Amber Merrigan of Avison Young on Oakland Startup Real Estate

Amber Merrigan of Avison Young - Podcast Transcript

Scott Orn:	Welcome to Founders and Friends Podcast with Scott Orn at Kruze Consulting. We’re continuing our best-of series as we pull all the podcast over to Kruze Consulting and rebrand. And we’re coming out with a ton of new podcasts. I’ve already have eight recorded and ready for release in the next couple of weeks. So I think people are really going to enjoy and there’s some pretty big names. I kind of have to pinch myself every once in a while. But this is a best-of podcast with Amber Merrigan. She is just a force in the Oakland startup real estate market. She knows everybody and is placing tons of startups over there in Oakland. She knows a lot about the market for those of you who don’t know, Oakland is just totally booming especially for startups. So I wanted to have her on the podcast to talk shop and give us some tips. I hope you enjoy. Welcome to the 1 California, Amber Merrigan. Soon to be Amber Kratz. We have the Queen of Oakland Startup Real Estate here in our office and welcome Amber.
Amber Merrigan:
Scott Orn:	Thank you. Thank you so much for having me. Yeah. Thanks for taking the time. So you are probably the most knowledgeable person I know … definitely the most knowledgeable person I know about startup real estate in East Bay. And because we work with so many startups at Kruze Consulting, I thought it would be really awesome for you to come by and just like drop knowledge on us.
Amber Merrigan:
Scott Orn:	Sounds great. Tell us what you see in the East Bay, what trends you’re seeing in real estate in the Bay Area overall but first maybe just like start off by telling us how you got on the business. Like how did you get into real estate?
Amber Merrigan:	So I would say it grew up or it grew on me because I grew up with brothers and so I don’t know, just growing up around that fierce competitive nature and always wanting to be you know, put me in coach, let me play amongst the boys I think.
Scott Orn:	Are you the youngest or oldest?
Amber Merrigan:	I was the youngest. So I was the youngest. I was the most competitive. I was a bullish little girl who just wanted to be accepted and played with amongst the older guys and so there was basketball, softball, anything. I just wanted to play and wanted to play the guys’ game at the guys’ level and so I think that that’s what really led me into a career that is obviously if I’d have to remind you, is completely male-dominated which I think it’s one of the main things that attracted me to the industry and also just real estate to me is fascinating. I love architecture and everything that goes into a deal.
Scott Orn:	That’s awesome. Something popped in my head there when you’re talking about how it’s like male-dominated. Do you think about that as a challenge for you or is it a strength or opportunity? Like how do you think about that professionally?
Amber Merrigan:	I think when you’re really young on your first year or two, you’re not mature enough. It’s really intimidating. You look and you just notice immediately you’re different but I think as you start to mature and blossom in the industry, you realize your insecurities die off and you realize immediately you’re different. AKA that’s a huge differentiator and therefore a benefit to your business, to the way that you’re treated by others, the way that you do deals, the way that you know, I have a very different approach to getting deals done and I think I kind of take a lot of the ego out of it because I think that that can be a little bit inefficient and …
Scott Orn:	I totally agree by the way. My Mom own a business, obviously, Vanessa owns her business so I’m a huge fan of like women on businesses.
Amber Merrigan:
Scott Orn:	Definitely. We think you stand out. Early in my career, I worked at a place called Hambrecht and Quist which is an investment bank. One of our most senior members is this woman named Christina Morgan who’s just like phenomenal investment banker. And she used to have this saying that, I think a reporter’s doing a profile on her and she was like … the reporter said, “Do you find it hard if you go to get IPO business against all the guys?” And she’s like, “Listen, you go to a bank-off, there’s 29 male bankers and there’s one woman banker, who do you think the CEO remembers?”
Amber Merrigan:
Scott Orn:	Exactly. And I thought that was like a really interesting, cool kind of concept.
Amber Merrigan:	Exactly. And it has to be a blend. Obviously you have to kill it on the same level as I did in basketball and softball when I was a little girl. You have to practice. You have to master your craft so that you’re competing on the same level but once you learn to do that and you are different, you’re naturally going to stand out. But I think it can also work in reverse if you are not a master of your craft and you stand out. So you have to use it to your benefit and just make sure that you’re ….
