BehringCo: West Coast’s Location Paradigm not “Bulletproof,” CRE Industry Must Find Alternative Ways to Maintain Project Value

Behring Co., Oakland, 1900 Broadway, Seattle, San Francisco, EB-5, 2019 Modernization Rule, Stak Site
Courtesy of BehringCo.

By Meghan Hall

After 60 years and three generations in commercial real estate, San Ramon, Calif.-based BehringCo. has watched West Coast-based markets rapidly grow and expand. The company has recently kicked off development of 1900 Broadway in Oakland, a 36-story development that will serve as a company blueprint for not just the Bay Area, but beyond. The Registry spoke with BehringCo.’s Chief Executive Officer, Colin Behring, about the future of West Coast real estate and the company’s vision for development in the future.

BehringCo. has a long history of development in the Bay Area, targeting high-value, mixed-use residential projects. Thus far, what business strategies have made the company successful? 

We have always placed a high value on the benefits of integration, on being a full solution for what people want from their built environment. Being able to actively engage in mixed-use assets allows you to provide more value to your buyers, tenants or users by integrating products, services or just dynamically building a better place to live, work and play. You can only do that with scale and that’s where we have found ourselves very competitive.  Our projects seem ambitious to the outside world when revealed but it is just what it takes to achieve the outcome we want.

How has BehringCo. seen the commercial real estate landscape in the Bay Area—and along the West Coast—change over the past six decades?

The growth has been incredible but California’s future is really being tested here. The pandemic showed that the location paradigm is not completely bulletproof and California is going to have to work harder to stay competitive going forward. Our California government really needs to step up and create an environment where policy can help us be more competitive as a market. We need to be able to entitle more property to create enough supply to keep California from becoming disastrously unaffordable. Adding huge impact fees and pay-fors to residential property does not make it more affordable either. Hopefully the pandemic market effects will be the wake-up call we need. As a market, we have seen the pendulum swing back and forth between suburban sprawl and urban cores multiple times. With the emergence of “work from anywhere,” we believe that both locales have an ability to see tremendous growth if new property can get entitled. 

One of your current projects is 1900 Broadway in Oakland. Can you talk about the firm’s vision for the project?

1900 Broadway is the quintessential mixed-use high-rise tower on a trophy quality location. Perfectly situated above the 19th Street Station, it feels like our address is more like 19th and Everywhere. Because BART is able to get us to Downtown San Francisco in around 17 minutes, the running joke is that our project at 1900 Broadway in Oakland is closer to San Francisco than most of San Francisco. The site’s incredible mixed-use quality was what led to the creation of our Stak Site concept (“Stak”), a fully integrated live-work-play-go real estate offering, which can lower the cost of living and working in the Bay Area up to 30% or more.  It’s really an enhanced offering of apartments, flex office, amenities, health and fitness, and even a vehicle sharing program – all wrapped up in the most financially and tax-efficient package possible. 

Real estate’s IoT and the world’s adoption of product models built on the sharing economy (Uber, AirBnB, WeWork etc.) have created an incredible opportunity to rewrite the book on urban real estate development. We believe Stak has potential to change how urban real estate is designed, built and operated forever.

How does this project fit within BehringCo.’s strategy for Oakland? How is it representative of the company’s strategy for other West Coast markets?

1900 Broadway is our flagship mixed-use asset, our first Stak Site and eventually will become part of history. Firstly, we believe Oakland has all the natural pieces to be a top tier urban mixed-use market that can rival any major metro city in the United States. It has strong employment growth and over 44 percent of the Bay Area’s workforce lives in the East Bay already. Oakland already has major mass transit and access to phenomenal restaurants and entertainment. We believe Oakland is poised for incredible growth given its value proposition compared to San Francisco and the Peninsula. Oakland has a plethora of downtown development sites available, and we believe that it will help achieve our ambitions to build out a full ecosystem for Stak. Our Stak platform lends itself well to a hub-and-spoke model providing a network of assets that can be operated in unison to increase a sub-market’s access to multiple sites providing a full offering of live-work-play-go in unison. The integration also allows us to deliver highly tax efficient space offerings that can allow an employer or its employees to lower their total cost of space tremendously. In some cases, our members can save up to $60,000 per year compared to regular real estate choices, and they are blown away about how much money they were losing before. Our Stak model will work especially well in Oakland, but we believe we can successfully port it to any major urban metro market. 

BehringCo. has used EB-5 investment to finance 1900 Broadway, and will continue to use EB-5 as a financing mechanism for other projects. Can you talk a little bit about why Behring used EB-5 for 1900 Broadway? What are the merits of this investment vehicle? 

