Monthly Archives: December 2014

These commercial real estate sales rocked our world in 2014

Dec 30, 2014, 1:20pm PST

Real Estate Reporter-Silicon Valley Business Journal
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The year just ended was a big one for commercial real estate sales in Silicon Valley, with major deals on both the owner/user and investor fronts.

In the spirit of end-of-the-year wrap-ups, I’ve compiled some of the top deals into a handy list below, with links back to the original deal stories.

One not included: Blackstone’s $3.5 billion sale of the Bay Area Equity Office portfolio to Equity Office. That’s because the deal is not yet closed.

Also, I didn’t include multifamily sales (and there were plenty of those this year). My data comes from my reporting, Real Capital Analytics, and PropertyShark.com. Feel free to let me know with an email if I missed anything, which is always possible. (I’m including 11 deals instead of 10, since Nos. 8 and 10 could conceivably be seen as part of a single acquisition.)

1. Pacific Shores, Redwood City

Price:$585 million

Buyer: Google

Seller: Blackstone/Starwood

Date: October 2014

Google’s purchase of about 934,000 square feet in six buildings at Redwood City’s Pacific Shores (1200, 1300, and 1600-1900 Seaport Blvd.) tops our list of sales in the Valley. The seller was Blackstone Group and Starwood Capital. Read more here and here.

2. Vallco, Cupertino

Price:$318.5 million*

Buyer: Sand Hill Property Co. (in partnership with the U.S. subsidiary of the Abu Dhabi Investment Authority)

Sellers: Sears, JCPenney, Macy’s, Vallco Shopping Center LLC.

Date: October-November 2014

After years of laying the groundwork, Sand Hill Property Co. acquired essentially all of the land and buildings at Vallco Shopping Mall this fall, setting the stage for one of the largest redevelopment projects in Cupertino history (aside from Apple Campus 2, of course). Read more here.

(*Multiple sellers included in this price, but the deal seems like it is best represented as an overall figure since it was all or nothing. JCPenney sold a 202,000-square foot building for $68 million; Macy’s sold long-term ground lease for $32 million; Sears sold its 360,000-square-foot building for $102.5 million; Vallco Shopping Center LLC sold for roughly $116 million.)

3. The Pruneyard, Campbell

Price:$280 million

Buyer: Ellis Partners/Fortress Investment Group

Seller: Equity Office (Blackstone Group)

Date: October 2014

Ellis Partners hasn’t yet revealed its plans for refreshing the popular mixed-use center, but we’re hearing that the company intends to boost the walkability of the project and create better linkage between the various elements. Read more about the Pruneyard here andhere.

4. Pacific Shores, Redwood City

Price:$260 million

Buyer: DivcoWest

Seller: Shorenstein

Date: November 2014

Yup — Pacific Shores makes another appearance on our top deals list. This time, 1400 and 1500 Seaport (home to Abbott Laboratories and DreamWorks Animation) sold to DivcoWest Properties for about $260 million. The deal means there remain three owners at Pacific Shores — Google, Divco and Informatica. Read more here.

5. 700 E. Middlefield Road, Mountain View

Price:$250 million

Buyer: Google

Seller: Deutsche Asset & Wealth Management

Date: May 2014

Another big acquisition for Google, which is no surprise since Google’s dealmaking was the major story of the year in real estate. The 400,000-square-foot campus (formerly theSynopsys headquarters) could be a future redevelopment site. Read more here.

6. Parkside Towers, Foster City

Price:$205 million

Buyer: Heitman/Teachers Retirement System of Illinois

Seller: Harvest Properties/Invesco Real Estate

Date: February 2014

The deal came after Harvest filled up vacancy at the 400,000-square-foot complex with Guidewire. Read more here.

7. Mountain View Corporate Center, Mountain View

Price: About $154 million

Buyer: Rockwood Capital

Seller: Deutsche Asset & Wealth Management

Date: June 2014

One of the few business complexes in Mountain View that didn’t sell to Google this year, the Mountain View Corporate Center includes about 250,000 square feet of space in a campus setting not far from transit. Read more here.

8. Mission Tower 1, Santa Clara (3975 Freedom Circle)

Price:$148.8 million

Buyer: Prudential Real Estate Investors

Seller: Blackstone

Note: See No. 10, below.

9. Montague Pointe, San Jose

Price:$137.8 million

Buyer: Met Life

Seller: Spear Street Capital

The single North San Jose asset on our top sales list of 2014 includes about 420,000 square feet of space and is fully leased. Read more here.

