West Coast landlord Hudson Pacific Properties is looking to capitalize on escalating interest among office investors as it seeks to offload a Silicon Valley campus ahead of a high-profile tenant move-out.
The Los Angeles-based office owner is under contract to sell the Foothill Research Center in Palo Alto, California, a four-building campus that tech giant Google is expected to soon exit after leasing upward of 182,500 square feet for more than a decade.
Hudson Pacific executives told analysts on the company’s recent earnings call that an undisclosed buyer is in the final stages of a $23 million deal to acquire the buildings at 4001, 4005, 4009 and 4015 Miranda Ave. While the price tag represents a steep discount compared to the landlord’s initial 2015 investment, CEO Victor Coleman said the decision to sell was ultimately driven by the need to preserve capital in the long run.
“We really looked at the highest and best use of dollars, and that’s when we decided to sell that asset,” Coleman said. “When you understand who we sold it to, you’ll figure out the strategy and the structure around that.”
The deal is one in a domino line of sales the firm hopes to close over the next several months, a disposition streak that could yield the landlord up to $225 million that it could then use to boost its liquidity and pay down some of its debt.
“In terms of overall acquisition and transaction activity, we’re pleasantly surprised,” Coleman said of the market’s gradual rebound following the onset of the COVID-19 pandemic. “Our Bay Area assets are garnering strong buyer interest.”
Regaining momentum
If the pending deal closes at the anticipated purchase price, it would equate to roughly $120 per square foot. Hudson Pacific acquired the office park as part of a $3.5 billion portfolio deal in April 2015 that averaged nearly $414 per square foot across 80 properties, according to CoStar data.
Discount aside, Coleman said the Foothill Research Center is a “unique transaction” that shouldn’t be linked to the overall health of the Silicon Valley office market, where availability rates are stuck at about 18.5%, above the national average of 16.4%.
It isn’t clear when Google’s lease at the campus, which it has occupied for the entirety of Hudson’s ownership, is set to expire. However, the company listed it for sublease last year as part of the tech giant’s aggressive real estate cutting spree, reversing a decade-long expansion as demand for its products and services soared and the company had to lease, develop or acquire large swaths of space to accommodate its record headcount growth.
Hudson Pacific reported the Palo Alto campus as fully occupied as of Sept. 30, according to information filed with the Securities and Exchange Commission.
While leasing in and around the Silicon Valley area has rebounded slightly after hitting a pandemic-era trough last year, rents have fallen from their pre-pandemic highs of more than $80 per square foot to the current average of less than $58 a square foot, according to CoStar data.
Investment sales have slowed considerably over the past year and a half, according to the data, with buyers collectively funneling less than $1.5 billion into the greater Silicon Valley area over the past year. That’s a far cry from the region’s pre-pandemic annual average of nearly $3 billion.
Yet, there have been recent signs that activity will gain some speed through the remainder of the year.
