$800 Million Silicon Valley Office Deal

Location in the state of California

The tech sector economy continues to lead in the eye-popping category: the Oakland Tribune this morning reports a 73-building Silicon Valley commercial real estate deal. The transaction includes extensive renovations. The office and research buildings are located in Northern California technology meccas North and South San Jose, Sunnyvale, Mountain View, Santa Clara and Fremont.

Driven by major expansions of tech companies including Apple, Dell, Samsung and Google, the demand for office space in the area has been nothing less than white-hot.  Reports from a year ago indicated Apple was in the market for up to 800,000 square feet of office space to allow room for approximately 3,000 employees.  This takes place against the backdrop of Apple’s construction for 2015 opening of its “mothership” Apple Campus 2 headquarters building in Cupertino, shown in development proposals as a giant ring with 2.8 million square feet supporting 13,000 employees.

The package of office properties, many in prime locations, was purchased by a partnership of real estate firms from Canada (Ivanhoe Cambridge) , San Francisco (DivCo West)  and Texas (TPG Real Estate).  The new partnership operates as M West Properties.

The seller was Mission West properties, headed by developer Carl Berg.  The buyers paid $400 million in cash and assumed $400 million in debt.  A press release from Mission West at the time of the deal closing announced a $1.3 billion “enterprise value” to the deal, vaulting the really big number to a really really big number.

Deal partner Ivanhoe Cambridge is a Montreal-based pension fund who aims at Silicon Valley office and apartments as its investment strategy,  saying in a statement “The $400-million-plus investment covers all aspects of the acquisition transaction and is a further step in building up Ivanhoe Cambridge‘s critical mass of assets in the Valley in the office and multiresidential segments.”

Not Multifamily, Multiresidential

Emphasis above is my own, notable for disappearance of the word “multiamily” when talking about investment in Silicon Valley’s apartment buildings.  As deal partner Ivanhoe Cambridge is a pension fund, I was reminded of the cultural reasons pension funds have traditionally shied away from multifamily investments – the prospect of a benefits provider, as a landlord, forced to evict one of its own beneficiaries, was according to some  perceived as a public relations nightmare, and kept pension funds away from “buildings with beds in them” as a result.

But pensioners aren’t mainly the tenants in Silicon Valley’s apartments.  Nor are, it would seem families – the tech industry employee working at Apple or Google is typically young and childless and spends most time in the office – hence the back rubs, basketball courts and gourmet food perks of such jobs.  How long can that work/life culture and the resultant property mix last in San Jose and environs? Watch the market to find out.

22. March 2013 by Wayne Grohl
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