New Home for the California Stem Cell Agency? A Million-Dollar-Plus Matter

The California stem cell agency is located south of Market Street in San  Francisco, close to the San
 Francisco Giants ballpark (upper right).  It is one of the hottest  office leasing areas in the city. 
 Since  the agency has been there, the area has changed from seedy to gentrified.

The $3 billion California stem cell agency has a 19,500-square-foot problem.

That is the amount of free office space that the agency will be losing in a little over a year. What's more, it puts the agency square in the middle of a red-hot office leasing market in San Francisco, where its headquarters is located. Rates have shot up 70 per cent since 2010, according to a leasing industry estimate.

One tech company executive said in March that she just signed a lease that was so expensive “it made me want to throw up,” according to a report in March on Business Insider.

Eleven months ago, the value of CIRM's space and unspecified “incentives” was estimated at $1.2 million annually by the agency's outside auditor. That estimate would be considerably higher today and even higher next year when the agency would be signing a new lease. However, the California Institute of Regenerative Medicine(CIRM), as the agency is formally known, is allotting only $600,000 annually for office rental, according to figures released Friday afternoon.

That would seem to mean that the agency will be either moving from San Francisco or cutting way back on its square footage or both. Remaining at its current location with less space may not be possible, given the agency's rocky history with its landlord, who donated the space as part of an $18 million package offered by San Francisco to lure CIRM to the city. Additionally, the agency has a legal cap on its budget, which means that it would be difficult to accommodate a large increase in rent.

A move to another city would be a major disruption for some employees who have made housing decisions based on the location of the headquarters. Relocation additionally can be anxiety-producing for employees worried about their work space as well as posing issues for moving computer servers and other hardware that needs to be functional virtually around the clock.

According to a 2006 CIRM document, the agency's space includes 18 offices with windows, 17 internal offices and 19 cubicles. The agency's space also contains a number of conference rooms and common areas in addition to a large reception area.

The headquarters houses 56 employees. Employment is likely to remain close to that level for the next two years. Some consultants and outside attorneys also work at the agency from time to time. After 2017, the number of employees is likely to decline unless new funding is secured. Without additional cash, the agency will be limited to overseeing the waning number of research grants that would still be underway.

As of a few years ago, free parking was provided to employees, a substantial benefit in a city where parking can cost $15 a day or more. Continuing that benefit could add to office space costs. Parking is so tight in San Francisco that a Web site has been created that focuses on the matter. More than one smart phone app has been created to deal with parking, including one that allows a driver leaving a public parking space to auction off the space to other drivers for prices up to $20.

CIRM's vice chairman, Art Torres, former head of the state Democratic Party, is looking into the possibility of securing some sort of subsidies through the city of San Francisco to maintain the agency's headquarters within the city. However, he has not publicly discussed that endeavor since last May.  

California Stem Cell Agency Looking for New Home in Two Years

The California stem cell agency is located south of Market Street in San
 Francisco, close to the San Francisco Giants ballpark(upper right).  Since
 the agency has been there, the area has grown from seedy to gentrified. 

Some not-so-good news surfaced today in San Francisco involving the $3 billion California stem cell agency.

The news has little to do with its science efforts but everything to do with where it is located and its overhead expenses. The agency will be forced out of its free office space – 20,000 square feet – in two years. The free space was provided under an $18 million recruitment package and is worth at least $1 million a year, according to the agency's auditors.

The bad news is that the San Francisco office-space market is sizzling hot. Google, Yahoo, Microsoft and other technology firms are scrambling for space in Baghdad-by-the-Bay, as the city is sometimes known. According to a story this morning by James Temple in the San Francisco Chronicle, the firms are looking for a total of about 800,000 square feet and are prepared to pay well for it.

One nearly completed deal involving Yahoo would cost about $48 per square foot for a 10-year lease. If CIRM paid at that rate, it would have nearly $1 million in additional costs annually. However, leasing rates are expected to rise substantially in the next year or so. Also involved in a move would be the cost of parking, which could run about $360,000 a year.

The stem cell agency is already examining its options for new offices, including some sort of special deal with the City of San Francisco.

Former State Sen. Art Torres, onetime chairman of the state Democratic Party and co-vice chairman of CIRM, briefed agency directors on the matter at its meeting in May. He said,

“I met with the mayor of San Francisco(Ed Lee), who's a dear friend, and he encouraged us to be aware that he's very committed to helping us find some space in San Francisco. Whether it means tax credits or incentives to a potential landlord, we still have to work that out. Obviously we still have to work out what the space will be. But the fact that the mayor has indicated very explicitly that he wants to keep us in San Francisco, I think it will bode well for us down the road.

“The current owner of the property (Stockbridge Capital Partners) has not been happy that for ten years they've had to supply free rent to us. And what they didn't anticipate was having to provide for over $755,000 in operating costs, which they thought some donors would take are of. Those donors -- some of whom passed away and others who chose to give money to other institutions, UC San Francisco, in particular, to the stem cell lab, which was very much appreciated, I know, by UCSF – but at the end of the day, there's no room for negotiations with this current owner.”

CIRM Director Joan Samuelson asked Torres whether future rent would also be free. Torres, who is also president of San Francisco's Public Utilities Commission, replied,

“I would not work on that assumption. I would work on the assumption somewhere between a dollar and more, again, dependent upon what kind of tax incentives the City of San Francisco would provide. We're very fortunate that my son(Joaquin Torres) is the deputy mayor for economic development, so we also have him working on this as well.”

Samuelson replied,

“I'll ask more questions offline.”

Problems With CIRM's $1 Million, Free HQ Lease

Back in 2005, the California stem cell agency snagged a free, 10-year lease for office space in San Francisco to house its $3 billion effort.

But today something is amiss. All the details are not clear, although CIRM is looking at having someone set up a nonprofit to handle the lease, according to our source. We understand that the agency cannot afford to assume additional expenses because of a 3 percent cap on administrative overhead, which is locked into state law by Prop. 71, the measure that created the agency.

According to the most recent auditor's report on CIRM, the city of San Francisco provides about “20,000 square feet of premium office space free of charge” through November 2015. The value of the office space and “other incentives” was $1 million for the year ended last June 30.

Currently CIRM has 42 employees. It is limited, again by Prop. 71, to no more than 50.

In addition to the office space is the question of parking, now free for CIRM staffers. One estimate places the cost of parking as high as $600 a month in San Francisco, although it can drop below $400. For 50 employees, that could mean $360,000 a year.

San Francisco Mayor Gavin Newsom, CIRM Chairman Robert Klein and Terry Fancher of Stockbridge Capital Partners announced the signing of the free lease with some ballyhoo on June 24, 2005. A city news release said the lease was “critical” to San Francisco's successful, $18 million bid to win the CIRM headquarters. Fancher's Stockbridge Partners, a real estate investment fund, donated the space.

We asked CIRM last month about the lease issues. Don Gibbons, chief communications officer for CIRM, replied,

“We have no problem with Stockbridge and are not seeking to change the lease, which has six years remaining. However, we have had very preliminary discussions with the City regarding how the lease and related costs could be handled in the future. One option that has had very tentative discussion is a non-profit to own the office space, which would allow us to avoid these costs now as well as in the years beyond the current lease.”

Use of a nonprofit in such a fashion does have a precedent in state government. More than one governor has lived in a house in Sacramento owned by such a group, which provided the home to the chief executive of the Golden State at little or no cost.