic downturn. He said that this career is good for go-getters and problem-solver types. Question #2: What is your approach to marketing a commercial property? o Response from Guy: I ve heard from local people that they want particular businesses on certain sites. If a community has ample vacant land or properties with buildings built on them already, there is a better chance of getting higher-end tenants. As a broker, I ask companies if they would be interested in the property we are trying to sell or lease out. 1
2 With the availability of information on the Internet, companies can look online and tell brokers yes or no immediately. o Response from Mike: The approach to marketing depends on the type of property. We market to other brokers through our professional networks. We try to place people, companies, and retailers where they want to be. Companies have specific demographics and traffic counts that are important to them. o Response from Guy: It s important to note that companies are looking across the country for land. The local demographics sometimes just isn t appealing for them. For example, I worked with the City of Hayward to try to attract Whole Foods. The company didn t like the demographics, but it was hard for community members and the City to hear that. I recommend that this group make a list of the top tenants it wants and then go contact them. They can give you an answer immediately whether they are interested. At that point, it would be time for Plan B. Question #3: What are some regional commercial real estate trends you are seeing? How do they affect the East Bay, in particular Hayward, San Leandro, and the unincorporated area? o Comment from Mike: Real estate is very cyclical. Right now, the market is trending up again. The Bay Area is a bubble in itself with most growth generated out of Silicon Valley. The growth has spread to the Tri-Valley area and parts of Hayward. We are also seeing higher rents and housing prices, as well as a younger generation that is more interested in living in urbanized areas. This are signs that that the economy is going strong. The cost of smaller office spaces is up, which indicates that small businesses are doing well. o Comment from Guy: The East Bay s industrial and housing markets are doing. Most retailers want to go to higher-income areas because those residents have more disposable income to spend. Some people ask, Why not just build a new office space where there s vacant land? The revenue from renting out office space isn t high enough to support the significant investment it takes to build a new building. People think developers make millions in profit but this isn t the case in reality. There is a lot of risk involved in development. Housing developers need a return of at least 8% and office developers need a 15% return. o Bob s response was that the Peninsula and South Bay markets are on fire while San Francisco s market is pushing demand into the East Bay. In the East Bay, Bob sees a high demand from the industrial and food processing sectors but a very limited supply of land. There is also interest from manufacturers who are using robotic technology, rather than a blue-collar workforce. Question #4: What are the biggest challenges and opportunities in the Eden Area? o Comment from Mike: The problem in the Eden Area is that we are dealing with older commercial thoroughfare properties that have a lot of car dealerships and brick- andmortar buildings. They house small boutique-type businesses and small mom and pop shops. There is nothing that could bring in big entities. Today, people shop at big stores or the Internet. San Lorenzo is bordered by two giant box stores. What the town has is vacant lots and properties more suitable for the mom and pop businesses. It takes a long time to get businesses into these types of properties. Castro Valley is facing the legacy of decades of bad planning. Ultimately, what matters most is an area s demographics. o Mike noted that what communities want is different from the reality and that the challenge for communities is figuring out what they are working with. He recommends rezoning in order to make it easier for businesses to come in. He cited downtown Hayward s entertainment district as a successful effort to attract more businesses. o Comment from Guy: When malls and box stores came in, it killed small stores. Now people are shopping online, not at the mall. It is easy to blame the owners of small properties but when you talk to small business owners, you hear that it s not easy. They don t make much
revenue and landlords are reluctant to do tenant improvements. They want to pass along those costs to tenants. On the positive side, housing values are going up. This community should really promote market-rate housing because affordable housing tenants just don t have disposable incomes. Question #5: What can communities do to market properties? Community members often ask how they can help attract new businesses and retailers. How can community can add value to your marketing efforts? What should they not do? o Comment from Mike: The cost of putting in a business is high. Taking care of those soft costs would be helpful. Another thing companies consider is crime and neighborhood cleanliness. Business owners care about their safety and don t want to see graffiti or trash. Companies will often drive around the area they are considering. If they see issues with homelessness or boarded up buildings, they will not want to invest. The community should work with the government to get these issues taken care of. If a building needs to be fixed up, one option is for the government to put money into repairing it. V. Questions from community members - Mike and Guy answered questions from community members. - Question from community member: Does a community s educational level and quality of local schools matter to developers? - Response from Guy: Homebuilders care a lot about how good schools are because it matters to people from higher-income cities, like San Francisco and Fremont. - Response from Mike: Commercial development follows housing. Corporate retailers look for high incomes. If incomes in a community are high, they re interested. If local schools are faltering, you won t get the businesses you want. - Question