10. Cisco Tower/Mission Tower 2 (3985 Freedom Circle)

Price:$132 million

Buyer: Prudential Real Estate Investors

Seller: Shorenstein

Date: Second quarter, 2014

Together with Mission Tower 1, these two deals put the two towers, totaling about 600,000 square feet, under single ownership for the first time in years. Read more here.

11. 10 Almaden, downtown San Jose

Price:$116.7 million

Buyer: KBS REIT III

Seller: Equity Office/Blackstone Group

Date: November 2014

Downtown San Jose didn’t see too many office tower sales in 2014, probably because much of the Class A assets there have traded. But 10 Almaden selling is ending the year on a high note because it is considered one of the crown jewels in the central business district. Read more here.

 

 

The year in Silicon Valley real estate: Google grows, Vallco sells, industrial booms

Dec 24, 2014, 1:25pm PST | UPDATED: Dec 30, 2014, 6:36am PST

Real Estate Reporter-Silicon Valley Business Journal
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Dear Google,

Thank you for giving me plenty to write about over the last 12 months.

Seriously, folks — when it came time to compile some of the more important stories of the last year (a common practice in slow-news December), I knew “the Google effect” would rank at No 1.

But that wasn’t the only story that got our attention this year. Silicon Valley’s tech economy continued to hum along in 2014, propelling development and leasing activity and giving real estate writers plenty to cover.

Beyond individual deals, though, a few larger storylines stuck out: Yes, Google dominated. But spec projects gained steam, brokerages changed hands, vacancy rates tightened, and foreign money started flowing in.

I’ve collected some of the stories and trends that strike me as particularly significant in the last 12 months. It’s certainly not comprehensive, nor ranked in any particular order, so let me know what I left out with an email or in the comments.

Also, let me know what you’d like to see more of — or less of — in 2015. And thanks for reading.

Google’s jaw-dropping growth

Is it ever going to stop? That was one question on real estate observers’ lips this year as Google inked deals that saw the search-and-advertising giant swell its Bay Area property portfolio to roughly 12 million square feet — not including a huge Sunnyvale campus that hasn’t been built yet. The deals make Google, in this reporter’s opinion, the story of 2014 — both for the window it shines into the company’s jaw-dropping business ambitions, and for its impact on the broader real estate market.

Sure, there were small deals in and around Mountain View (mostly purchases of older R&D product). But a few transactions dominate: In May, Google paid $250 million ($625 per square foot) for a Deutsche Bank redevelopment site at 700 Middlefield Drive in Mountain View. The same month, Google leased the old Palm Inc. campus in Sunnyvale from HP. In July, it dropped about $100 million for Boston Properties’ Mountain View Technology Park. October saw Google snag the old Juniper headquarters and the draw-dropping news thatGoogle was buying most of Pacific Shores in Redwood City for $585 million. And the blockbuster of them all: Leasing Moffett Place, Jay Paul’s 1.9 million square foot office park under construction in Sunnyvale. We think this may be the largest single office lease ever signed.

And, oh yeah, Google sealed its deal to lease Moffett Federal Airfield.

There was also the stealthy assemblage in Sunnyvale by CBRE Global Investors, which may or may not be some kind of secret Google project. Who knows.

It will be interesting to see whether Google’s deal-making activity slows down in 2015, and I suspect the next year will be all about Google’s execution. How fast does Google intend to occupy the space? Will Google’s plans for its 2013 push into Palo Alto finally be revealed? Will this be the year that Google starts up on one of its ground-up development sites? (I think the answer on that last question is yes. But I don’t think we’ll see a serious occupancy in Redwood City for a while.)

I’ll also have my eye on city planning policies. We’re watching to see whether Google starts the process to redevelop more densely its current holdings in Mountain View’s North Bayshore district, which finally has a new “precise plan.” And if the new Mountain View city council follows through and allows housing there, the next question is where it will go. Expect Google to be very interested in any discussion on this topic.

Long term, I’ll be watching to see how Google tries to integrate its various neighborhoods — North Bayshore and Sunnyvale of course, but also its concentrations in Mountain View south of Highway 101, plus Palo Alto and Redwood City — to create a cohesive ecosystem of transit, housing and amenities.

Apple’s spaceship revs engines

I’ll admit, I was maybe a bit skeptical about Apple Campus 2. The project is so expensiveand so — well, round — I wondered in 2013, was Apple really going to build this thing?

But 2014 gave us the answer: You betcha.

And from the monthly YouTube drone flyovers, the project is racing along.

I profiled the construction effort in January, back when giant excavators were still turning buildings into piles of chewed up metal. Today the main building’s ring-shaped outline is clearly visible in the flyover videos, even though the structure hasn’t yet started going vertical. To get a sense of the scale, point your Google Earth (sorry, Apple — er, Apple Maps) to Pruneridge Avenue, and gawk at how massive the site is. I mean, you could fit at least four empty Vallco Shopping Centers in there.