Scott Orn:	Yeah and there’s one thing I know about you which is you’re crazy knowledgeable. So you definitely know your craft.
Amber Merrigan:
Scott Orn:	Thank you. So tell me about like what’s going on in the Oakland, East Bay real estate market? Not just Oakland but like East Bay startup real estate?
Amber Merrigan:	Yeah. It’s crazy right now. I mean I wish there was more commercial development right now but I know this is not directly correlated to tech but it is. There’s tons of residential towers, about 10,000 residential units in the pipeline in Downtown Oakland which is insane and great for the tech startup world because obviously we’re in a housing crisis in San Francisco. I mean really in the Bay Area as a whole. So I think that that is attracting tech startups. It’s also disproving that there are going to be … there’s this huge influx of housing and it’s going to likely make it more reasonable and affordable for people to actually live and work in Oakland and people are just not able to do that in San Francisco right now. It’s really becoming impossible.
Scott Orn:	Also it sounds like if there’s all these towers going up, people will be able to walk to work.
Amber Merrigan:
Scott Orn:	That’s kind of the nice thing about San Francisco is if you live in the city, you can have a pretty short commute if you’re working Downtown.
Amber Merrigan:
Scott Orn:	Exactly. Yeah and that’s sort of … It sounds like it’s getting recreated in Oakland.
Amber Merrigan:	Yeah. And that’s the concern right now and one of the big questions in retaining talent in San Francisco versus Oakland is just the commute, the BART commute and that being tiresome after a certain extent if most of your talent is in San Francisco but the minute you build all these towers and make it really doable to live and work in Oakland and actually have it be not better, I think San Francisco and Oakland are so different and they both have their perks and you know, they’re just different. It’s no longer Oakland as the ugly stepsister. It’s that Oakland has this beautiful special sauce that everyone kind of is buying into and so I think it’s a choice. It’s not like you got pushed out of San Francisco. It’s like no, I want something new. I want culture. I want art.
Scott Orn:	What’s that special sauce? That’s a really good way of saying it …
Amber Merrigan:	I didn’t coin it. I got it from … like disclosure, I got it from Mayor Libby Schaaf. She’s a huge advocate of the special sauce but it’s the art scene. It’s the … all the food. And that ties into affordability. I think a trend a few years ago in the retail world was that restaurateurs were getting priced out and all these talented chefs were wanting to open their own restaurants and it was just impossible. It’s not affordable and there’s amazing cheap retail space in Oakland and just the cost of running business and all of that just made it a lot more doable for all these talented chefs to come to Oakland. So you have this amazing food scene. The art scene is still strong and that’s one of the things that Libby really wants to keep in place. So yeah I mean those two things, you have all the sports teams obviously, the Warriors are creating this beautiful excitement around the city. The A’s. The Raiders.
Scott Orn:	So when you start talking to people for like startups or just commercial business in general, even like Pandora’s out there, Uber’s out there, what are the things that you start talking to CEO’s of companies as they’re doing their tours? What are the things that startup CEO’s really care about when they’re looking at space?
Amber Merrigan:	Yeah. So I mean it depends on when you’re on your seed round or your Series A, you’re sort of early on. Overhead’s really important to you. You’re maybe coming out of a shared space and you’re waiting to shed away from that and really have your own brand, your own identity and that overhead can be a lot especially if you’re in the Bay Area. San Francisco if that’s your number 1 let’s say you’re in a shared space in San Francisco and you’re like, “Holy crap. How am I going to afford a $70 per square foot annual number?” It’s crazy. And so you look around and that’s one of the main selling points is that Oakland I think on average in Class A space is about 40% less than … so it’s a huge, huge gap. And if you’re signing a 5-year lease, you can imagine what that number’s going to be on a 5-year term which in a hot market like this, landlords are requiring it.
Scott Orn:	As you start growing too, is it easier to grow to get more space or adjacent space as well?
