PG&E Corp.’s move from San Francisco to Oakland could shatter real estate records as the utility considers the potential $892 million purchase of its new headquarters building.
PG&E has the option to buy 300 Lakeside Drive in 2023 from developer TMG Partners for that price, the company said in a Securities and Exchange Commission filing on Tuesday.
The potential deal would be the biggest building sale in Oakland history and a sign of strength after the Bay Area has been battered by the coronavirus epidemic, which forced millions of office employees to work from home. Oakland would receive $22.3 million in transfer taxes if the sale occurs.
PG&E could instead lease the 900,000-square-foot building next to Lake Merritt for 34 years, paying $57 per square foot annually, with rents increasing 3% per year. The rent is slightly higher than Oakland’s average office rent, according to real estate brokerage data. But it’s significantly lower than San Francisco rents, which exceed $80 per square foot in top buildings.
PG&E also plans to sell its current San Francisco headquarters buildings at 77 Beale St. and 245 Market St., which could net the city tens of millions of dollars in transfer taxes. But the city would lose out on PG&E business taxes, a number that isn’t publicly disclosed. PG&E said that San Francisco would see a net increase in tax revenue from the move.
“The investment will add significant annual property, payroll, and other tax revenue for the city of Oakland,” TMG CEO Michael Covarrubias said in a statement. “San Francisco will enjoy significant additional annual property tax and commercial rents tax revenue ... we anticipate that San Francisco will also receive other increases in tax revenues from the sale and re-tenanting of the property.”
Jay Cheng, public policy director at the San Francisco Chamber of Commerce, said PG&E’s departure was nonetheless part of a worrisome trend, with the city already facing a budget deficit of up to $1.7 billion.
“PG&E’s departure follows a larger trend we’re seeing in the San Francisco economy. The incredibly high cost of doing business in the city, coupled with the COVID-19 economic downturn, are driving businesses and jobs out of the city. This impacts all San Franciscans — as these businesses leave, they will take pieces of the city’s tax base away with them,” he said.
Charles Schwab plans to move its headquarters from San Francisco to Texas after its merger with TD Ameritrade, which received Justice Department approval last week. McKesson and Bechtel previously moved San Francisco headquarters out of state.
PG&E’s Oakland deal price would be nearly 40% higher than a three-tower sale by CIM Group to Starwood Capital last year, which totaled around $500 million, according to property records.
TMG Partners still has to purchase 300 Lakeside Drive from the current owners, Swig Co. and Rockpoint Group. Swig paid around $200 million for the 1960 building in 2005, which was built as the headquarters of Kaiser Industries. Swig has renovated the building’s elevators, common areas, conference center and bike room. TMG plans further renovations.
A TMG spokeswoman said the company was still in contract to buy the building and would not disclose the sale price. A Swig spokesman declined to comment.
PG&E still needs approval from the California Public Utilities Commission and the U.S. Bankruptcy Court in order to follow through on its planned office sale and move.
Travis Miller, a utilities analyst at Morningstar Research Services, said the company should probably lease its new Oakland space rather than exercise its option to buy the space. Doing so would help the company focus on its “core mission to provide energy services,” Miller said.
“I think regulators are going to be more amenable to PG&E leasing space rather than owning large office complexes,” he said. “That’s just not the business that regulators want PG&E to be conducting, and it’s not the business that PG&E should be conducting.”
The planned move comes after a so-far-unsuccessful attempt by city officials in San Francisco to buy the company’s local power lines for $2.5 billion. PG&E has been headquartered in the city since the company’s creation in 1905.
“Selling real estate and moving to a new city will not help PG&E become a safer company or a more reliable electricity provider,” Will Reisman, a spokesman for the San Francisco Public Utilities Commission, said in an email.
Reisman said the city’s “fair and just” attempted purchase would “do far more to help the company straighten out its finances” and it was “high time” that PG&E leaders reconsider the offer.
PG&E shares closed Tuesday at $11.81, down 6%. Miller said the drop was probably not a reflection of how investors were reacting to the sale and was more likely related to developments in the company’s bankruptcy case or broader market factors.
Roland Li and J.D. Morris are San Francisco Chronicle staff writers. Email: roland.li@sfchronicle.com, jd.morris@sfchronicle.com Twitter: @rolandlisf, @thejdmorris
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PG&E’s Oakland move could break records with $892 million purchase option - San Francisco Chronicle
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