from community member: Would it be possible for an investor to buy multiple properties in Ashland and assemble together for tech warehouses? - Response from Mike: It would be impossible. Tech companies want a lot of land and it s cheaper to go to places like Nevada and the Central Valley. Even ten acres is considered small. I ve heard people ask, Can a developer come in and perk up properties? but it is hard and expensive. - Response from Guy: For smaller properties, the building is more valuable than the land. Someone would have to be willing to take a real loss. When Redevelopment funds were available, the County was able to take that loss. That funding is gone so it is almost impossible now. - Comment from Supervisor Miley: It s important to think about how long it takes to make a deal happen. Developers and property owners have to take many aspects into consideration. When we try to address issues like crime and littering, the way we are through the EALI process, it helps promote commercial development. I also think more accessible transit along the major corridors would help. With the loss of Redevelopment, Susan and Eileen are trying to come up with other mechanisms to incentivize businesses to locate here. You have to strike when there s opportunity there, so long as it is not detrimental to the local quality of life. - Question from community member: Do chain stores ever take a chance on a community? I ve seen them do that in other places. - Response from Mike: It is ultimately the companies that make the decisions. We re just telling you what they look at, based on our experience. 3
- Question from community member: Mission Blvd. has some bigger properties left. If we could combine properties, what kind of projects would be best? Would it be mixed-use or retail? - Response from Mike: Developers are not going to pick up individual properties. Those lots are smaller than what many retailers want. What shouldn t be done is turn properties into open areas. Housing or auto-related businesses would be most suitable on Mission Blvd, but not retail. - Response from Guy: It s tough when demographics don t match what retailers want. That said, anything that is a success, other businesses will want to follow. People also have to support tenants so they don t leave. Community members should come up with a list of potential tenants to call. - Question from community member: What would be the single best incentive for small businesses to locate in the Eden Area s main corridors? - Response from Mike: Fewer layers of government would be helpful, but any incentive has to come from the local government. One example could be easing the permitting process for new businesses and have fewer prohibited uses. Communities should look at what kinds of businesses are around today when it comes to zoning. There are too many zoning codes and many of them are outdated. - Response from Guy: I think the government has to be upfront to people about whether their idea is going to work and be approved. - Response from Mike: It s not good to have vacant buildings. Façade improvements would help if there was funding. - Question from community member: Could we repurpose buildings to be more 21 st century and tech-oriented? I ve seen the City of San Leandro do this. - Response from Mike: San Leandro has been in the process of redevelopment for twenty years and has a lot more land than San Lorenzo does. The properties on the thoroughfares are more suitable for smaller businesses. You have to look at what you have and work with that. - Question from community member: How does the Eden Area and the County compare to other municipalities in terms of being business-friendly? - Response from Mike: The City of Hayward was difficult to work with but now they ve improved. They have a great website that makes it easy to find properties and get information on zoning. San Leandro is tougher to work with but doable. The County used to be easier to work with, but now for some reason it isn t. The County has no website to find information about zoning. - Response from Guy: I don t do a lot of work in the County because there are not as many bigger opportunities. What makes the County tough to work with is that a lot of citizens get involved and everyone has their own ideas. At the end of the day, people have to be on board and the bigger the group, the harder that is. - Question from community member: You said that companies look at demographics in the five-mile radius around a potential location. What about a town like San Lorenzo that is only three miles wide? - Response from Mike: It depends on the type of business. The rule for retail is location, location, location. They look at income data in the radius and zip code to determine their potential customer base. People don t shop as far anymore but walkability matters more for cities than suburbs. Here people still drive to stores. - Comment from Eileen Dalton, Economic and Civic Development Department: With Redevelopment, we had many of the tools the brokers mentioned but not anymore. My department is trying to fill that void as best as we can. The community has to get to get to yes, instead of just saying no. It has to collectively identify what it can rally behind. The WG needs to work on how to get to yes. 4
- Comment from Matt Turner: There s often conflict between what the community wants and the companies bottom line. Community members have to be willing to put in work, while also being ready to face rejection because it will happen. In one case, community members were able to successfully advocate for a Trader Joe s in Castro Valley because they did their research and put together a detailed analysis. - Supervisor Miley noted that the Ashland Cherryland Business District Specific Plan is in progress right now. The process for starting updates to the Castro Valley Central Business District Specific Plan will begin with the new fiscal year in July. VI. Next steps for the EALI Economic Development Working Group - Prior to the next Working Group meeting, a small group of community members will meet with Supervisor Miley s office to debrief the information provided by the panelists. - The next Working Group meeting will feature another panel and also include the feedback from the debriefing. 5