Amber Merrigan:	It is. And I think it’s by no means a soft market but I think there’s still that kind of flexibility. With Oakland, we also do have less inventory. So less space. But you have big buildings where there’s always constant what we call rules of lease expiration. So landlords are very used to that and are very flexible with accommodating growth internally in the buildings and all that good stuff.
Scott Orn:	So it sounds like they’re the price differential.
Amber Merrigan:
Scott Orn:	40%?
Amber Merrigan:
Scott Orn:	That’s a huge thing. Yeah. Wow.
Amber Merrigan:	Yeah. I would say 30 to 40%.
Scott Orn:	Would you think that saves like a 15-person company or 10-person company over a year? Is that like $10,000 and $20,000 or $5,000? I don’t even know.
Amber Merrigan:	Yeah. Over a year, I mean it depends on the size of the space and scaling that way. So it’s hard to put a number on that but yeah, 15 people times that by assuming a pretty dense buildout, 100 square feet per person, 15,000 square feet, it’s $10,000 to $15,000. So yeah when you’re in your seed round, it’s big money that you’re talking.
Scott Orn:	Yeah. That’s like hiring a quarter of a developer.
Amber Merrigan:
Scott Orn:	Yeah. What are the other things besides price? What are the other things that people are thinking about?
Amber Merrigan:	Housing. We already kind of touched on that but just affordability where are people living and I think that surprisingly developers and just people in general are starting to sort of gravitate towards the East Bay and it’s definitely a new thing. So it tends to be really scattered. Before, it was like oh, 10 out of 12 of my staff live in San Francisco because most likely they’re between the age range of 20 and 30. But now, it’s really split or it’s more so on the East Bay side. So we’re doing a lot of zip code reports to just kind of prove and show what is everyone’s commute going to be like and so that’s a big thing and we’re actually finding that it’s usually split or it’s more on the East Bay side depending on where the company started and where its roots were.
Scott Orn:	That’s interesting. So basically when a company is thinking about signing a lease in Oakland, they actually give you the information for where all the employees are?
Amber Merrigan:	Yeah. And sometimes there’s some sensitivity around it. It can be very specific with addresses or it can be just vague zip codes and we can run it that way also. But yeah. Everyone wants to know. I mean employers want to know that it’s not going to be World War III to get to work in the morning like that they’re not taking … so like back to not just to focus completely on Oakland but Emeryville is a great place to work and there’s tons of amazing creative workspace that’s still affordable but the issue there when we’re running these reports is that you have that extra lag. So you have not only if you’re looking in San Francisco, you have whatever you’re walking to BART and then you’re BARTing. And then from BART, you’re going to the Emery Go Round. So it’s that actual lag which can be a little bit daunting if you’re doing it 5 days a week.
Scott Orn:	Is there a hot kind of sector or hot street? Because in San Francisco, our office is on 2nd and Market, between Mission Market and it’s like, it’s a great area to [inaudible 00:12:53]. It’s awesome. But like is there an equivalent in Oakland like just a really … it’s the place where that cluster is really starting?
Amber Merrigan:
Scott Orn:	Definitely and you’ve probably heard of Uptown Oakland. Oh yeah.
Amber Merrigan:	So Uptown is the new place to be. It’s where all the new restaurants are sprouting up. It’s where all the art scene has been and continues to grow. It’s where Pandora is. Gensler. It’s where Uber just signed their big lease there. The New Grey Market, Uptown Station, The Hive, Impact Hub. It goes on and on. Drake’s Brewery just opened there. Calavera. There’s all of this amazing excitement going on there.
Scott Orn:	When Uber signed their lease, did your life get a lot easier or was it exciting?
Amber Merrigan:	It got really competitive which was good. I love competition but no it was good and bad. I personally liked it because it was exciting and it kind of took Oakland to a new level. However, with that, everybody’s rates just skyrocketed which is I don’t know, to me a little bit artificial that just because this happened doesn’t mean … but it was almost everyone’s justification was Uber. Why did rents go up? What improvements did you do in the building to justify this? Just Uber. One-word response. That’s all I got.
