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NOVATO, CA-Demand has returned for Hamilton Landing, a piece of the former Hamilton Air Force Base that includes seven historic hangars and room for a new building at the entrance. Developer Barker Pacific acquired the site in 1998; nine years and a recession later, five of the seven hangars have been renovated and leased, thanks in large part to a busy 2006.

Company principal Michael Barker tells GlobeSt.com that he expects the increased leasing activity to continue and expects to secure enough pre-lease commitments to begin renovating another of the hangars this year. “There is a dearth of space in Marin County and a lot of folks that want to be there because of its deep pool of creative and highly educated people,” he says.

Twelve tenants took down space at Hamilton Landing in 2006. Most recently, Take-Two Interactive Software leased all of Hanger 10, a 65,000-sf building whose renovation was completed in December, and Birkenstock Distribution USA agreed to lease 15,000 sf in Hangar 5 for its headquarters.

As a result, the 286,000 sf of renovated hangar space in the development is essentially full, with negotiations underway for the lone 1,200-sf space that remains to be leased. The negotiated full-service lease rates are coming in between $30 and $35 per sf, Barker says, which is more than 20% higher than 2003. The sheer lack of space should allow Barker to push rates even higher in the near future.

“As an investment, it is working well, though it has taken longer than expected,” Barker says. “We had a slow period but the market has certainly picked up in the last two years and especially in this last year and we see that trend continuing.”

After acquiring the old abandoned hangars in 1998, it took Barker several months to decide what it wanted to do with the property. “We had the option of tearing the hangars down but I wanted to work with them,” Barker says. “It was the more expensive option but we felt like in the end renovated historic structures would be more valuable and that the leasing activity would be such that it would be worth it.”

The first hangar was going to be renovated on a speculative basis when Smith & Hawken decided to lease much of it for its headquarters. “We did that first building as a test and were very fortunate to attract them,” Barker says. “They were the perfect lead tenant for this project because of the image they brought. They did a bang-up job on their space; we still show it during tours.”

By the time the building was completed in May 2000 it was fully leased, prompting Barker to kick-off the renovation of three additional hangars on a speculative basis. Then came the recession.

In 2003, to get things rolling again, Barker Pacific took on an equity partner, Prudential Real Estate Investors. The renovation of the second, third and fourth hangars was completed in late 2003. Shortly thereafter, Barker Pacific sold two of three buildings it owned and occupied in San Francisco and moved its headquarters into one of the three hangars.

Leasing began to pick up in 2005. The Marin Community Library opened a branch at the development and the YMCA opened a new gymnasium. “At that point we were creating more than just office space, we were creating a community destination,” Barkers says. “We also added a café and a dry cleaner.”

Some 37 businesses now call Hamilton Landing home. In addition to Birkenstock and Take Two, deals have been closed with Sony ImageWorks, Oracle, and Dynamic Fund Management. Brokers Brian Eisberg, Haden Ongaro and Mark Carrington of Orion Partners Ltd. represent the property owner.

The total development cost of Hamilton Landing is approximately $150 million, including the cost to renovate the two remaining hangars and develop a new 65,000-sf building at the entrance. With the most recently completed building, Hangar 10, already taken and interest still strong, Barker says he is talking with prospective tenants and expects to be renovating the next to last hangar before the end of the year.

Barker’s investments have included a mix of longer-term and shorter-term holds. It’s unclear in which category Hamilton landing will end up. A sale or a recapitalization is likely in the next few years, however, because PREI typically only holds investments for between three and seven years before it liquidates the asset in order to pay off investors.

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