PG&E’s Oakland move could break records with $892 million purchase option

PG&E Corp.’s move from San Francisco to Oakland could shatter real estate records as the utility considers the potential $892 million purchase of its new headquarters building.

PG&E has the option to buy 300 Lakeside Drive in 2023 from developer TMG Partners for that price, the company said in a Securities and Exchange Commission filing on Tuesday.

The potential deal would be the biggest building sale in Oakland history and a sign of strength after the Bay Area has been battered by the coronavirus epidemic, which forced millions of office employees to work from home. Oakland would receive $22.3 million in transfer taxes if the sale occurs.

PG&E could instead lease the 900,000-square-foot building next to Lake Merritt for 34 years, paying $57 per square foot annually, with rents increasing 3% per year. The rent is slightly higher than Oakland’s average office rent, according to real estate brokerage data. But it’s significantly lower than San Francisco rents, which exceed $80 per square foot in top buildings.

PG&E also plans to sell its current San Francisco headquarters buildings at 77 Beale St. and 245 Market St., which could net the city tens of millions of dollars in transfer taxes. But the city would lose out on PG&E business taxes, a number that isn’t publicly disclosed. PG&E said that San Francisco would see a net increase in tax revenue from the move.

“The investment will add significant annual property, payroll, and other tax revenue for the city of Oakland,” TMG CEO Michael Covarrubias said in a statement. “San Francisco will enjoy significant additional annual property tax and commercial rents tax revenue … we anticipate that San Francisco will also receive other increases in tax revenues from the sale and re-tenanting of the property.”

Jay Cheng, public policy director at the San Francisco Chamber of Commerce, said PG&E’s departure was nonetheless part of a worrisome trend, with the city already facing a budget deficit of up to $1.7 billion.

“PG&E’s departure follows a larger trend we’re seeing in the San Francisco economy. The incredibly high cost of doing business in the city, coupled with the COVID-19 economic downturn, are driving businesses and jobs out of the city. This impacts all San Franciscans — as these businesses leave, they will take pieces of the city’s tax base away with them,” he said.

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