Scott Orn:	When do they move in? Are they moving in pretty soon?
Amber Merrigan:	2017 is the … yeah. They’re doing all the scaffolding, construction and all that good stuff now. So yeah we’re thinking Q1, Q2.
Scott Orn:	Is there another kind of city over there besides Oakland that’s doing really well?
Amber Merrigan:	So Berkeley is … I mean it’s great for tech startups because obviously Cal Berkeley and all the talent coming from there. The problem with Berkeley is just there’s not a ton of inventory there. So Class A, Class B space. You have very little I think about 10 buildings that WeWork is there. They just bought a building. But overall, [inaudible 00:15:03] more space there. There is more to Oakland. Oakland has a little more space but it’s really tight there and rents are not where Downtown Oakland is. Like if we’re to tier off, I think it’s Downtown Oakland and then Berkeley and then Emeryville in terms of most expensive markets in that area.
Scott Orn:	What are some tips for like founders when they sign that first lease? How do they stay out of trouble?
Amber Merrigan:
Scott Orn:	So make sure … You work on the building’s side, right?
Amber Merrigan:	I work on both sides. I would say I do 60% tenant representation and then 40% landlord representation. So I have a good understanding of the other side but so your question was?
Scott Orn:	trouble? What are like the key clauses in a lease to keep the company out of
Amber Merrigan:	So sublease clause is going to be one of most important. So obviously, it depends on when you’re going to get your office but if you just went through your seed round and you got a million dollars in funding, maybe you’re 5 people and maybe you’re in about 15,000 square feet but you’re going after your Series A round and that might be I don’t know, $20 million and that’s obviously going to you know, you have to meet all these metrics that are going to require you to take on all these people therefore obviously needing all this space. So subleasing becomes a huge thing because the minute that you are approaching or reach that Series A round, you’re going to need to quickly get out of that small space and be in a space where you can actually grow and accommodate that growth and take on those people. So subleasing would just … it allows you to have somebody come in, take over the lease for the term. So let’s say you have 3 years left on your term, in a hot market like this where there’s very little inventory, it’s very easy to have another small non-profit or tech startup come on, take on that 3-year term and you’re the master tenant on the lease but you’re then relieved from that sublease and you can go and then lease a 15,000, 20,000 square foot space or whatever. Whatever the amount is that you need and your overhead is not taking on that space.
Scott Orn:	That’s perfect. Yeah. I’ve heard nightmare stories where people can’t … the landlord won’t let them sublease it out.
Amber Merrigan:	Yeah. So that’s a huge clause that we go after and just make sure there can be language in that sublease clause that it’s nearly impossible and the landlord can basically [inaudible 00:17:39] and they just …
Scott Orn:	Reject them?
Amber Merrigan:
Scott Orn:	So that’s super important.
Amber Merrigan:
Scott Orn:	Yeah. Yeah. What are some of the other things you’ve seen that are important?
Amber Merrigan:	So right to terminate is a huge one. So let’s say the landlord in a hot market is requiring that you sign a 5-year lease. So okay, fine because we’re requiring the landlord to do this cool creative buildout which we all want. We don’t want to come and start our business in a tired non-profit space in Downtown Oakland which is very common. So they have to spend $40 per square foot to do all the demo, open the ceilings, expose the concrete, the brick and all that to get that cool space that we want. So with that, the landlord wants a 5-year term. So with that, we ask that we have the right to terminate at the end of 3 years. And there’s the penalties that come along with that termination but it gives us more flexibility let’s say, we’re 2 years in and we’re growing dramatically.
Scott Orn:	So you can terminate it. You can still get out of the lease.
Amber Merrigan:
Scott Orn:	Is there like a threshold? Does it have to be because you grew so fast and you have 30 employees on a 20 …
Amber Merrigan:
Scott Orn:	Yeah if you have the right to terminate. Usually you don’t tie language into … You don’t want to, right?
