the growth for is overwhelming a shrinking of real estate needs and we're not seeing that kind of growth in new york or washington. it's very select markets that we're seeing the kind of growth that you are seeing in san francisco. so we all should be grateful that we work in this very unique and interesting environment. i am also grateful to jerry and rob speyer for driving this company that can take on and capitalize projects. there are few companies able to do this. i feel very lucky to be part of such a strong and wonderful team and to work with my colleagues here in san francisco. i have to talk first today about what we see going on and then i'm going to talk a little bit about how we at tishman

speyer want to capitalize on that. i'm going to start at the risk of boring everyone with a couple of charts. the first chart shows the average sales prices for office buildings in blue. it shows the average replacement costs in green and the line is the cap rates for office product in san francisco. and there are a couple of things that i think are worth pointing out in this chart. first, that while values have increased, they still fall short of the peaks that we saw in 2007. also while replacement costs have been fairly steady here in the last several years, if you look back historically, there has been a stair-stepping historically over time of replacement costs. and i believe that we're about to enter an environment where both construction costs and

land costs will push replacement costs up again in san francisco. also while cap rates have come down significantly since 2010, they are still well above where they were in the 2006-2007 environment. and keep in mind that the treasury market is significantly tighter today. bond rates have tighter today. and so those yields, while they have come down significantly, still offer attractive returns over fixed income securities. the second chart shows rents and vacancy showing rents in nominal dollars. i think one of the most important things is that while we have seen a run up in rents

that rents have basically come back to the 2007 levels, but well short of the rents that we saw back in 2000-2001. this is in nominal dollars and if you remember, can we go backwards? no, we can't go backwards. can we go backwards? i want to go backwards. the replacement costs back in the 2001-2000 timeframe is much lower than what it is today. so in that environment, when replacement costs were lower, we were able to support these higher rents. today, with these higher replacement costs, i think there is significant room for rents to run. two important things that i think are going on sort of the soft side of real estate.

one is that the electronic storage documents means that office space is much smaller. also in this generation, the amount of office space needed per employee has declined as densities increase. so gone are the file cabinets, gone are the wall libraries, but so too are gone are the private offices. today all of the buzzwords are about benching and collaborative space. as an example, we were able to draw major accounting consultant firm into 555 mission. that tenant went from 290,000 square feet to 190,000 square feet without laying anybody off. so they are able to shrink their space by a third, without losing any jobs. part of that is technology. part of that is the efficiency of the building. part of is it is hoteling, but

if you think about their traditional tenants and all the tenants in america get smaller by 30% without firing anybody, we wouldn't have to build any office buildinged for a long period of time. so what is remarkable about what is going on in the bay area, we have been able to absorb that contraction in the tenants, which jk put on the front page today and managed to overwhelm that with growth in technology and technology-related tenants, which is why what is going on in the bay area today is so extraordinary relative to what is going on in the rest of commercial real estate across the country. when we look at this, in practical terms, here is a prototypically way for a tenant

in an office building. this layout allows people to reach a ratio of 110 square feet per person or over nine people per thousand square feet. this density, i think, is very important. it means a couple of things. first, it means that san francisco and other transit-rich locations will win over suburban greenfield sites, where projects are typically parked at three or 3.3 per thousand. because if you build this kind of density on market street, or you build it in san francisco, your employees can get there by bike, by muni, by bart. if you build this in north bay shore, you can't get your employees there to build out this kind of density. we're very much seeing this on the peninsula, where the office buildings that are located close to the caltrain are

really distancing themselves from the other buildings on the peninsula in the northern part of the valley that aren't near the train. because that access to transit is so incredibly important. the other thing that i would point out is that while you are putting these kind of densities into this space, this is not back off this space for bank of america circa 1975, where these people are making $15,000, $20,000 a year. most of these jobs are high-paying engineering jobs. so you are putting a lot of people with high payroll into a relatively limited amount of space. and i think that that means that rent is less important. it's not irrelevant. but it's less important to these people and the willingness to pay rent to be

in the right location and be able to retract and retain talent, being in the right location is critical. how much you pay in rent is less critical. and i think that sets the foundation where rates can go up . the key is having the right work environment, retaining people, the key is being in a cool environment. thankfully for all of us, particularly for the people sitting at table 3, san francisco is cool. it's diverse. it's progressive. it's dynamic. it's hip. young, bright people want to live here. i'm going to date myself a little bit, but when i graduated from college, you

know, the logic was that you went and found the best job that you possibly could, and if that job took you to cleveland or took you to newark, new jersey, you went and took that job. today if you graduate from college, you move to someplace that is cool and fun, and then you look to find the best job that you can. and that is extraordinarily important for san francisco. the fact that this is someplace that people want to live coming out of school, means that the employees are moving here. this is not something that is lost on traditional silicon valley. silicon valley has figured out that people want to live in san francisco, and the solution,

