Articles

How Oakland, Calif., Transformed Itself Into a Tech City

Oakland has progressed so far that it has begun to serve as a model for other communities looking to take advantage of tech companies moving out of expensive cities.

by Tom Daykin, Milwaukee Journal Sentinel / May 23, 2016
Latham Square, Oakland flickr/James A. Castañeda

(TNS) -- It was once a major downtown landmark, drawing shoppers from throughout the city, before gradually slumping into a status charitably described as "underused."

But the building is now about to be transformed into cool, stylish offices on its upper floors, along with street-level stores and restaurants.

While this describes what the Grand Avenue mall's new owners hope to do with their downtown Milwaukee property, it also is the story behind a similar project in downtown Oakland.

A large former Sears department store there has been sold to Uber Technologies Inc., the fast-growing smartphone-based ride-sharing service and bane of taxicabs everywhere. The San Francisco-based tech company is converting most of the Oakland building's upper floors into corporate offices, while reserving the street level for retail use.

That project, known as Uptown Station, was cited by Grand Avenue's owners as an example of what they want to accomplish with their redevelopment plans, which were unveiled in April.

"We can create Milwaukee's most dynamic workplace," said project architect Chris Socha, of TKWA Urban Lab.

It's not a surprise that Oakland's Uptown Station would be a model for the Grand Avenue's owners: investment groups led by Tony Janowiec, president of Interstate Parking Co. and principal in Aggero Group LLC; Chuck Biller, Aggero Group principal; and Josh Krsnak, president of Minneapolis-based Hempel Cos.

They took control of Grand Avenue in December, paying $23.1 million for its large parking structure and just $1.5 million for the mall, which has around 294,000 square feet.

The mall enjoyed about 10 years of success after opening in 1982. But sales began declining when its retailers opened additional stores at suburban malls, and customers shifted to shopping at locations closer to their homes.

Tech firms targeted

Like Grand Avenue, the Oakland property has seen better days.

The seven-story, 380,000-square-foot building was completed in 1929 for department store operator H.C. Capwell Co.

Even after similar stores throughout the country began closing as suburban shopping malls grew, Oakland hung on to Capwell — joining Milwaukee in the dwindling ranks of U.S. cities with downtown department stores.

The store in 1996 became a Sears after the Capwell chain was sold. But Sears' sales have been eroding for years, and the Oakland store eventually downsized to just two of the building's floors.

Attempts to sell the building fell through until developer Lane Partners LLC acquired it in 2014, with Sears then closing its doors.

Lane's role was a surprise, said Zachary Wald, chief of staff to Oakland City Council President Lynette Gibson McElhaney. The firm, based in suburban Menlo Park, is known mainly for developing office buildings for tech companies in nearby Silicon Valley.

Lane's involvement in the former Sears building suggested it would likely draw tech firms, Wald said.

The building was a good investment mainly because it features a large amount of space at one of the busiest stations in the Bay Area Rapid Transit system, said Lane principal Drew Haydel.

With its high ceilings, large floors and interesting décor, it also provided an opportunity to create office space with "a very cool look," Haydel said.

However, there were challenges.

After the building was damaged in the 1989 earthquake, the owners said they would make repairs to reopen the store only if city officials allowed them to cover the exterior with concrete, Haydel said.

The city caved to that demand, and the building became "a real bunker," he said.

Also, the building's massive size makes it difficult to bring light into the interior.

Lane worked with the San Francisco-based Gensler architectural firm to create a design that included uncovering the original brick facade, and adding new windows.

The project also features an atrium "light well," created by removing 5,000 square feet from each floor in the building's middle, Haydel said.

Lane marketed what it named Uptown Station to the Bay area's largest tech tenants.

Uber announced in September it would buy the property and convert it into a corporate operations center.

Although Uber is building its new headquarters in San Francisco, the Oakland center will house 2,000 to 3,000 employees from a variety of departments, according to a company spokeswoman.

The city isn't providing any financing help for the project, said Mayor Libby Schaaf.

She said Oakland's central location near a large workforce, as well as interstate highways and public transit, helped draw Uber.

An energetic foundation

Schaaf also cited Oakland's "creative energy."

