Commercial Real Estate Blog

We’ve heard that a single tenant is taking down Cupertino Landing, the 3-story, 59,670 square foot office project developed by Sand Hill Property Company. Sand Hill acquired the 1.66 acre parcel back in 2005 and finished the building in the last quarter. The project which is located at 10495 N. De Anza Boulevard in Cupertino features a single 3-story structure with an above-grade structured parking garage. The project’s asking rate was $3.50 NNN.

It’s not clear who has taken down the space or is in discussions, but given the continued prosperity of Apple Computer and the fact that it hasn’t done much with its campus plans on the other side of 280 make it entirely possible that Apple is the tenant.

IndyMac Bank (NYSE:IMB) was taken over by the FDIC today as it went under for being under-capitalized. The banks stock which went from $50 down back in 2006 ended at $.28 today. IndyMac is the largest thrift ever to go under in the United States, and the second largest bank to go under.

The FDIC will probably take a huge hit on it and then flip the bank out to an acquirer. Until they find a buyer though, the FDIC is running the show.

The failure comes after their June 30th announcement in which IndyMac said it was ceasing all commercial lending activity.

It is likely that this won’t be the last failure as market conditions continue to deteriorate in many markets. There is over $1T worth of ARM mortgages that will be coming due over the next year or so, and as those loans also turn into junk, more banks will feel the pressure to raise capital to prevent a fold-up.

Los Gatos Community Hospital operator Tenet Healthcare has decided not to renew its lease which expires in May 2009. The hospital is somewhat older and in need of capital improvements, but the hospital’s owner HCP Inc. out of Long Beach must now seek out another operator.

Community Hospital in Los Gatos is the largest employer in town.

In most development projects in Silicon Valley, municipal codes and zoning generally dictate parking requirements. For most office projects, parking requirements are genrally in the ratio of 3.3-4 spaces per 1,000 square feet. For most multi-family developments which have a mix of 1-3 br, ratios are generally in the 1.5-2 spaces or stalls per unit. Retail can vary greatly, as the required ratio of parking for various retail uses can have a big impact on parking requirements, but generally requirement of 4.5 stalls per 1,000 SF is mandated, with requirements moving to 7-9 stalls per 1,000 SF for food-intensive retail centers.

The cost of construction for these parking stalls can also vary greatly depending on what type of parking is provided; will the parking be be subterranean or surface? will it be in a parking garage or in surface lot?

Pricing can vary greatly, but some back of the envelope pricing for the construction of parking in Silicon Valley is as follows:

• Grade-Level Surface Parking - $5,000 per stall
• Parking Garage Below Building
  • Above-Grade - $40,000 per stall
  • Below-Grade - $60,000-90,000 per stall
• Freestanding Parking Garage
  • Above-Grade - $18,000 per stall
  • Below-Grade - $40,000 per stall

In Silicon Valley, it’s often joked amongst commercial real estate professionals that once a company starts making a foray into owning its real estate, things tend to go downhill for the company. Past examples have included Palm, 3Com, and Yahoo (they bought 50-acres in Santa Clara for a campus development that is currently on hold). Obviously this is not always the outcome, as evidenced by Google, Apple, Cisco, and a host of others, but it’s joked about nonetheless. Given NVIDIA’s (NASDAQ:NVDA) dismal performance over the past week, this seems to be holding true. Back in March, we posted on NVIDIA’s purchase of San Tomas Business Park.

On the heels of this news, we also one of the first to report Brocade’s chasing the @First Business Park in San Jose. It turned out that Brocade actually purchased their campus from Hunter/Storm and MacFarlane Partners. It will be interesting to see if Brocade also cracks.

When considering office space, tenants will find that office buildings are generally classified as being either a Class A, Class B, or a Class C building. The difference between each of these classifications varies by market and class B and C buildings are generally classified relative to Class A buildings. Building classifications are used to differentiate buildings and help the reporting of market data in a manner that differentiates between building types. That said, there is no definitive formula for classifying a building, but in the general characteristics of each are as follows:

• Class A. These buildings represent the highest quality buildings in their market. They are generally the best looking buildings with the best construction, and possess high quality building infrastructure. Class A buildings also are well-located, have good access, and are professionally managed. As a result of this, they attract the highest quality tenants and also command the highest rents.
• Class B. This is the next notch down. Class B buildings are generally a little older, but still have good quality management and tenants. Often times, value-added investors target these buildings as investments since well-located Class B buildings can be returned to their Class A glory through renovation such as facade and common area improvements. Class B buildings should generally not be functionally obsolete and should be well maintained.
• Class C. The lowest classification of office building and space is Class C. These are older buildings (usually more than 20), and are located in less desirable areas and are in need of extensive renovation. Architecturally, these buildings are the least desirable and building infrastructure and technology is out-dated. As a result, Class C buildings have the lowest rental rates, take the longest time to lease, and are often targeted as re-development opportunities.

The above is just a general guideline of building classifications. No formal international standard exists for classifying a building, but one of the most important thing to consider about building classifications is that buildings should be viewed in context and relative to other buildings within the sub-market; a Class A building in one market may not be a Class A building in another.

There is no international standard for classifying office buildings. In fact, BOMA is generally against the publication of a classification rating for individual properties. Were there a more scientific method for classifying buildings though, some of the building characteristics which could be used to compare and rank buildings would be as follows:

• HVAC Capacity
• Elevator quantity and speed
• Backup Power
• Security and life safety infrastructure
• Ceiling heights
• Floor load capacity
• Location
• Access (freeway, public transportation)
• Parking
• Construction, Common Area Improvements
• Nearby and/or on-site amenities (dry cleaning, restaurants, ATM, etc.)

Shorenstein has acquired a $51.1M mezzanine loan collateralized by McCandless Towers in Santa Clara. Globe St. is reporting that the the debt was acquired at a discount.

McCandless Towers was purchased by Tishman Speyer last July at a cost of $500 PSF ($213M), representing a 4.5% cap rate. McCandless Towers features two 11-story, 210,000 square foot, Class A office buildings anchored by McAfee. The project was completed between 1986 and 1988 and features a 1,400 stall parking garage. The project was built by Swinerton and designed by Hoover Associates.

Shorenstein has been an active buyer of junior debt in primary markets, picking up debt in Washington D.C., New York, LA, and more locally, a $40 mezzanine loan on the Moffett Towers project in Sunnyvale which we wrote about back in October of 2007.