the short-term solution is the buss that we all see, that now start in marin county and pick people up at the presidio and into the city as they go down to oracle and google and adobe, and apple. all of these companies are running these buses to bring people that they want to hire and they want to retain down to their corporate headquarters in silicon valley. it's a tremendous change and i would postulate if you think about this for a moment, it's essentially like the suburban flight of the 1960's turned on its head. when you think back about what was going on in cities in suburbia in the 1950's, '60's and 70's, people didn't want to

live in the cities and people wanted to go out to the suburbs for good school districts and a good quality of life. today that is turned on its head. people want to be in the cities. they want the activity. they want to be in the dynamic environment. what you saw in the suburban flight of the 1960's and 1970's was that after people moved out to the suburbs, so, too, did the companies move out to the suburbs. and i think what you are going to see is increasing pressure, if this is a battle between the employees and the employer about whether given that the employees want to live in san francisco and the employers want to be out where their corporate campuses are. if that is an arm wrestling match, i'm going to bet on the employee, because i think at the end of the day, if you run a major company, and your employee can quit and get off this bus and stop commuting an hour and a half each way each

day and skateboard, ride bart, ride muni to work and be at sales force or twitter in 10 or 15 minutes as opposed to riding on the bus for an hour and a half, i think the companies will be forced to increase their footprints in san francisco and i think you will see what is going on demographically as being tremendously important to san francisco in the years ahead. so as we look at this from tishman speyer's perspective, how do we capitalize on this? what do we do? the first thing we do is build housing. mayor brown newsom and lee have done a great job in getting more housing in san francisco and we at tishman speyer have tried to capitalize on this. is this our first high-rise residential project in the project.

it's a 650-unit project, the infinity, which was delivered in 2008-2009, arguably the worst timing we could have thought up for building a major condominium project. yet that project is completely sold out. it was a strong financial success and there are a thousand people living in these buildings today who call san francisco home. this is a thriving community south of market. given the recovery, we hope to repeat this starting next year with our project across the street at 201 folsom. this is another 650-670 units to be built on the south side of folsom between main and beale. we're also proud of the fact that through our commitment to the board of supervisors, that for both of these projects, we said yes, we will make a commitment not only to helping fund affordable housing, but to actually getting it built.

and together with evans and union property capital we built unitss at 900 gilman down in the bayview and 165 units at 88 7 emstreet at the square and to build that kind of affordable housing in san francisco with market rate housing and live up to our obligation to the board is something that we're very proud of. we hope to replicate that again at 1400 mission together with tndc as an off-site project linked to 201 we also build offices in san francisco. here the city has done less well in bringing things through the permitting process. in part because of prop m and in part because of ceqa and in part because the higher fees have raised the bar and today there are very few actually

entitled projects and we at tishman speyer have tried to capitalize on the locations here. this is a site we entitled in 2001. the dot com bust made us wait until we began construction and this is the only sizeable new building built from the last cycle. when we began in 2006, we felt we were early. midway through construction in 2007, we were feeling pretty smart, but we delivered this within weeks of lehman's bankruptcy in the fall of 2008, again into one of toughest markets you could envision for building half a million square foot speculative officer building, but it's a lesson in building great products and even in terrible markets you

will do okay. we were able to sell it for just over $800 a square foot, which i think is a strong sign of the recovery in san francisco. also allowed to us make an $11 million contribution to the general fund for transfer taxes. [ [ laughter ] [ applause ] looking forward this is foundry square 3. this is the last of the four buildings at the corner of1st and howard. this is a project that was originally envisioned by studios and william wilson and associates. we were extraordinarily lucky to pick up this last corner to complete this project earlier this year. we began construction in july. construction is going extraordinarily smoothly. we expect to be done by the end of next year, but no, despite the rumors in the marketplace,

we don't have a signed lease. but we are blessed with a tremendous amount of interest and activity in this building. we hope to follow it next year with 222 2nd. this is just a block to the west at the corner of 2nd and howard. it's a 450,000 square foot building. both of these buildings from a location standpoint and a product standpoint we're trying to carefully position as the crossroads of the traditional cbdg, but very much in the south of market tech-friendly locations in terms of the size of the floor plans and the way the lobbis are designed to make these great technology locations. looking forward we have tied up the site at 5th and brandon as

part of the capitol corridor project and what until recently has been a neighborhood that nobody thought of for office. but given the access to the train, given the access to the freeways, and given the sort of geographic dispersion that has been part of this tech renaissance, we feel this is an extraordinarily good site for a corporate campus in san francisco in the years ahead. the footprint is expanding and we feel this is where the growth in san francisco is going, not necessarily into the very tall towers that are being talked about in the heart of the transit center district. that from our perspective are difficult to pull off, given the size of those towers and the height of those towers. one last thing i want to touch

on, given that thatis cycle is technology-driven i get asked three or four times a day, aren't we just falling into the same bubble that we did at that time? and clearly technology and real estate are cyclical and we will go through cycles. having been there in sill cron valley in 2000 and sitting here today, there are a couple of things that i see as being significant. first and foremost, the tech tenants that we're dealing with are move stronger financially than the tenants that we saw in 2000. in 2000, the name of the game for these technology tenants was to go public and everybody was looking for an ipo as their exit. and given the focus on the ipo,

