By Roland Li
A year ago, Blue Shield of California began searching for a new headquarters.
With its lease at 50 Beale St. in San Francisco set to expire in 2019, the nonprofit health insurer was facing a big rent increase if it stayed in the city.
With two thirds of the group’s employees already living in the East Bay, Blue Shield looked to downtown Oakland. Being near BART and the highway would be an asset. Many staff already flew into Oakland International Airport from Blue Shield’s offices around the state, another plus for Oakland.
“We looked across the Bay Area…Oakland definitely has more appeal that it did in the recent past,” said Steve Shivinsky, vice president of corporate communications at Blue Shield.
Leasing discussions began at Shorenstein Properties and MetLife’s 601 City Center. The tower site, on a public parcel, had broken ground in 2008. Then construction froze as the global economy collapsed. Most of the structural steel had been purchased and has been stored for nearly a decade in Arizona, said Charles Malet, president of Shorenstein Properties.
Shorenstein received multiple extensions to its project approvals, saying it needed a major tenant to start work again. The parcel remained fenced up, a symbol of Oakland’s soaring potential, weighed down by economic doldrums.
In 2015, Oakland’s office market came roaring back, thanks in part to a large-scale migration by San Francisco office tenants. Asking rents rose about 50 percent, from the mid-$30s per square foot to over $50, a new record. Uber Technologies Inc. bought the former Sears Building.
But 601 City Center was still dormant. It would be another year before leasing discussions between Blue Shield and Shorenstein led to a letter of intent, as the Business Times first reported in February.
This week, Blue Shield said it would lease 200,000 square feet, about a third of the 602,000-square-foot 601 City Center, and move 1,200 employees to the building. Being in a new building will allow Blue Shield to work directly with the developer on the interior design of the office space, with feedback from employees. Blue Shield hasn’t selected an interior architect yet, said Shivinsky.
Blue Shield Foundation, the philanthropic arm, will maintain an office in San Francisco in an undetermined location. “We’ve been a proud member of the San Francisco community. We’re going to remain committed to the San Francisco community. We’re just going to be extending that to Oakland,” said Shivinsky.
Over the 13-year lease term, Blue Shield projects a reduction in administration expenses of $150 million compared to staying in San Francisco, in part because of lower rent, said Shivinsky.
Both Blue Shield and Shorenstein declined to disclose the rent. Real estate sources have previously said that rents of $60 per square foot or more are needed for new highrise construction in Oakland. Blue Shield’s rent may be higher because it is taking the top 18th through 24th floors of the tower.
Construction will start in May, and 601 City Center will open in early 2019, said Malet. Hathaway Dinwiddie is the general contractor for the project. Korth Sunseri Hagey Architects designed the tower. Brokers John Dolby and Dane Hooks of Cushman & Wakefield are marketing the tower.
“It’s been a great catalyst for us to move forward with the building,” said Malet of the lease. “We’re excited.”
After nearly decade-long lull in development, Oakland now has five towers that have started or will start construction in the next year, mostly downtown: Shorenstein’s 601 City Center, Lennar (NYSE: LEN)’s 1640 Broadway, Gerding Edlen’s 1700 Webster St., Ellis Partners’ 1100 Broadway and Boston Properties (NYSE: BXP)’s 532 39th St. at MacArthur Transit Village.
“Twenty years ago, Oakland City Center, was just getting going,” said Malet, whose firm also built the adjacent 555 City Center in 2002. “Downtown Oakland is really a vibrant place now.”