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Bordeaux Centre Taken By Lender

July 31, 2009

CBC, California Bavarian Corp, the developer of Bordeaux Centre in Sunnyvale has lost the property to its lender, Wrightwood Capital. The asset had debt on it of approximately $34M, and consists of two (2) 61,921 SF 3-story buildings, and is located at 1376-1380 Bordeaux Drive.

The asset was taken back by the lender when they credit bid and acquired it for $15M. Still, that doesn’t mean the asset is even worth the $15M that Wrightwood Capital “paid” for the building by credit bidding.

Although it may seem like a great price for a newly constructed building, the asset will still require significant tenant improvements. At the end of the day, the market rents for Class A office space in Moffett Park is realistically in the $1.25 NNN range, far below what CBC was hoping to achieve at Bordeaux Centre. Most newly constructed space in Moffett Park is asking $2.25 NNN and up. They will have a tough time leasing it at those rates in today’s market sans a full TI package.

This sale underscores what we’ve been writing about for some time, and that is that the low basis with which new owners will be able to enter the market will exacerbate the pain that other landlords will feel, and will ensure that we are only beginning to see the fallout. Other developers in the area who have either constructed new or rehabbed existing buildings, such as Jay Paul (Moffett Towers), AMB (Moffett Park assets), TMG Partners (399 Java) , Sand Hill Property Co. (Sunnyvale Town Center), and SCM Properties (111 Java) are all in big trouble. Any landlord who acquires a new building for half of what somebody down the street is into their building for will be able to compete for tenants and win. That leaves the other landlord in a perilous position.

Given the risk of how long landlords could be waiting for tenants in Sunnyvale and the additional need for improvements, I would estimate the actual value of Bordeaux Centre to be somewhere in the $65-70 psf range, an additional 40-50% off of what it sold back to its lender for, unless a user steps up at a premium.

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Categories: Commercial Finance and Lending | Commercial Real Estate Investing
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They should have thought twice about acquiring the building, considering it’s still in the middle of construction.

squarefeet July 31, 2009

they acquired it credit bidding on their own loan

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