Despite the project’s progress, Apple is still leasing space in the area, especially Sunnyvale. So while questions remain about whether Apple will vacate leased space once the campus is built in late 2016, so far the company isn’t slowing down.

This coming year, we’ll be watching to see how much labor supply the spaceship swallows up in an already tight market as work ramps up — something that could compress margins for other developers working on projects. We’ll also be watching those drone videos (keep ’em coming) for tidbits on Apple’s construction methods. (We’d love to know who will supply Apple’s solar panels — which will make the project perhaps the largest single-building private solar generator in the country.)

Industrial booms

It was a good year to be an industrial broker or developer in Silicon Valley. After years of virtually no additional building, several projects came online and had absolutely no problem finding tenants. Notable deals included Amazon leasing Conor Commercial’s huge Newark distribution center( now owned by Met Life) and Overton Moore‘s spec warehouse project in Fremont leasing to a number of tenants, including Apple.

There were also land deals that will soon sprout new developments, such as Panattoni Development’s 16-acre buy in south San Jose. Still, the activity comes after years and years of industrial-to-residential conversions that depleted a significant portion of the area’s industrial building base.

Against this backdrop, we profiled the emerging manufacturing and assembly hub surrounding Tesla Motors Inc. in August — and it’s something we’ll keep following in 2015.

Cornish & Carey, Cassidy Turley sell

January saw legendary Santa Clara-based brokerage Cornish & Carey Commercial agree to sell to New York-based BGC Partners. The deal closed in August, and the next month, another brokerage with a major presence here, Cassidy Turley, said it would sell to DTZ.

Both deals show the continued trend of consolidation in the industry, as firms try to add more and more services to their ever-expanding “platforms.”

Still, amidst all the acquisitions, smaller firms are also growing. Avison Young, Kidder Mathews and Lee & Associates are expanding in the Bay Area.

Downtown San Jose heats up

San Jose’s central business district has been “on the verge” of getting hot for years. But it seems like this time it’s for real. While there were no truly monster-sized deals, there were asmattering of tech leases and two good-sized leases at the long-vacant Riverpark II office tower.

That building, at 300 Park Ave., now has lights on at night — and it’s amazing how much more vibrant that simple change makes the intersection of Park Avenue and Almaden Boulevard feel at dusk.

The district still has sizable vacancy, but rents are trending up and there’s finally talk, here and there, of some new office construction. (Though how real it is remains to be seen.)

What’s obvious: Next year will see more housing get built, as a Chinese developer starts work on Silvery Towers, which could add up to 600 condo units. We also hear that 160 W. Santa Clara St., which includes a fully entitled residential tower, is getting a lot of interest from potential buyers.

We’ll get a good indication in the coming year of the district’s desirability as two major apartment projects start leasing. Those are the Building Investment Trust’s Centerra andEssex Property Trust’s One South Market. We’ll be keeping a close eye on rents.

Developer fees for affordable housing rise as concerns grow over housing costs

Silicon Valley’s housing crisis became a huge topic in 2014, as apartment rents reached record levels and for-sale prices lofted out of reach of the middle class. Against this backdrop, city after Silicon Valley city imposed or raised fees on new development this year to help fund affordable-housing projects.

Most of those fees were on new residential construction, but cities are also exploring fees on commercial development as well.

Even proponents don’t expect the fees will solve the problem of housing affordability, but they say they’re necessary for adding at least some supply of income-restricted housing to the area.

Still, 2015 could see litigation target the legal basis of such fees — so-called “nexus” studies that find a link between new development and the demand for affordable housing. That possibility is looking more likely after the largest city in the region, San Jose, passed new fees in November.

Irvine Company’s ambitions grow

Irvine Company continued to put its stamp on Silicon Valley — particularly in Santa Clara — this year as the Newport Beach developer added to its holdings and executed on long-percolating development plans. Irvine added tenants to its two huge office campuses — Santa Clara Gateway and Santa Clara Square — while bringing more apartment units to market in San Jose. With more projects and acquisitions in the works, Irvine shows no sign of slowing down.

Catch up on Irvine news here, here and here.

EOP sells to Hudson Pacific

It’s still not a done deal, but news this month that Blackstone was selling (most of) its Bay Area portfolio to Hudson Pacific took many observers by surprise. The transaction makes publicly traded REIT Hudson a major player here, while taking off the table a source of growth for other investors, who had been biting off EOP’s holdings piecemeal.

