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Q&A with Michael Barker, CEO and Managing Director, Barker Pacific Group, Developer of Hamilton Land
NOVATO - Michael Barker's lifelong fascination with striking architecture has helped him direct a $100 million-plus transformation of seven dilapidated military aircraft hangars at Hamilton Field into high-class office space.
Since founding Los Angeles-based Barker Pacific Group in 1983, Mr. Barker has overseen more than 5,000,000sf of office, retail, and multifamily residential development worth in excess of $950 million in San Francisco, greater Los Angeles, Phoenix, Houston, Miami, Fort Lauderdale, and Maryland. A high-profile local example is the 27-story, 500,000sf office building at 100 First Plaza in San Francisco finished in 1988.
Before forming Barker Pacific, Mr. Barker directed suburban development in Houston for Hines Interests for 10 years.
In 1999, Barker Pacific acquired the 66-year-old hangars at Hamilton Landing, with plans to add two more buildings for a total of 552,000sf of office space. Prudential Real Estate Investors took a majority stake in the project in November 2000.
"When we first took on the Hamilton Landing project, people thought we were out there and not of sound mind," Mr. Barker says. The ridicule has died down now that Barker Pacific has renovated four hangars, fully leased one, and has tenants in another.
Here, Mr. Barker discusses how the North Bay market compares to Barker Pacific's other markets, the importance of Prudential to the project, and the outlook for the North Bay and Bay Area markets.
NORTH BAY BUSINESS JOURNAL: How does the Marin/North Bay market compare to others where Barker Pacific has projects?
MICHAEL BARKER: This market is small compared to most of the places we've done projects, and many have been in downtown environments.
This market is difficult to develop in due to regulatory constraints. These buildings already existed, so we didn't have to go through a long approval process. They were neglected but structurally sound, so we could take them and mold them into a very fine product.
BUSINESS JOURNAL: How does Hamilton Landing compare to other Barker Pacific projects?
MICHAEL BARKER: Most of our developments have been new construction from the ground up and, secondarily, taking existing office space and renovating it. Hamilton Landing is unique for us in that it is an adaptive reuse of existing aircraft hangars as high-end office space.
BUSINESS JOURNAL: How important is Prudential to the project?
MICHAEL BARKER: Prudential is a joint venture partner in ownership of the project. It brings experience as a major institutional investor in real estate projects in the United States. The fact that Prudential is a long-term investor is extremely important for the financial strength and underpinnings of the project. Because of Prudential's involvement, it's not a matter of our building piecemeal and being subject to the whims of the financial market.
This is a multiphase project. Tenants can be assured that we will be here for a long time and the development will be built out in the manner it was intended to be and maintained to high-quality standards. There is no debt on this property, providing more stability.
BUSINESS JOURNAL: How easy has it been to convince tenants that military aircraft hangars could be converted into a high-class office campus?
MICHAEL BARKER: It was not terribly easy in the beginning, but now it is easier. The first tenant was Smith & Hawken, one of the most forward-thinking companies in Marin. The company was looking for a creative environment for its creative people. Smith & Hawken committed to being here before we started construction. Now that the company is moved in, it's very evident that these buildings are very well-suited to the corporate environment.
Initially, we started with one hangar -- Hangar Four. We wanted to make sure the concept would work and that our budget was right. Doing one building enabled us to make sure all the systems worked properly. We had Hangar Four fully leased before we finished construction last year.
We've proved the viability of the buildings. Now, we have enough critical mass to give prospective tenants a feel for the layout of the campus and the landscaping.
BUSINESS JOURNAL: What type of tenant is ideally suited for Hamilton Landing?
MICHAEL BARKER: That's a hard question to answer. We have a variety of tenants, from Smith & Hawken to an investment company to Marin IPA to an insurance company to The Pride Institute for dental training. Here, you can have wide open spaces or private offices, and the building is very energy-efficient and provides high flexibility on altering spaces to fit special requirements.
BUSINESS JOURNAL: Describe this energy-efficiency.
MICHAEL BARKER: We have some features in these buildings one will not find in many buildings in the Bay Area. There is under-floor distribution of heating and cooling and lines for power, data, and phones. This feature is super for moving around workstations with minimal disruption. The windows are operable for use on the weekends, saving energy costs.
Our system costs more than the typical installation with ducts, but we felt that the long-term ownership of the project justified the cost. In fact, the systems save on energy costs and make tenants more comfortable. You seldom see such a system in speculative projects because of the front-end capital cost.
BUSINESS JOURNAL: What will be the long-term impact of the growing amount of available office space in the Bay Area?
MICHAEL BARKER: There was a huge expansion of office space in the Bay Area in the last few years, fueled by venture capital funding new companies that were little more than ideas. A lot of office space they leased wasn't occupied, as fast-growing companies were leasing two or three times the amount of space they needed. That created a false sense of absorption.
As the economy grows, this space will be absorbed. Two of the biggest engines of economic activity in the world -- computer technology and biotechnology -- are centered in the Bay Area.
The North Bay didn't have the big rental spike as in San Francisco with the dot-coms. We've not had issues with credit worthiness of tenants at Hamilton Landing. I don't think this contraction will be as severe here as in other areas, and I see it turning around in 2002.
We have a long-term commitment here, so we're not so concerned with the immediate short-term hiccup. Everyone is concerned about where the next tenant will come from. We didn't bump rents up during the run-up a year ago, and we haven't changed rents. We're still seeing reasonably good tenant demand.
BUSINESS JOURNAL: Are there similar opportunities in the Bay Area for a successful military base conversion like Hamilton? Are there other opportunities for your company in the North Bay?
MICHAEL BARKER: I'm not really sure there is anything comparable. For something like this to be developed, it has to be well-located. Here, you have high-quality housing with abundant community amenities such as the theater and shops and parks. Finding a military base in an area that would afford that opportunity is like finding a needle in a haystack. Mare Island in Vallejo probably will be successful but in a different kind of way.
We've made a major commitment to Marin County. We're looking for other opportunities to acquire existing buildings or develop new projects, but for right now, we're always open on Hamilton Landing.
BUSINESS JOURNAL: What is your outlook for North Bay commercial real estate in the next 12 months?
MICHAEL BARKER: It will continue to improve. I think we've seen the worst of the cycle. We're moving into a period where interest rates are extremely low and will stay reasonably low for the next two or three years. That portends a more healthy economy. There will be more spending by the government, and that will help companies in the Bay Area and the North Bay that provide goods, technology, and services to our defense industry.
We've had a really big economic setback in the Bay Area. I don't think we will see a tremendous turnaround in vacancy rates in the Bay Area in the near future. However, the Bay Area has major geographical limitations and regulatory constraints on runaway development; therefore, it will continue to be a place where major investors will put capital and the entrepreneurial spirit is fostered.
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