MARIN COUNTY BUSINESS FORECAST:  County may take chunk of Lucas space
$20.7 million deal would bring clinic closer to residents

BY JEFF QUACKENBUSH
STAFF REPORTER

SAN RAFAEL – The proposed $20.7 million in acquisition by Marin County of six buildings recently vacated by George Lucas companies is encouraging those who thought some 360,000 square feet of office space in San Rafael would take a long time to fill.

The county Board of Supervisors later this month is set to consider moving forward with two purchase options for five buildings at 3230 to 3270 Kerner Blvd. and one at 3110 Kerner. The buildings would house county medical clinics and other services.

The purchase options offer $17.8 million for the five buildings, owned by an investment group managed by San Rafael-based Seagate Properties, and $2.9 million for 3110 Kerner, owned by the Lawrence family.

All together, the buildings contain 81,600 square feet of class B office space on 7.5 acres in the Bahia de Rafael Industrial Park southeast of the junction of Interstate 580 and Highway 101.

$382,000 to study renovation

The purchase options expire in mid-July, but the county can extend them for another month for $50,000. The supervisors also have authorized up to $382,000 for San Rafael-based Kappe+Du Architects to design the proposed campus and assess what it would take to upgrade the two-decade-old buildings that used to house Industrial Light & Magic to medical-office quality and to meet U.S. Green Building Council silver or gold standards for commercial interiors.

Should the county of Marin proceed with the acquisitions this summer, they would accelerate a countywide trend toward fewer options for expanding businesses and higher rents as the supply of office space dwindles.

The sale would dramatically reduce office vacancy in San Rafael, according to Bill McCubbin, president and CEO of brokerage Orion Partners.

“There was great concern over what to do when Lucas pulled out of some 300,000 square feet of office and industrial space,” Mr. McCubbin said. “I do not know anyone who would have said one year ago that one single user would buy so many buildings.”

Purchase would drop vacancy rate

If completed, the purchase would reduce the inventory of available class B office space in San Rafael from 13 percent at the end of the first quarter to a single-digit vacancy rate, according to Orion Research Director David Walwyn.

Generally, a commercial real estate market with 10 percent vacancy is considered balanced between supply and demand. Less vacancy gives property owners more leverage in setting rents and lease terms.

Office vacancy in southern Marin already has been less than 10 percent for the past few quarters, according to brokerage estimates. As a result, office rents for top-quality space have been approaching $4 a square foot per month in southern Marin, especially for the typical Marin tenant needing less than 5,000 square feet, Mr. McCubbin noted.

However, the class B space Lucas vacated in the Canal area of San Rafael and at Hines' Marin Technology Center have not affected expansion plans for many Marin firms, according to Greg Moss, North Bay managing partner of NAI BT Commercial. When those properties aren't accounted for, the overall office vacancy rate from Sausalito to San Rafael is about 7 percent, he noted.

For the Marin County Department of Health and Human Services and Marin Community Clinic, the Lucas buildings are a prime choice, according to county Facilities Planning and Development Manager David Speer. Many of the organizations' clients live in the Canal District.

"If Lucas hadn't moved, it would have been hard to find this amount of contiguous vacant space," Mr. Speer said.

The county leases space for several social service programs. However, it has money from health-related trust funds and proceeds from the tobacco tax.

Services in San Rafael the county is considering for the proposed medical campus include the Women's Health Clinic and Women, Infants and Children office in the Montecito Shopping Center and the Children's Mental Health Services and specialty clinics at 161 Mitchell Blvd. Other programs being considered are childcare, tutoring in English and job training.

Marin Community Clinic, which has primary health care clinics next to Marin General Hospital in Greenbrae and in Novato, has been looking for a location in the Canal District for several years, according to Executive Director Carol Patterson.

"It takes over an hour and two transfers to get from there to our clinic at Marin General by bus, and parking there is not the best," she said.

The number of visits per year at the existing clinics has been rising rapidly, from 38,000 in 2003 to more than 45,000 last year. Forty percent of the visits in Greenbrae are from Canal residents, she noted. The proposed Canal clinic would have five physicians and handle up to 25,000 visits a year.

The nonprofit group, which has a $7.2 million annual budget and 90 employees, is vying for the 3110 Kerner building, where it can have its own facility but still be connected to the county programs. The group is planning a capital campaign for the $2.9 million proposed acquisition price for that building and the unknown cost required to upgrade it to federal standards for medical offices.

The proposed timeline for opening the Canal clinic is 12 to 15 months.