Square Feet

The newly named Legacy Hamilton Plaza, formerly just Hamilton Plaza is a two-building project near the intersection of Hamilton Avenue and Bascom Avenue in Campbell, California. Legacy acquired the project from the Ohio State Teachers Retirement System.

The two, six-story buildings located at 900-910 E Hamilton Avenue combine for a total of 355,000 square feet and include subterranean parking. The project is currently 80% leased. The projects leasing was previously was handled by Cornish and Carey but Legacy has made the switch to CPS.

The project benefits from easy freeway access and its vicinity to The Pruneyard Shopping Center. Legacy will undoubtedly be raising asking rents to the building.

Cornish and Carey held its annual forecast in Santa Clara this week. Along the lines of what I’ve been writing about, they are predicting rental rates to be static for 2008 for office and R&D, and vacancy rates to remain in a similar state.

The fact is that there is a large amount of new space coming online in 2008. In addition, there remains a fair amount of space available outside of Palo Alto, Menlo Park, Shoreline, and Cupertino submarkets. All of these submarkets will see new buildings come online this year, though no tremendously large projects are slated to dramatically change the landscape. In Sunnyvale however, Menlo Equities, Jay Paul, Sand Hill Property/RREEF JV, and a few smaller projects are bringing online more than 1.5M square feet of space this year alone. That is enough for 7500 employees in a time when most people now see that job growth will also be static if not recessionary this year.

As a result, we believe a portion of the price increases in the past 12-30 months we’ve seen in some of the softer markets outside those indicated above have been in large part a combination of broker hype and new owners paying dear prices for commercial property and being essentially forced to raise rents to make their deals pencil.

I think that while we may not see landlords drop asking rents immediately, smart landlords see the writing on the walls and we’ll see some get more aggressive in making deals.

NVIDIA is rumored to be buying San Tomas Business Park from Harvest Properties. The 10-Building project on San Tomas Expressway right across from NVIDIA’s campus was picked up by Harvest and BlackRock Realty in late 2005 for roughly $205 per square foot.

The project encompasses 10 buildings of roughly 47K SF each spread across 24 acres. There is no confirmation of the deal or whether additional land or buildings have been rolled into the deal or when the deal is slated to close.

This deal comes about a year after NVIDIA killed negotiations to acquire a Class A highrise in downtown San Jose from Sobrato that ultimately ended up getting acquired by BEA Systems.

Federal Realty, the owners of Santana Row have announced plans to build a 5-story office and retail project on a one-acre site within the complex.

The building will feature 4-stories of office in a 15,000 SF floor plate above 15,000 SF of ground floor retail. The steel construction building is estimated to cost approximately $42M and is anticipated to be complete by the end of 2009. The parking is already tight in Santana Row so FRIT (Federal Realty) has intentions to add a 90 car parking garage to what will likely be exclusive parking for the office tenant(s).

Rents have not yet been announced but based on the construction costs, it can be safe to assume that office lease rates will likely be at or north of $3.50 NNN.

NREI is reporting that in January, not a single CMBS was priced in a one-month period. This is the first time in the 20-years since CMBS product was introduced that this has happened.

Also telling is that despite this lack of activity, some $37B in securitizations remain in the pipeline. In the face of this prices have seemed to remain resilient. Longer term though, it is difficult to see how prices will be able to withstand the financing conditions if they continue. Goldman Sachs analyst James Fotheringham doesn’t see it happening and has forecasted that commercial real estate prices might be susceptible to a drop of up to 26% in value through 2009.

After taking control of a $7B portfolio of properties from Equity Office last year, Harry Macklowe’s financing situation is rumored to have led to a deal to relinquish control of his properties to his lender, Deutsche Bank.

His financing package, when he acquired the buildings, only required him to put $50M worth of equity into the deal. In addition however, Macklowe was required to provide a personal guarantee of $1b for the deal.

As a result, CBRE has been retained by Macklowe to sell his trophy asset, the GM building in New York, possibly to help satisfy his obligations. The GM Building which Macklowe picked up in 2003 for $1.4B is estimated to be worth north of $3B.

The commercial paper market has taken a bite out of some investors but fortunately it seems that it is a manageable exit for Macklowe and the market.

The Serra Shopping Center in Milpitas sold for $43.9M. The center is an older center, anchored by Big Lots and Walgreens sitting on 16.4 Acres in Milpitas at the terminus of Highway 237. The buyer, Lap Tang Development Co. intends to redevelop the site into a mixed-use project with 350+ for sale condo units in addition to approximately 130,000 square feet of retail.