Amber Merrigan:	No. You want to have maximum flexibility but there will be … the landlord’s going to want something so you’re going to have to pay all unamortized brokerage fees and tenant improvements and 2-month rent penalty which we always say with a tech company who’s growing astronomically, that money is probably not going to be … the value in having the flexibility to get out of that small lease because you’re growing is going to be far more valuable than you being stuck in that lease and that’s really unavoidable. Those penalties are yeah.
Scott Orn:	That’s huge. So the ability to sublease, right to terminate, is there anything else that’s super important?
Amber Merrigan:	Right of first refusal. Right of first refusal on any … it depends on the building you’re in but a lot of landlords in a hot market will only agree to adjacent space. So any adjacent space or on the floor. I like to go after on the entire floor. So right of first refusal on any space coming available on the floor. So that would just give you if you are growing, timing was aligned, space comes available, it gives you the first right to take on that space.
Scott Orn:	Is there like a set price limit for right of refusal?
Amber Merrigan:	Usually not. It’s usually subject to yeah fair market value and yeah negotiations but you can try and we’ve done it definitely in a softer market. But in this market, it’s generally just the right to you know, and then you negotiate it out.
Scott Orn:	So that’s three awesome tips. So if I just repeat it for the audience, ability to sublease, right to terminate and then …
Amber Merrigan:
Scott Orn:	Is there anything else that I missed? Those are three really awesome tips.
Amber Merrigan:
Scott Orn:	Right of first refusal. Those are three really big ones. Yeah. Those are the main. And what are you seeing like in the … it feels like things have slowed down a little bit like but still hot market. What are you seeing? What’s your interpretation of the East Bay market right now?
Amber Merrigan:	Yeah. So we’re seeing that leases for whatever reason are taking longer and I think it’s a lot of spaces that are going through a transition right now. So Q3, Q4 of last year was crazy. Booming. But also with that, a ton of buildings were trading hands being sold, being bought, old Oakland landlords selling buildings, realizing this is the time to get out. New San Francisco landlords or even New York landlords, wherever, institutional landlords came into Oakland with seeing the upside to take this old non-profit traditional space, gut it out, convert it into this beautiful creative space and Oakland has a lot of those old brick buildings. So they have the timber, the brick, the concrete, slab-to-slab concrete which is what everybody wants. So they totally see the upside and coming in, gutting it out and going from getting $2 per square foot to $4 per square foot. So just really doubling that number just by putting I mean a fair amount of money into the building but [inaudible 00:21:55] all day and there’s really not that much opportunity left. So that sort of slows down the pipeline and when spaces are coming available so we don’t have a ton of inventory right now. I mean there’s still a good amount of space out there but I think leasing has slowed down because what’s out there has also diminished a bit. There’s still a ton of space coming on the market but I think things are going to really heat up again in the … I think this quarter and then also the third quarter.
Scott Orn:	That’s awesome.
Amber Merrigan:
Scott Orn:	I mean that’s a really good [inaudible 00:22:30] report.
Amber Merrigan:
Scott Orn:	Yeah. Yeah. What’s your advice if someone’s looking that way? Do you think they should hold off a little while? Do you think it’s just like, hey, your business is growing. You should just lock in the space and go.
Amber Merrigan:	My advice in Oakland is that with the 10,000 housing units that are in the pipeline and the fact that obviously there’s a lot of tech subleases coming on the market in San Francisco. So that’s creating a bit of a scare. But I think Oakland is really becoming and has transformed into its own person really. And it’s not really … obviously we’re affected by San Francisco and everything that goes on there. I wouldn’t say that we’re not. But I think that in advising on a term, I think I’m comfortable with advising on a 5-year term, a longer term because the truth is that there’s no commercial properties in development right now. So the amount of inventory in office space is going to continue to be low. So assuming that all of this residential comes in, people are living there. It’s this lively place. It’s just … we’re not going to get a ton of office space back. So I think that even if we do face some sort of correction, we’re not going to see rates drop dramatically low.
Scott Orn:	Yeah. That’s a great advice.
Amber Merrigan:
Scott Orn:	Thank you. So are there any like kind of points you would leave the audience with? There will be a lot of startup people who will listen to this.
Amber Merrigan:	Definitely.
