Lane Partners Founder on Why He Bet on Oakland

SAN FRANCISCO BUSINESS TIMES
NOVEMBER 15, 2018

Four years ago, many outside investors considered Oakland a no-man’s land, but Lane Partners saw potential.

The firm jumped in with an ambitious plan to turn an aging Sears department store into a tech hub. Lane paid $24 million for the property in 2014, then turned around to sell it to Uber a year later for $123.5 million. Lane is still bullish on Oakland with two apartment sites totaling 300 homes, the 1.5 million-squarefoot office and retail project known as Eastline and a renovation of a 250,000-square-foot office building at 2150 Webster St. Scott Smithers founded the firm in 2006 as a one-man shop in a tiny office in Menlo Park.

A dozen years later, Lane Partners is tackling 13 projects totaling 4.7 million square feet of space throughout the Bay Area. Some of those include a proposal for 2 million square feet of office or biotech space in South San Francisco and a 115,000-square-foot office building in Redwood City that is under construction and pre-leased to the Chan Zuckerberg Initiative.

What is a highlight among projects you’ve worked on? The acquisition of the Sears building in Oakland that occurred four years ago when no one was in Oakland. We’d been looking in Oakland. Then there was this big, huge behemoth on the corner of 21st and Telegraph and Broadway, a 400,000-square-foot, beautiful 1925 beaux arts architecture style building and Sears was selling it. It was a very difficult sales process. It was a real leap of faith to go into that market and understand all the work that had to be done.

So, was it hard to sell it? Our business plan always was to renovate it, lease it, then sell it. That can take three to five years. Then Uber came along out of the blue and said, “We’re interested in leasing the building.” Then they came back the next week and said, “We’re buying the building.” So we said, “OK let’s talk about that,” and we made a deal relatively fast with Uber in about 30 days.

Scott Smithers
Founder and managing principal at Lane Partners

HQ: Menlo Park

Background: Smithers knew he wanted to be a real estate developer as a kid. A native of San Carlos, he returned to the Bay Area after college to work for a construction company. He later spent time at Tishman Speyer, Starwood Capital and DivcoWest before starting his own company.

Bay Area employees: Five

Education: B.S., finance, San Diego State University

Residence: Portola Valley

What do you look for in sites and what do you think will be a viable project? The focus recently is on great downtowns with amenities and access to public transportation. Every project we’ve talked about has that right now as opposed to suburban tilt-up buildings in Silicon Valley. We started out renovating buildings in the Valley. But the focus turned with the Sears building four years ago.

Do you see the Peninsula and Silicon Valley embracing more urban development? Definitely. It has to be mixed use and you have to have amenities and retail and public transportation.

Is that a pointed shift from years ago? Yes, because the tenants have made it very clear that is what they want to do. It seems so obvious because, of course, who wouldn’t? It’s all about recruiting for these companies. They have to have an environment where their employees want to work.

What are the biggest challenges right now for development? No. 1 is construction costs. It’s hard to figure out if you’re breaking ground in two and a half, three years, what your cost is going to be in terms of escalation… I don’t see any of that changing any time soon because most of the big contractors you talk to have a pipeline full for the next two years and there’s only so many subcontractors that can go around. Number two would be finding the right sites.

How are you planning for a future recession? We’re putting the longest-term debt we can put on our buildings. We will make sure that the building is leased as opposed to holding out for the last dollar on a lease rate. We’re also buying smaller buildings without partners as a hedge. Leverage — that’s the tricky part of the business. It can really help you and it can really hurt you.

What is it like being a Bay Area developer? It’s one of the most vibrant, exciting markets in the U.S. Where else do you have tenants like Apple, Facebook, Google, Amazon, LinkedIn — tenants that are  on these robust growth cycles? Yes, it’s tough to get things entitled, but it’s the things that make it difficult that also make it so rewarding.

What advice do you give people interested in real estate? Definitely find someone that is a good mentor to you. Find out what you’re good at. The most important thing is building relationships with everyone in the business.

Most respected competitor? TMG Partners

Pet peeve? People who whine and complain. You need to have a proposed solution if you’re going to complain.

Favorite restaurant? Evvia in Palo Alto.