Commercial Real Estate Blog

The Business Journal is reporting this morning that according to their sources, Legacy Partners is in fact that buyer of the Oracle/BEA/Sobrato tower located at 488 N Almaden Blvd in San Jose which Oracle (ORCL: 22.56 -0.92%) acquired as part of the BEA acquisition. The Business Journal is reporting the sale at “nearly” $100M at about $275 psf (the math is a bit off), but nonetheless that number is close to what we’ve speculated. BEA purchase the building for about $135M about sixteen months ago and had started some of its TI’s.

The Business Journal reports that it will take about $50 psf to get the building tenant ready, which might be slightly low given what has happened with commodities and materials prices lately. What is more important is that Legacy was able to solidify control of the market and prevent another player from entering the market with a low basis. We’ve written extensively on events surrounding this building, the importance for Legacy to buy the building, and our previous posts include more history about the building. We’ve also heard that Divco West was in the running for the building.

All the blog posts previously discussing 488 Almaden are:

• Oracle/BEA Tower on the Market (May 20th, 2008)
• Who is the Buyer of the Sobrato -BEA-Oracle Building at 488 N Almaden Blvd? (June 18, 2008)
• Possibly Brilliant Timing for Buyer of Oracle/Sobrato Tower; PWC Possibly on the Hunt (July 24, 2008)

Legacy is taking a big gamble on Downtown San Jose, but based on our post from yesterday, their purchase of 488 N Almaden was in many ways crucial. It will be interesting to see if 488 N Almaden finally gets a name that will stick, perhaps PwC Tower.

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.

Verisign, Inc. (NASDAQ:VRSN) is in contract to sell approximately half of its 290,000 SF headquarters in Mountain View, California. They are under contract to sell 675 and 685 East Middlefield Road for approximately $49M ($308 psf). The two buildings constitute about 159,000 SF, which is a bit more than half of the entire headquarters of 290,000 SF.

Verisign purchased the building in October of 2001 from Sobrato for about $120M in 2001 ($750 psf). A copy of the original PSA is available here. They purchased the building to get out of a 10-year lease agreement they signed in October of 2000. That lease agreement had a start rate of $7.50 NNN (per month). A copy of the original lease agreement is available here.

As part of the deal, the buyer which is PR III Middlefield Road, LLC, will lease back the facility to Verisign for a period of 2.5 years, with an option to extend for an additional five. The lease will start at approximately $2.50 NNN.

The project is across the street from Dostart Development’s 690 Middlefield Road project, which is a 340,000 SF Leed Silver Class A project going up on 15.6 acres it acquired from Hewlett Packard last year for about $60 psf (land cost). That project is being marketed at $3.65 NNN with a $35 allowance over a warm shell.

Both buildings benefit from a light rail station within the immediate walking area, though Verisign’s building will require fairly significant improvements to get them to Class A status.