EB-5 works great with construction projects located in desirable locations. The job creation you get with ground-up development is very much aligned with the requirements of the program and EB-5 investors, like being in well recognized urban cores in places they know.  EB-5 is also particularly useful for projects with longer delivery schedules like high-rise towers. The longer schedule has higher capital costs and adding a portion of lower-cost EB-5 capital can really help get a project moving quicker. We have a long history of international investment so we already have a working knowledge of international capital markets, how to deliver an ideal offering, and how to package it accordingly, so EB-5 has been a successful part of our strategy for over 8 years now. 

Why do you believe that EB-5 can benefit the economy more broadly as a whole? 

The benefits of EB-5 are tremendous. Some of them are obvious like just the sheer ability to finance projects that directly result in the creation of construction jobs for American workers. Whether it is for affordable housing, infrastructure or any commercial real estate, EB-5 is tremendously effective at getting things built.  That aspect is irrefutable. The less known benefits of EB-5 include the fact that the entire program is self-funded and has created over $40 billion in economic growth at ZERO cost to the U.S. taxpayer. The other wonderful aspect of EB-5 is the type of people that EB-5 attracts. Our clients are typically high net worth individuals with very strong educational backgrounds, strong family values dynamics, high professional and technical talent and no major criminal history. These are the kind of people any country would be proud to welcome, and the EB-5 program gives them an avenue to consider making the U.S. their home. These high net worth individuals end up becoming American permanent residents and become taxpayers as well. They assist in funding our Social Security, Medicare and local tax budgets as well. These are people that help us in so many ways.  

What are some the challenges that BehringCo. has faced when pursuing EB-5 Investment (i.e. EB-5 Modernization Rule of 2019)? How has Behring worked to overcome these challenges?

The 2019 Modernization rule was the most recent struggle across the industry. The new rule decimated EB-5 investment, dropping subscriptions to the program by over 99 percent. It was so bad that there was no way the move was legal, and it turned out it wasn’t. We filed a lawsuit challenging the regulation changes and we won that lawsuit, reversing the regulation changes last June. There are a lot of things you can do to overcome certain market conditions or regulatory adjustments but it mostly comes with tailoring your investment offerings to be attractive enough to overcome those difficulties. From a policy standpoint, a lack of quota results in tremendous backlogs, lengthening the time it takes for investors from higher-volume countries to get greencards. That definitely hurt the program’s growth and is something that needs to be addressed by Congress. Behring has done a lot to mitigate those impacts like establishing the Unity Lender, a licensed finance lending company in California that has the ability to provide financial assistance to investors based on their personal needs. Sometimes financing part of their investment helps with tax planning strategies, not having to liquidate stocks or sell real estate at the wrong time and things of that nature. That has been very successful in attracting investor interest. 

How do you believe the commercial real estate market will continue to evolve over the next 12-24 months? What fundamentals are you keeping your eyes on and why?

We believe that we are amidst one of the largest paradigm shifts the country will ever experience in real estate. The mantra used to be, “location, location, location,” but no one was prepared for the location to move to the cloud. It won’t be universally true for all industries but it is creating tremendous opportunity for those that navigate this change correctly, design and build products in front of those trends and meet the new need. 

The most powerful change we are seeing is really how the value in real estate is shifting from the actual asset to focusing on the services it provides.  The concept of “space-as-a-service” being built up as the trillion-dollar hash tag could never be more true. The market has been threatened with rising costs, rising taxes and ever more unaffordable housing conditions. When COVID-19 hit, there was a sense of awakening where people looked at the real estate they used and really had to think, am I getting the value I desire or not? Many people said no, packed up, and left their previous location.  The Bay Area, and all its participants need to look at this sharply as a wake-up call that prices will not just go up because of our beautiful state and wonderful weather. Rather, we will need to continue to provide outstanding value to keep the new highly mobile workforce. Companies are voting with their feet to leave and I believe the Bay Area will stay an economic juggernaut, but this is definitely a much needed reality check that we need to stay competitive politically and economically.  

As far as fundamentals, construction costs and the difficulty to entitle property will be the largest constraints on the market. 

What are the company’s plans for growth, or what strategies is BehringCo. implementing to remain competitive in the Bay Area’s challenging CRE market?

We are heavily focused on our Stak Site model and building out integrated spaces that solve for the live-work-play-go dynamic. To be able to deliver an efficient, convenient and high quality of life will be key to winning over the tenants of tomorrow because simply building an ordinary box and hoping it rents is not going to cut it.  We have currently identified a $1.6 billion pipeline of assets that fit our objectives but that number will explode after 1900 Broadway is delivered and operating at full speed.  We are launching a new investment fund to lead that growth.  

Is there anything else you would like to add? Anything that we should be mentioning?

We are looking to see the EB-5 program reauthorized with the federal budget reconciliation or continuing resolutions. That will kick off a sort of EB-5 3.0 that will bring billions of dollars into the economy. 

The launch of our new private equity real estate fund that will lead our Stak Site build out will be announced shortly.