The cool thing about Hudson’s acquisition is that, since it’s a public company, we should be able to track the portfolio’s lease-up pretty closely through the company’s quarterly filings.

Our interview with Hudson’s CEO is here; more stories on the deal are here.

The pull of San Francisco

One of the big conversations this year was the incredible success of San Francisco developers in landing tech tenants. As my colleague Cory Weinberg wrote this week, six of the seven major office buildings in San Francisco expected to open at the end of next year are all pre-leased, including 350 Mission St. (Salesforce), 333 Brannan St. (Dropbox) and 222 Second St. (LinkedIn), according to Cushman & Wakefield. National publications have run stories about Silicon Valley “invading” San Francisco and “bypassing” the South Bay.

The jury’s out on whether this will be a problem for Silicon Valley landlords, but many observers aren’t sweating it. LinkedIn isn’t slowing its roll down here, even though it’s doing big deals in San Francisco, too. Also, the city’s increasingly anti-development sentiment could start to put the brakes on continued momentum there.

Spec starts up

A number of office projects got started this year without tenants in tow — many in recent months. That included Spear Street Capital at Stadium Techcenter, Legacy Partners’ Legacy on 101, and Jay Paul with Moffett Place and Moffett Gateway. Hunter/Storm LLC is also starting up on the first phase of Coleman Highline. Wilson Meany says it is starting work on the first office building at Bay Meadows in San Mateo. And Federal Realty is getting into the act too, at Santana Row.

Still, the market is not being flooded with new product, and a lot of the projects are spoken for. (Google took down Moffett Place, and no one expects Moffett Gateway to be unsigned for long). The existing supply of vacant spec space is also being depleted; the Sobrato Organization leased Lawson Lane campus in Santa Clara to ServiceNow, and market chatter has Aruba Networks taking at least 250,000 square feet of Menlo Equities’ Scott Boulevard campus, also in Santa Clara. (Aruba told me earlier this week that no deal is signed there, and the company is still assessing its options.)

We’ll be watching to see whether some of the other fully entitled office projects line up financing and pull the trigger this year, such as Ellis Partners’ 101 Tech and Lowe Enterprises’ N1 campuses in San Jose.

Redwood City booms

Just about every Silicon Valley city’s downtown is doing really well right now — a reflection of the strength of urban environments in attracting people and companies. But Redwood City’s was really the one to watch this year. Dense housing was already going full-bore in the city when Kilroy Realty Corp. and Hunter/Storm leased up Crossing/900 to Box Inc. in September. Then so many office developers submitted applications for new projects that the city hit a cap on office years before it expected. Walk around the downtown today, and it’s full of hip restaurants and startups, a big change from just a few years ago when the phrase “downtown Redwood City” wasn’t necessarily a selling point.

The momentum didn’t happen by accident. The city passed a downtown plan a few years ago, sought a developer for the (formerly city-owned) Crossing/900 site and streamlined permitting for the downtown.

Peter Pau finally gets hold of Vallco

It’s been no secret that veteran Bay Area developer Peter Pau has long coveted Cupertino’s long struggling Vallco Shopping Mall. But the challenges to assembling the entire center were immense, not least because of the multiple ownership involved.

But he (and his financial partners) did it in 2014, paying at least $316 million just for the property that will eventually be torn down.

Now the hard work starts of getting approvals to redevelop the dated center into a bustling mixed-use village. One hurdle was cleared in recent weeks, with the city allocating a sizable amount of new office capacity to Vallco’s neighborhood. But citizens in Cupertino often fight new development. Expect plenty of public meetings on this one.

We first explored the mall’s troubles in depth earlier this year, tracked the deals that brought the mall site together this winter, and profiled Pau after all was said and done.

 

 

Heads up: Your real estate sale prices will no longer be secret

Dec 26, 2014, 6:31 am PST

Real Estate Reporter-Silicon Valley Business Journal
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When Google Inc. buys a building in Mountain View, or KB Home picks up a new development site in Fremont, you won’t find the price they paid printed on the recorded documents. The same is true for just about any sizable real estate deal these days.

But that will change in 2015, thanks to a little-noticed new law that restricts the ability of buyers and sellers to keep sale prices secret in California.

Assembly Bill 1888 requires transfer tax amounts be recorded on the face of deeds in sale transactions. Up until now, buyers and sellers were able to file that information (sometimes called the “tax stamp”) separately, shielding it from view, if they wanted to.

The tax disclosure is key because it is directly tied to the price of the property. Do a little simple math, and presto — you’ve got the sales price. The law will apply to commercial and residential property sales.