Uptown Station is near a growing number of bars, restaurants and entertainment venues.

They include the Paramount Theatre, home to the Oakland Symphony Orchestra, and the Fox Theater, where people were lining up recently for a rock concert featuring The Neighborhood.

The work to redevelop Uptown Station should be completed by the second half of 2017, said Haydel, whose firm is a project consultant to Uber.

The offices will be around 330,000 square feet, with the street-level retail space totaling 50,000 square feet.

The store and restaurant space was part of Lane's marketing pitch to Uber and other tech firms. Employees like being close to such businesses.

Also, Uptown Station's street level will feature public access points, including an escalator to the underground transit station, which will open up the building to the street, Wald said.

"You're going to walk through a space that's filled with people," he said.

That's what Grand Avenue's owners want to see at their property.

Along with creating around 120,000 square feet of offices on the mall's upper floors, the new owners envision a series of stores, restaurants, taverns and other retail businesses on the ground floor — with much better connections to W. Wisconsin Ave.

The offices would use Grand Avenue center court atrium's skylights, and additional windows, to create an open feel, with lots of natural light.

Other planned changes include a revamped main entrance, to help create a community gathering space, and a remodeling of the former Linens 'n Things space into a small supermarket.

Wanted: an anchor tenant

The top job for Grand Avenue's owners is landing an anchor tenant for the proposed offices. That would allow them to obtain financing for that portion of the project, and would drive more interest from store and restaurant tenants.

Milwaukee in recent years has seen a growing number of outlying businesses moving to downtown.

But Milwaukee's office market doesn't match the strength of downtown Oakland.

Milwaukee's downtown office vacancy rate was 17.6% during the first three months of 2016, according to a survey by Cushman & Wakefield/The Boerke Co., a commercial real estate brokerage. On downtown's east side, where most of the prime office space, known as Class A, is located, the vacancy rate was 16.5%.

In Oakland, the comparable vacancy rates are 3% and 2%, said Sid Ewing, senior vice president at the Oakland office of Colliers International brokerage.

"We're at a very low vacancy rate," he said.

Some of that office space is filled by health provider and insurer Kaiser Permanente, the city's largest employer with around 10,000 workers.

While San Francisco has a much larger tech presence than Oakland, Uber will be Oakland's second-largest employer once the new offices open, Schaaf said.

Oakland's other tech businesses include Ask.com and music streaming service Pandora, with the latter's headquarters just a few blocks from Uptown Station.

Also, Oakland is housing more Bay area tech industry employees, Wald said. He calls them "San Francisco refugees"— millennial generation members who want to live in cities, but have trouble finding affordable housing in San Francisco.

"Uber is definitely part of that trend," Wald said.

Indeed, there are hundreds of Uber corporate employees who live in the East Bay, an area that includes Oakland. By the time Uber fills Uptown Station, the company expects 25% of its workforce (not including drivers) will be from East Bay.

There is nothing like an Uber in the Milwaukee area, said Lyle Landowski, of Colliers International's Milwaukee office.

But there a lot of companies that are considering new locations, said Landowski, whose firm is the leasing broker for Grand Avenue's proposed offices. The project is drawing a lot of interest from prospective tenants, which he declined to name.

According to real estate sources, suburban firms that have shown interest in downtown include Oak Creek-based Master Lock Co. Downtown firms that might relocate include the Reinhart Boerner Van Deuren law firm.

Also, there may be other prospects the developers don't know of until they begin marketing the space, Janowiec said.

Meanwhile, Oakland officials, while happy to land the jobs generated by Uber, also want the company to make a strong commitment to the city's racial and cultural diversity.

The area around Uptown Station showcases that diversity, where people of a wide variety of ages and ethnicities, dressed in styles ranging from professional to geek, are on the streets and in the coffee shops.

City officials are encouraging Uber executives to create a more racially diverse workforce by partnering with locally based advocacy groups, such as Black Girls Code, Wald said.

"I think there are people with Uber who really want to do that," he said.

But, Wald adds, Uber, one of the world's fastest-growing companies, has only been around since 2009.

"They're still establishing what their corporate culture will be," he said.

©2016 the Milwaukee Journal Sentinel Distributed by Tribune Content Agency, LLC.