they were all focused on market share, first and foremost, and almost everything else was irrelevant. today while the ipo market opens and closes, most of these companies are being managed as much to be acquired as they are to go public. and that means that there is a focus on the liabilities of the company, that there wasn't in '99 and 2000 and also the amount of capital is much more concentrated in a number of key vc firms and being doled out in smaller pieces. in late '90-2000, it spread through the vc community that wait a minute, everybody is going to run out of space. and the signal got sent to all

of these boards that have you go to control real estate to be able to grow and we saw tenants taking three, four, five and in some cases eight or nine times their current foot print it in their new leasing requirements. i knew we were in trouble in 2000 when one of the tenants turned to me when we said why do you need all of this space? and they said that it was part of their business plan that they were going to lease more space than they needed, but because the market was increasing so quickly, they were going to make money on subleasing the space i had leased to them to others. we don't see anything like that going on today. the space that is being taken is much more logical. the m&a activity going on in technology keeps the growth in check. we continue to stair-step along. it's not the sort of constant

runup we saw in the earlier cycle and for those of you who focus on san francisco, san francisco is participating in this recovery in a way that it never did before in terms of the number of people living here and the kind of jobs that are being created here. we spent a lot of time talking about the risks of what could happen. what could happen in europe? what is the slowdown in china mean? is is there a double-dip recession? and those are clearly things to think about, but i would postulate to you what should happen after the election, regardless of who should win, the broader u.s. economy does move forward? if we can get the u.s. economy out of second gear, we have seen the broader housing market turn and we're beginning to see the foundations of some job-growth. if the economy can pick up more

broadly, what that would mean for san francisco, given the foundation that we have set for us today? clearly looking forward we think the physical boundaries of what is downtown will change. the type of space the tenants want will change. we think that this is a very good time for san francisco. we live in an exceptional time. and i'm going to paraphrase ever so slightly, but as jerry speyer would say, don't screw it up. [ laughter ] i feel very fortunate to work in this environment, to work for a great company and most importantly to get to work with all of you everyday. thank you very much. [ applause ] >> thank you, carl. now we're going to move from the talk about the tech

explosion to one of our most significant economic generators, which is the hospitality industry and i think we're going to have some breaking news this morning, if i can call it that. and see some of the first visuals of the moscone center expansion. at least i think so. so we're so fortunate -- i'm not going to waste a lot of time on the introduction, but have i to say that joe, president and ceo of sf travel association, formerly san francisco convention bureau is one of the leaders of the city and has done so much for the industry and for sf travel. and he is going to tell you about the plans for the moscone center expansion. he has done so much and created the san francisco tourism improvement district in 2009 and that actually is helping fund this whole structure. so i'm just going to let joe

dallesandro. [ applause ] >> thank you, mary and it's exciting to unveil the moscone district and master plan. we asked san franciscans a lot of questions about tourist and hospitality and what makes san francisco tick? 98% of san franciscos of believe it's very important. 94% say tourism has a positive impact on the budget of san francisco's city government. 78% say tourism makes san francisco a better place to live. 80% say that san francisco has a healthy balance of tourists

and resident activity and 78% believe it's important to update and modernize the moscone center. that 78% is similar to the numbers that we heard for support of the arena. why expand? interestingly moscone is probably the most successful convention center in the united states. it's not the largest. but persquare foot, it's the most utilized. per square foot it generated the most hotel nights and most revenue of any convention center in the united states. so it's very significant in terms of economic impact. it's basically full-year round. a lost our groups are outgrowing it and need more space in order to stay in town and this benefits not only the tourist sector, but the business sector. it's no coincide that the apple 5 was unveiled there this week

or oracle is having their meeting next week. it's the best way to generate more business. the economic impact of the center is significant. we have calculated that we have lost $2 billion in spending because the building is not big enough and people have left. people that want to meet in san francisco or come back over a regular cycle are not able to meet here because it's too small. so we have to expand and once we do, it will create jobs, revenue and taxes for the city. we have a whole expansion team. it's' private-public partnership. all partnering to make this thing happen. so what is our

goals? is that location has changed dram itally and to work cost-effectively to stay onbudget and deliver the project. so this is the context of where we're looking at. it's right on the lines of new central subway. there will be a moscone stop. we have three separate buildings, south opened 32 years and north opened 20 years and moscone west opened a little over ten years ago. for the study looked at that whole area and looked at the three moscone sites and the two garages, 5th and missing the and the moscone garage between folsom and howard. one of the problems with moscone center it was built

basically when the neighborhood was not what it is today. and it was built kind of in independent, isolated area to almost a suburban-type building in what has been a very urban area. we market san francisco as a pedestrian-friendly city and pedestrians are not allowed to walk around the moscone center in some areas. so we need to improve how it functions, but how it looks in the neighborhood. currently below ground, below grade there are two major exhibit halls. one the south hall with 260,000 square feet and the other with 180,000 square feet and a piece that connects both together of the our goal is to connect those two better and open it up to 540,000 of contiguous exhibit space that. is something that our clients say very much they need to have. we looked at above ground and how to