Real estate office outlines plan to reduce leased footprint; committee advances three-year DPH lease at Fox Plaza

John Updike, director of Real Estate, told the Budget & Finance Committee that San Francisco's citywide portfolio comprises roughly 44,000,000 square feet within the city and county and that only about 4 percent of that portfolio is leased from private parties.

"We lease from private properties only 4% of our portfolio," Updike said during his presentation and described the Civic Center office holdings as about 19 percent leased today. He said the department's goal is to reduce that leased share toward 15 percent by 2022 through lease terminations, consolidations and new city-owned space coming online.

Updike outlined the administration's approach: terminate near-term lease expirations affecting about 100,000 sq ft, consolidate services into hubs (a permitting center at 49 South Van Ness, a future fiscal hub at 1155 Market and family services at 1650 Mission/Otis), and coordinate asset transfers with the Office of Community Investment and Infrastructure and Capital Planning.

Against that background, the committee considered Item 2: a proposed three-year renewal for 27,826 square feet at Fox Plaza (1390 Market) for the Department of Public Health's Environmental Health division, which carries functions such as restaurant inspections, hazmat compliance and lead prevention. The Budget and Legislative Analyst reported that the rent under the new lease is about $64'$65 per square foot and that first-year costs are approximately $1,800,000. If the department remained in Fox Plaza for the full three years, the BLA estimated total rent near $5.6 million for the term.

Updike described the Fox Plaza agreement as a bridge lease with flexible termination terms to allow the city to relocate Environmental Health into the new permitting building at 49 South Van Ness when it opens. The proposed renewal includes a three-year term with an option to terminate any time after November 2019 with 270 days' notice; additional five-year renewal options at 95 percent of fair market value were included as a contingency.

No members of the public spoke on the Fox Plaza item. A supervisor moved to forward the lease to the full Board with a recommendation; the committee approved forwarding Item 2 and filed the status hearing for Item 1 without objection.

The presentation underscored trade-offs the city faces: Updike said increasing density and reducing swing space are fiscally preferable, but several supervisors noted transitional leasing costs can be high while city buildings are being restacked (for example, the planned relocation of Hall of Justice functions). Updike agreed, saying moves can expand space needs temporarily but that the long-term plan is to reduce leased square footage.

Next steps: the committee forwarded the Fox Plaza lease to the full Board with recommendation and will see more detailed, location-specific proposals for lease terminations and consolidations as departments approach expiration dates.