2.18-Acre Santa Clara Retail Center Ripe for Redevelopment Hits the Market, Guidance Reaches ~$15.5MM

Santa Clara, Colliers International, El Camino Real, Denny’s, Kerley Family
Image Courtesy of Colliers International

By Meghan Hall

The Bay Area’s appetite for infill and redevelopment sites is strong, with developers keeping an eye out for properties with untapped potential. In Santa Clara, a 2.18-acre retail center has hit the market off of El Camino Real, which has emerged as a major commercial corridor popular with developers in recent years. According to an offering memorandum obtained by The Registry, the guidance pricing for the property is around $15.5 million. 

“We really look at this property as a redevelopment opportunity,” explained John Machado, executive vice president at Colliers International, who has been hired to market the property for sale. “The City of Santa Clara really wants to see a denser development on this site.”

The site is comprised of two parcels located at 1705 and 1745 El Camino Real, between Highway 101 and the Capitol Expressway. Currently an aging retail center, its tenants include Denny’s, which occupies 6,000 square feet, Sherwin-Williams Company, which has taken nearly 4,500 square feet, and Bank of the West, which leases 3,424 square feet. All State Insurance and Elegant Nails each occupy 793 square feet and 856 square feet, respectively. 

Monthly base rent comes in at about $34,596, according to the offering memorandum. Projected monthly base rent is about $5595. Currently all leases, except for Denny’s are set to expire in December of 2023. Denny’s lease expired as of April 30th, 2020. However, Denny’s is working with the property owners to renegotiate a lease extension.

“We are not really selling [the asset] based on the current income,” said Machado. “The current income is good in that it provides an income stream to the new owner while they’re in the development process. It provides cash flow during that time frame as opposed to raw land, which is a liability.”

Public documents indicate that the sellers are a private family trust, associated with Michael and Christine Kerley, of Los Gatos, Calif. The trust that has owned the property has been in place for more than 40 years. Once the property is sold, the family plans to reinvest the proceeds from its sale into a 1031 exchange.

“It got to a point where the value of the property was worth much, much more than the return they were getting on leasing the asset,” added Machado.

The property is prime for redevelopment and is located in a neighborhood that has seen many assets repositioned in recent years. The property is zoned for community mixed-use development, which would allow for a medium-density residential development should the new owner proceed with entitlements. An activated ground floor, with retail uses, civic spaces or small plazas, would also complement the property. How many units a new project could hold, however, is unclear, according to Machado, who stated that its density would also be largely determined by type of unit and associated parking requirements.

In recent years, around 2,000 residential units have been completed or are in the development pipeline. Summerhill Homes has a 151-unit project not far from the project site under city review, while Anantara Villas, another residential project, is currently under construction and will bring 56 units to market.

The family trust and Colliers originally worked to bring the property to the market last year; however, legal issues within the family trust meant a sale could not go through—despite avid interest in the site. Machado is hoping that as restrictions ease post COVID-19, interest in the property will pick up.

“We have been doing a little soft marketing on the property because of the COVID-19 situation,” said Machado. “COVID-19 has definitely affected us, but at the same time, the Apples, the Googles, The Facebooks and the LinkedIns, they haven’t left Silicon Valley. And we have a real imbalance between job growth and housing starts, so I think this property will be fine.”

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