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SAN FRANCISCO-Much of the 388,000-square-foot San Francisco Giftcenter and Jewelrymart is being converted to office space, while the ground floor will be converted to retail space. The property has heretofore primarily housed tenants who design and manufacture gifts, clothing and jewelry for retailers and interior designers. The owner, ScanlanKemperBard Co., a Portland, OR-based private equity firm better known as SKB, paid $94 million for the three-building property in mid-2007.

SKB principal Todd Gooding tells GlobeSt.com the space being converted is the Giftcenter space, which was 30% vacant when the company acquired it and is more vacant now as the company more recently began letting leases expire in anticipation of the repositioning. The Jewelrymart portion of the development, which will receive only common-area improvements as part of the repositioning, was very well leased up at the time of acquisition—at rates in the $50s per square foot, according to local sources–and remains well leased today.

“The plan is to take advantage of the architectural characteristics of the historic structure by building out creative office space,” space that will lease at a higher rate than former Giftcenter tenants. Those tenants were paying a rate in the low $20s per square foot on a full-service basis, according to local industry sources. Gooding says he currently has proposals out to tenants in the high $20s per square foot on a full-service basis.

As for project financing, Gooding says the company has “plenty of runway with the banks” so the next step is to make the capital call and execute the business plan. “There is a capital reserve for just this plan so the money is sitting on the shelf,” he says.

The Giftcenter and Jewelrymart are housed in 888 Brannan St., a five-story building developed in 1918, and 850 Brannan St., a three-story building developed in 1987. Also included in the acquisition was 925 Bryant St., an adjacent one-story, 13,125-square-foot warehouse constructed in 1963 that either has been or will be converted to additional parking.

The repositioning was made possible by the recent rezoning of San Francisco’s eastern neighborhoods, which placed an “urban mixed-use” designation on the property. The new zoning allows office uses outright unlike its heretofore restrictive “production, distribution and repair” designation. The new zoning also allows for ground floor retail and wholesale retail on the upper floors, which the company could use to attract tenants from other buildings in the immediate area, which is known as Showplace Square and is part of the larger SOMA district.

“Outside of Union Square, this neighborhood has the highest retail sales in the city,” Gooding says.

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