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OAKLAND, CA- With one office tower just completed here, another close to construction, two more fully entitled and none of them with a signed tenant, the Swig Co. has joined the conversation by proposing a two-tower, 1.3 million-sf addition to Kaiser Center. The project would replace two low-rise buildings at the 900,000-sf mixed-use complex in the Lake Merritt submarket.

In a preliminary development plan filed at the end of March, the San Francisco-based developer seeks permission to knock down two retail buildings along 20th and Webster streets that total 95,000 sf and are anchored by Longs Drugs and 24-Hour Fitness. The buildings would be replaced with 42- and 34-story office towers totaling 780,000 sf and 565,000 sf, respectively. A residential component once envisioned for the site is not included in the current plans.

The new towers would be designed to complement the two existing structures that would remain, the 28-story, 784,689-sf Kaiser Center I office building completed in 1960 and the five-story, 1,339-stall parking garage. The new towers would include 22,000 sf of street-level retail. Including several months for environmental review, the approval process is expected to up to two years, according to Swig.

Swig acquired Kaiser Center in 2005 for about $190 million in a joint venture with GMAC Institutional Advisors. The seller was a joint venture of El Segundo-based Summit Commercial Properties and its parent Highridge Partners, which bought the building in 2003 from a reorganizing Kaiser Aluminum and Newkirk-Kalan LP for $100 million.

Kaiser Center I is fully leased. The anchor tenants are Bay Area Rapid Transit Authority, which leases about 300,000 sf, and the University of California Regents, which recently renewed its 117,000-sf lease through 2016. The two-tower addition is being designed by Craig Hartman of Skidmore Owings & Merrill. Hartman led the design team for the nearby Cathedral of Christ the Light redevelopment.

The would-be Kaiser Center addition is the biggest office proposal in Oakland but it is by no means in the front of the line for tenants. Brandywine Realty Trust is just completing a nine-story, 215,000-sf building at 2100 Franklin St. that will be connected to 2101 Webster St. by an atrium; Shorenstein is close to construction for a 23-story, 500,000-sf building at 601 City Center; and SKS Investments last month received development entitlements for a 20-story, 300,000-sf Downtown office tower at 1100 Broadway.

“Brandywine moved forward (without a tenant) because the property came with its acquisition of 2101 Webster, was ready for construction and the market was a little hotter than it was today; they started construction two years ago,” CB Richard Ellis’ Oakland-based office specialist Sid Ewing tells GlobeSt.com. “I will be surprised if anybody else comes out of ground without a tenant.”SKS, a San Francisco-based investor, advisor, manager and developer is of like mind. Company officials say the company definitely won’t move forward on its project without an anchor tenant given the uncertain nature of the economy at the moment. Shorenstein, which is partnering with MetLife Real Estate Investments, is being more adventurous, saying it will develop its property with or without tenants and will break ground in September. Then again, it would be the first one to make such claims and then pull back at the last minute.

Part of the problem is lease rates. Despite Brandywine’s project, Ewing says lease rates are not high enough in the Oakland CBD to warrant new construction. With the best space in existing class A buildings leasing for between $2.65- and $2.85 per sf (full service), tenants may be reluctant to pay $3.25 – to $3.50 per sf for space at Brandywine’s 2100 Franklin. An executive at Brandywine was not immediately available Tuesday afternoon for comment.

“I’d say [2100 Franklin] probably is going to remain vacant through 2008,” says one longtime local broker who requested anonymity. “If a 200,000-sf tenant enters the market they may be able to make something happen but for [25,000- to 100,000-sf] tenants there are other options in the market that I would expect to be leased up first” because of the price difference.

The current direct vacancy rate in the 6.7 million-sf Oakland CBD class A market is 10.7%, with the 3.8 million-sf Lake Merritt area coming in at 12.6% vacancy, thanks in large part to Brandywine’s vacant building, and the 2.8 million-sf City Center area coming in at 8%, according to CB Richard Ellis. Sublease space adds very little to the percentages.

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