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Bullish on Petaluma

SF development, management company expanding South McDowell campus despite high vacancy rate Developer expanding and reshaping city's southeast gateway

By JOSE L. SANCHEZ Jr.
THE PRESS DEMOCRAT

RNM Properties is expanding its South McDowell campus in Petaluma, a project that is reshaping the city's southeast gateway.
The San Francisco-based commercial development and property management company recently completed two buildings at the campus, bringing its holdings in Petaluma to 730,000 square feet.
It plans to eventually more than double its holdings in Petaluma, expanding to 1.8 million square feet, said Paul Elmore, the company's president.
"I'm optimistic about the market," he said. "I see some new tenant demand being generated."
RNM, which also owns 70,000 square feet of office space in Rohnert Park, is one of the largest commercial real estate developers in the Bay Area.
Founded in 1993 by Oracle Corp. co-founder Robert Miner, the company is privately held and owned by Miner family trusts, Elmore said. It owns and manages $450million worth of property in the region, he said.
Elmore said he is not concerned about the vacancy rate for Class A business space in Petaluma, which stands at 21.1 percent, according to San Rafael-based brokerage Orion Partners Ltd.
The market for Class A space in Petaluma "is a little soft" right now, said David Walwyn, director of research for Orion.
The Class A vacancy rate in Petaluma has been 21 percent to 24 percent for the past few years, he said. But there are companies looking at Petaluma for about 30,000 square feet of space and a few deals like that could significantly change the city's vacancy rate, he said.
RNM's new buildings total 144,416 square feet of Class A space, considered the top category in terms of quality.
Like Petaluma developer Basin Street Properties, RNM is willing to construct offices and other commercial buildings in a soft market. There is an advantage to building now because of rapidly rising construction and land costs, Walwyn said.
Investing in business real estate in the North Bay has historically been profitable and is likely to remain so; inventory probably will not be able to grow indefinitely due to land use constraints, Walwyn said.
"With construction costs up 30 to 40 percent in the last three years because of China, it probably makes sense to build ahead of the demand curve," said Al Coppin, president of Santa Rosa-based brokerage Keegan & Coppin Co. Inc.
RNM's South McDowell campus is centrally located in the North Bay, has good highway access to the south and east and is near two large new subdivisions in south Petaluma, Elmore said.
"I believe this will be the preferred location for Class A office space users such as financial services, technology and insurance," he said.
As was the case with earlier business parks in Petaluma, Elmore said, the RNM campus will continue to find tenants among companies who don't want to pay 15 percent to 20 percent more to be in Marin County.
Prior to completion of the new buildings, the occupancy rate at the RNM campus was above 92 percent for several years, he said.
"We've got good buildings and we're very service oriented," he said.
To provide food and other commercial services to tenants and the surrounding neighborhoods, RNM completed the Adobe Creek Center on Lakeville Highway a little more than two years ago. The 17,000-square-foot center is 80 percent leased, Elmore said. Its newest tenant, the Casa Bella restaurant, is expected to open shortly.