Commercial Real Estate Blog

The list below represents the top lease transactions which occurred in Silicon Valley during the second quarter of 2008.

Blue Coat Systems (NASDAQ: BCSI) has extended its lease at 420 Mary Avenue in Sunnyvale. In addition, Blue Coat signed a lease to take an additional 116,586 square feet at 410 Mary Avenue. The buildings are 3-story Class B+ Office/R&D buildings owned and developed by Jay Paul Company out of San Francisco, the same developer of the Moffett Towers Project.

The term of the new lease for both the existing and expansion space is through the end of November, 2015. The rental rate for the existing premises is $2.09 psf/NNN with annual bumps of about 3.5%. The rental rate for the expansion premises starts at $1.95 with annual bumps of 3%.

The existing space was taken as-is, and the expansion space provided that the landlord, Jay Paul Company out of San Francisco, replace the buildings HVAC system.

This deal highlights the dichotomy in the market right now. Developer Jay Paul on the one hand executes these leases at rates of $1.95-2.09, but then on the other hand has developed Moffett Towers in Sunnyvale where he is asking $2.95 NNN, down from the $3.25 he was originally asking. It highlights why leasing has been slow at that project; there is a good amount of “nice” space available in the market at rates roughly 30-40% less than what new construction is calling for. In fact, construction prices have gone up such that the disparity becomes even greater when you consider the fact that new construction needs to be taken from warm shell to finish while existing buildings might not require tenant improvement work that is as extensive.