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03.27.2019

Real Estate Deals of the Year: Kilroy Oyster Point boosts South S.F. biotech

The Landing at Oyster Point was a jewel of a site, but it sat vacant for years on South San Francisco’s waterfront as developers struggled with how to tackle it. 

But in August 2016, Chinese developer Greenland USA bought the site’s 42 acres entitled for 2.5 million square feet of office and R&D space from Shorenstein Properties LLC and SKS Partners for $171 million.

The very same week that Greenland USA, doing business with other partners as Oyster Point Development LLC, bought the Landing at Oyster Point project, Kilroy Realty Corp. approached the company about taking on part of the $2 billion project.  

Tracy Murphy, Kilroy’s executive vice president of life science, saw an opening for Kilroy to jump in.

“When we saw that (Oyster Point’s shareholder) Greenland was the buyer, we immediately said, ‘They do residential, they don’t need all of this,’” Murphy said. “We approached them — I think the week they closed — and started conversations.”

At first, the companies negotiated the possibility of Kilroy taking on just the commercial portion of the project, which has now been rebranded Kilroy Oyster Point. Greenland wanted to get new approvals to replace some of the commercial space with 1,200 homes.

But residential plans sped toward certain doom when Genentech and the California Life Sciences Association said they opposed putting housing east of Highway 101. At that point, Murphy said, it became clear that Kilroy could take on the whole project. Getting it all together was a “big process,” involving various parcels of land and complex transfers between the developer and the city.

“At the end of the day, because of the kind of development we wanted to offer, the experience of the campus and all the things we understand about tech and life science, we felt it was in everybody’s best interests for us to control the entire thing,” Murphy said. “One of the big attractions for life science and tech alike is creating a scalable neighborhood.”

The deal closed for a whopping $308 million in June 2018, a full two years after negotiations began.

Now the developer has broken ground on infrastructure for the massive buildout, and in February submitted building permits to start going vertical on the project. That means work could begin “soon,” South San Francisco City Manager Mike Futrell recently told the Business Times. The project could have occupants as soon as mid-2021.

Phase one will include three buildings totaling 630,000 square feet across 10 acres. Kilroy is focusing on building out food and beverage amenities in the first phase, Murphy said, like juice and coffee bars as well as a full-scale restaurant and bar with views of the Bay.

With other developments nearby, like HCP’s Cove at Oyster Point and BioMed’s Gateway of Pacific, South San Francisco has emerged as the center of biotech. Murphy said the company is already focused on pre-leasing for the project, with presentations to potential tenants once or twice a week in January, and is confident that the space will be spoken for long before construction ends.

Kilroy, for its part, has made life science a deliberate priority in the last several years, buying up the 146,000-square-foot lab and office development that’s near Oyster Point for about $111 million last January.

“In the last four or five years, South San Francisco has seen extraordinary performance and growth,” Murphy said. “It’s crazy.”

via The SF Business Times