Commercial Real Estate Blog

Rumor is that Legacy couldn’t secure the financing it needed to acquire the Sobrato/Oracle/BEA Tower in downtown San Jose and has dropped its acquisition plans for the 388,000 square foot tower located at 488 N Almaden Blvd in Downtown San Jose.

DivcoWest which was rumored to be in the running for the building previously is again being considered, though we’ve heard their price point is significantly less than Legacy’s $275 psf number. The building is being offered significantly below replacement cost and is in shell condition for the most part.

Though vacancy rates in downtown San Jose are nearly 20%, a savvy buyer might look at the stratification of the availability and realize that there exist very few chunks of Class A space north of 50,000 square feet in size. The building is a bit “off the beaten path” when it comes to the downtown core of Santa Clara/Market, etc., but it is in close proximity to the convention center, hotels, and has excellent visibility.

As we’ve mentioned previously, PriceWaterHouse Coopers is in the market for a big chunk of space. We’ve also heard that the San Jose office of Deloitte is also on the hunt for additional space. In a perfect world, a prospective buyer might line up one of those users for some space before biting off a vacant 388,000 square foot building. Nevertheless, a prospective buyer must also consider the advantage of having the city of San Jose’s willingness to put significant resources behind luring a prospective tenant downtown.

Rumor is that there is a Big Four firm on the troll to take down 150-200K SF of Class A office space in Downtown San Jose. The likely suspects consist of Deloitte, KPMG, PWC, and Ernst and Young. “Friends” inside E&Y indicate it is not them, KPMG is not a likely candidate, and Deloitte’s lease obligations would indicate it’s not them either. That leaves PriceWaterhouseCoopers. We’ll assume it’s them until somebody emails us and says otherwise.

While the vacancy rate of Downtown San Jose is close to 20% for office space, there remain few options for a 150-200K square foot user when it comes to Class A Office Space in the CBD. The only two “real” options are Legacy Partner’s RiverPark Two Tower, a 300,000 SF Class A tower under construction, or what will likely be Legacy’s other tower, the former Oracle/BEA/Sobrato building located at 488 N. Almaden Blvd. (we’re speculating Legacy is the buyer, but I suppose we will find out shortly).

Other options that might work for PWC, but that are relatively shelved include Boston Properties project over by Highway 87, and the site at 2nd and San Fernando that was dreamed about a decade ago by Kimball/Small/Rockefeller. Given where construction prices are today and those projects are not even close to being out of the ground yet, those are likely not viable options.

Going back to the two real options, should Legacy not buy the Oracle/BEA/Sobrato building at 488 N Almaden, then they will have real competition on their hands. The buyer of that building will likely scoop it up for around $250 per SF and possibly less. That number would likely represent a lower or similar basis to Legacy’s RiverPark II Tower it is constructing.

What is interesting to note though is that Legacy Partners was the original developer of the RiverPark project. It sold the project to MetLife Insurance Co. and repurchased the project about three years ago. The parking structure was already in place (it was constructed at the same time Tower I was constructed), and Legacy had kept in storage for a long time many of the materials, windows, skin of the RiverPark II building it had planned to construct originally but never got around to. As a result, when they decided to break ground on the second tower, it made it a lot easier to proforma than had they wanted to build from the ground up.

Regardless, it’ll be intersting to see how this requirement shakes out and where PWC (assuming it is them) lands.