Brocade In Talks to Lease @First Office Park at First & 237

The latest “big news” is that Brocade is in negotiations to lease the Phase I buildings of Hunter/Storm’s office project located at the SEC of 237 and First Street. The project is a JV between Hunter/Storm of Cupertino and MacFarlane Partners out of San Francisco. The project entails 4 Class A office buildings totaling 880,000 SF, approximately 250,000 SF of retail, a hotel, a 25,000 SF health club, and a 168-key hotel.

The 36.6-Acre property was purchased by Hunter/Storm from Palm in Q3 of 2006 for $70,000,000 or $43.90 per square foot. The purchase and contract for the sale can be viewed here.

The first phase of the office development will entail about 436,000 SF of retail making it an ideal fit for Brocade, who occupies about 405,000 SF across several buildings located at the San Jose Airport. It’s leases for those spaces expire around Q2-Q3 of 2010. A warm shell is expected to be ready for tenant improvements in Q3 of 2009 making the deal attractive for Brocade from a timing perspective.

Originally the retail portion of the center was anchored by a Target. Those plans seem to have fallen apart, perhaps at the request of Brocade who likely is not to keen with such an intensive retail use, and would likely prefer a more lifestyle-centric retail component to the project.

If this deal happens it will likely be one of the larger deals to be concluded this year and will bring some reassurance to valley landlords, some of which who have gotten a bit nervous given the uncertainty in both the leasing and debt markets. Still though, this deal seems to indicate that Brocade is simply substituting space and not growing, and therefore likely to result in 400,000 SF of additional vacancy in the San Jose market.

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