The development firm behind one of the San Francisco Bay Area's newest mixed-use projects is leveraging the office market's valuation decline with a deal that will stretch the firm's regional plans.
Behring Cos., an East Bay-based luxury apartment developer, closed a deal with Kaiser Permanente to acquire the healthcare giant's Oakland, California, office tower at 1950 Franklin St. as well as a neighboring parking garage, the companies confirmed. The sale closed this month for $14.4 million, according to information filed with the Alameda County Assessor’s Office, a price tag that equates to roughly $32 per square foot for the two properties combined.
The roughly 446,000-square-foot office tower has been sitting largely vacant since the beginning of the pandemic, a Kaiser representative said, and the company had been evaluating potential options and alternative uses for the downtown Oakland building it has owned since the mid-1970s.
While the greater Bay Area has struggled to find its post-pandemic footing, Oakland has been particularly hard hit by the impacts of remote work, tenant downsizings and evaporated demand. Absorption, or the net change in occupancy measured by the amount of space occupied versus vacated, fell to its lowest level in 2023 in about 25 years, according to CoStar data, with tenants collectively handing back upward of 940,000 square feet more than they leased.
While the healthcare giant came up short, Behring saw plenty of opportunities with the two properties.
The firm will tack the Franklin Street office building and parking garage at 1901 Franklin St. to its adjacent project at 1900 Broadway, a 39-story luxury apartment tower, office and coworking spaces, and about 47,000 square feet of high-end amenities that include its own Tesla fleet.
“The acquisition of 1950 and 1901 Franklin allows us to assemble a dynamic urban campus capable of reshaping downtown Oakland,” Behring said. “With the demand for high-quality, multifunctional spaces in the Bay Area increasing, we’ve seen strong leasing activity at 1900 Broadway. The acquisition of 1950 Franklin allows us to expand on that offering and further realize the vision of a truly connected urban campus.”
The deal with Behring extends Kaiser's recent disposition streak, following just a few weeks after the company sold its office property at 2000 Broadway for $25.5 million to the Bay Area Rapid Transit system. Kaiser over the past year has been relocating about 10% of its regional workforce, about 1,200 employees, to its campus in Pleasanton, California, an East Bay suburb about 30 miles south of the company's Oakland headquarters.
Of the few leases that are being signed, many of them are for significantly smaller amounts of space, doing little to remedy Oakland's nearly 20% vacancy rate.
Yet the heavily discounted listings have helped generate a flurry of smaller deals across the city.
Pricing for Oakland office properties has fallen by about 25% since the city's peak in early 2020, according to CoStar data, with buyers such as Behring stepping in to scoop up properties for which larger, institutional investors have expressed little-to-no interest.
While still just a fraction of its pre-pandemic volume, buyers have collectively spent more than $37 million on office properties in the downtown Oakland area over the past year, already a boost compared to the roughly $26 million reported for the prior 12-month period.