Commercial Real Estate Blog

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.

Word is a buyer has been picked by Oracle Corporation (NASDAQ:ORCL). BEA paid about about $335 psf ($130M) in 2007 for the 388,000 square foot tower. You can read more about the story of the tower in a previous post. If I had to guess, I’d say the building will trade for significantly less than what BEA paid for it. It’s going to take a serious piece of equity to buy this vacant building and tenant it up.

I’m going to make a prediction here and say that the buyer is going to pay around $260-270 psf ($100-$104M) for the tower. And since we’re making predictions, I’ll predict the buyer is either (in this order): Legacy Partners, Boston Properties, or Tishman Speyer.

Anybody else want to make a prediction?

Bay Area janitors, who first went on strike May 20th have approved a new contract. The contract increases their wages by $2.40 per hour over the next four years, which represents a 22% increase.

The janitors who walked off the job are responsible for cleaning approximately 80 percent of the commercial real estate in the South and East Bay. Some of the valley’s largest companies in the valley (Cisco, Oracle, Intel, and Yahoo) were amongst those affected by the strike.

The janitors will begin work as soon as this afternoon.

Oracle has put up its tower at 488 Almaden Blvd. on the market for sale. BEA paid about $335 per square foot for the building last year in hopes of moving workers from its north first street campus over but instead Oracle has decided to turn around and put the vacant building back on the market.

The 388,000 SF Class A building is located on Almaden Blvd. in Downtown San Jose. Built by Sobrato Development about 7-8 years ago at a cost of nearly $100M the property is on the market unpriced, though it is very likely that it will trade for below its replacement cost. The building was previous to BEA in play with NVIDIA, but that deal fell apart partly due to the economic incentive package not being sweet enough, and likely because the move from Santa Clara to Downtown would have represented a relatively cumbersome move from a logistics and personnel standpoint. NVIDIA instead acquired San Tomas Commerce Park across the street from its existing campus and intends on building a 2M square feet campus.

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KT Properties has acquired the property locatd at 1 South Market St in Downtown San Jose from Haury Properties. Plans for the site include high-rise condominiums but could be changed to office if the demand materializes. KT and its partners are currently developing the AXIS residential condo project located at Santa Clara and N Almaden Boulevard.

Haury originally had been holding the site for office development but later changed those plans into residential as the office market cooled.

The city seems to prefer that the 1 S Market site go office but it doesn’t make any sense at current rents Downtonw. Legacy is in the process of building the second tower at RiverPark on W San Carlos, and the BEA building is up in the air now that Oracle is acquiring them. In addition, Boston Properties and Barry Swenson control land downtown at a lower cost basis which could go office.

Oracle has submitted a plan to the city to build a 5-story, 181,000 SF office building in Pleasanton. The project is in the Hacienda Business Park near the corner of Owens Drive and Hacienda Drive and is similar in design to nearby buildings Oracle occupies.