Scott Orn:	What’s kind of the main things … I mean those three terms were huge but like what else would you leave them with?
Amber Merrigan:	Yeah. I would say, don’t wait too long to get to invest in Oakland. It’s really really special and its space is just disappearing really. So I don’t know. I think invest in it because I don’t know, it’s just going to get better. It’s changing overnight and it is just … you can feel it. You can feel it in the air. It’s going to be an incredible place and the culture is just going to continue to get better and better and hopefully Scott and I can attach the landscape and we’ve done these really cool rendering boards of how the landscape is going to change over the next two years and it’s phenomenal. So I would invest in Oakland now and yeah. I can help you do it.
Scott Orn:	And your enthusiasm totally comes through.
Amber Merrigan:
Scott Orn:	I love it. So tell everyone where they can find you. Your website or your email address …
Amber Merrigan:	Yeah. I’m in the process of making my own website. But I’m with Avison Young. So we’re an international company but I mean based in Oakland at 1111 Broadway, Suite 1650 but my email address is amber.merrigan@avisonyoung.com.
Scott Orn:	And you guys have a website, right?
Amber Merrigan:
Scott Orn:	Awesome. Cool. Usually I just end with a couple of quick questions. These are fun.
Amber Merrigan:
Scott Orn:	Okay. Cool. What is your favorite Spotify playlist?
Amber Merrigan:
Scott Orn:	We do. AvisonYoung.com. Well I have … Or if you use Pandora …
Amber Merrigan:	Yeah. I’m like a crazy playlist person. So it was just my birthday so right now my favorite playlist, I created it on my own. It’s called #bday.
Scott Orn:	Is this publicly available?
Amber Merrigan:
Scott Orn:	Is that on Spotify?
Amber Merrigan:
Scott Orn:	It is on Spotify. Yeah. The ones that everyone listens to. #bday.
Amber Merrigan:
Scott Orn:	It is. So come check me out. #bday. Check me out. Favorite e-commerce site? Where are you finding stuff these days?
Amber Merrigan:	Yeah. I’ve just actually opened up myself to shopping online. So I’m wedding planning so Etsy is a big one right now. Just for do-it-yourself projects. Really digging that. And that’s kind of it.
Scott Orn:	So you use Etsy all the way?
Amber Merrigan:
Scott Orn:	What’s your favorite …
Amber Merrigan:
Scott Orn:	Yeah. Etsy all the way. Amazon of course. I mean who doesn’t love Amazon. What’s your favorite restaurant?
Amber Merrigan:	I would say local, Don Pisto’s. I’m a North Beach girl. Oakland, since I’m so excited about Oakland, Calavera. It has a full Mezcal tequila bar and you can’t go wrong with that.
Scott Orn:	That’s awesome.
Amber Merrigan:
Scott Orn:	You don’t even need to talk about the food. And then who’s like someone in business you admire?
Amber Merrigan:	Kathryn Collins with Harvest. I’m a secret admirer because I haven’t told her this in person.
Scott Orn:	I don’t remember who she is so tell me.
Amber Merrigan:	She’s in acquisitions for Harvest Properties. They are behind a lot of these office conversions. They’re buying a lot of buildings in Downtown Oakland and taking them from this tired space to this cool creative space and she’s just a rock star. She’s beautiful but she also is extremely smart and direct and I just strive to be everything that she is.
Scott Orn:	Awesome. Well that’s it. Thank you so much for coming by.
Amber Merrigan:
Scott Orn:	Yeah. I really appreciate it and this will be on the 1 California Podcast website and we’ll also post it to Kruze Consulting.
Amber Merrigan:
Scott Orn:	Thank you for having me. Fantastic. And I’m also going to do a transcription of this. If there’s something that Amber was talking about that you wanted to search or really drill into, besides her phone number, then we would have it available on the internet. So thanks so much.
Amber Merrigan:
Scott Orn:	Fantastic. Thank you for having me Scott. My pleasure. Cheers.
Amber Merrigan:	Okay. Cheers.

Amber Merrigan of Avison Young on Oakland Startup Real Estate

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