November 4, 2009
Juniper Networks (JNPR: 21.85 +2.15%) has renewed its lease for the three buildings it occupies as its headquarters in Sunnyvale. The buildings are located at 1184, 1194, and 1220 N. Mathilda Avenue and were constructed between 2000 and 2002. Average floor plates are 35,400 (comparable to Moffett Towers interestingly enough – doubt it was a coincidence). The total project is 424,825 square feet spread out on almost 19 acres.
The project was first acquired by ING Clarion in 2004 for about $150M and flipped out a year later to Tishman Speyer for $174M, roughly $409 psf. Tishman pulled a good move though at the peak of the market when it sold 87% of the project to GE Asset Management for $226M, giving the project a value of $260M or over $600 psf!
The new deal by Juniper calls for a starting rent of approximately $2.69 ($13.68 million/year) with 3% annual increases through a staggered termination of 2020 to 2022. That would give GE a current return of about 5.2%, well below what the asset would likely trade at today if it were sold. Market price for the asset would probably be no less than a 7% cap, giving the project a value of less than $200M, a loss of 30% to GE should it be sold.
The original leases expired in 2012 (Building 1, 144K SF), 2013 (Building 2, 122K SF), and 2014 (Building 3, 158K SF), therefore the rate stated above seems to have blended the current obligation (roughly $4 NNN rents) into the rate, making the $2.69 NNN number significantly higher than what it would have been had it been a clean renewal.
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