Sponsored by the Appraisal Institute and authored by Assemblyman Phil Ting (D-San Francisco), the new law should help provide a more accurate picture of property values, experts told me, though it might not have everyone cheering in secrecy-obsessed Silicon Valley.

“The public benefits when appraisals are done as accurately as possible,” said Kurt Reitmanof Menlo Park-based the Reitman Group. Reitman is government relations chair for the Northern California chapter of the Appraisal Institute, and was active in developing the legislation. “The more information we have, the more likely we are to come to an accurate conclusion.”

Of course, there’s a lot more to appraisal than confirming the price through the transfer taxes. Documentary transfer tax doesn’t tell you things like the buyer’s and seller’s motivations or other pieces of the puzzle that explain why a given property sold for a certain price. Environmental issues keeping the sale price down? Don’t expect to see that recorded on the deed. And the figure sometimes doesn’t reflect the actual valuation of a deal — for instance, if a buyer assumed a mortgage on a property.

“There’s so much else involved,” said Stan Tish, a principal with Berliner, Kidder & Tish in Santa Clara. “Verifying the sale price is just one component. You need to get the whole background.”

Yet the transfer tax is an important first step that can help provide a baseline level of knowledge. It’s especially important these days, as more and more buyers and sellers take vows of silence on their deals.

“When they were able to hide the tax stamps, we lost a method of confirmation,” Tish said. “In the market, things have been getting more close to the vest.”

Added Reitman: “I’ve found through my experience that if you have some experience with the sale price, the parties involved are more forthwith in telling you the truth.”

Not everyone is thrilled. Developers and corporations often like don’t like to publicly disclose sale prices, partly because it could set lofty expectations for future deals.

JoAnne L. Dunec, a shareholder in the Walnut Creek office of Miller Starr Regalia, said the new rules could restrict the negotiating power of buyers completing land assemblages involving several sellers.

“The pricing would be readily available, and then you wind up with a holdout,” said Dunec, who specializes in land-use transactions.

Then there’s the matter of simple privacy. “Once I was representing someone in an entertainment business and they simply didn’t want anything disclosed, simply out of policy,” she said.

To be sure, most deeds are already filed with the transfer tax listed. Those that aren’t are usually high-end residential sales and commercial properties.

And it’s worth noting that tax stamps have never been completely secret even under the old rules. Anyone could obtain the information from the county under a public records request (or, in San Mateo County’s case, by asking the clerk for the big binder behind the counter — as I do fairly regularly). Doing so, however, requires painstaking research (the records often only list assessor parcel numbers). Hardly anyone undertakes the effort.

The new law, appraisers pointed out, simply speeds and standardizes access to the information.

“It’s going to be a benefit to real estate appraisers no doubt, because the way it’s designed currently it’s difficult to get that information — though it’s not going to answer all the questions,” noted Jeff Enright, president of Burlingame based appraiser Enright & Co.

In fact, part of the reason for the law was to eliminate confusion surrounding access to records on transfer taxes, despite a 2007 opinion from the Attorney General mandating that the public be able to inspect tax records.

A Senate Governance & Finance Committee analysis found “disparities from county to county in how information about (transfer tax) can be obtained.” According to the report, “In some counties, the recorder’s office will disclose the amount of (documentary transfer tax) to anyone who requests that information for a specifically-identified recorded document. In other counties, a Public Records Act request must be filed to learn the amount of DTT paid on a recorded document. In at least one county, the amount of tax paid may not be provided even in response to a Public Records Act request.”

It will be interesting to see whether privacy-focused parties try to get around the new rule. In my conversations with local experts, two theoretical possibilities have surfaced: Buying the entity that owns the real estate, rather than the real estate itself; and inflating the transfer taxes paid simply to mess with the numbers.

Both have problems. Buying the limited liability company would mean buying all of its assets, some of which you might not want. And paying higher transfer tax than necessary (which is legal, if not very fun) would “open up a Pandora’s box” when the county re-assesses the land for property taxes, Reitman said.

Title companies and real estate attorneys have been telling their clients for weeks about the new law (a blog post Dunec wrote has received “a lot of hits,” she said). But it’s possible that a pushback could result. (There was no official opposition to the bill.)

“I think once people start understanding that their deal is going to be in the public record, there could be a reaction,” Dunec said.

There’s also the chance that after some initial grumbling, buyers and sellers learn to live with it. It might not be all bad, according to Tish.

“It’s a good thing for appraisers, but also a good thing for the market, because it makes it more efficient,” Tish said. “It can operate with better knowledge. The real estate market is illiquid and inefficient compared to the stock market. You can know the value of a company instantly. In real estate transactions, it takes a long time, and being able to know all the sale prices gives everyone in the market more knowledge.”