By Meghan Hall
The San Jose submarket of Campbell is starting to see increased interest from tech companies and tenants who still wish to be within close proximity of Silicon Valley, but seek more space and lower rents. For investors, the growing market is a notable opportunity, one that a group of investors has seized upon in the acquisition of Creekside@17. In a transaction that closed just yesterday, New York-based Joss Realty Partners partnered with Australia-based real estate private equity firm Qualitas to purchase the 178,000 square foot office building leased to 8×8 for $139 million, or just around $780 per square foot, according to public documents. The transaction closed on March 2nd.
“In an uncertain market, we continue to believe in the strength of American ingenuity represented by Silicon Valley,” said Larry Botel, founding partner of JOSS Realty in a statement. “Based on this confidence, we purchased Creekside @ 17, which is designed to meet the needs of the companies of tomorrow. We are proud to have the building serve as the corporate headquarters for 8×8, which has been based in Silicon Valley since its founding over 30 years ago.”
The property, located at 675 Creekside Way was selected by 8×8 as the firm’s new headquarters in July of 2019, with move-in scheduled for the first quarter of 2020. The lease is expected to last 11 years. The high-tech, single-tenant building was developed by South Bay Construction and The Carlyle Group, who invested through one of its opportunity co-mingled funds.
“By providing greater capacity in both space and parking, the Creekside location is aligned with 8×8’s corporate strategy to provide high efficiency and modern workspace to foster the company’s rapid growth in the Bay Area and elsewhere,” stated 8×8 at the time of signing the lease. “In fact, 8×8 has increased its employee base by 25 percent over the past year, with a significant portion of new hires based in Silicon Valley, leading to a need for more capacity.”
The building features 105 meeting rooms, lounge and lunch areas, an executive briefing center, a fitness room and a game room. The building also comes with one level of underground parking and another 8.5-story standalone parking structure.
In August of 2019, The Registry reported that South Bay Development had placed the asset on the market with guidance of about $150 million, and that the potential sales price could be almost double the original construction and land costs put out by South Bay and equity partner The Carlyle Group. The firms spent around $80 million when the project started construction in 2017.
Brokers Phil Mahoney, Mike Saign and Todd Shaffer of Newmark Knight Frank hired as the listing agents to sell the building.
While Campbell as a submarket has less office inventory than many other Silicon Valley cities, with just 2.619 million square feet of stock, its vacancy rates are generally higher and its rental rates more moderate, according to a fourth-quarter Silicon Valley office report released by Cushman & Wakefield at the end of 2019. At the end of the year, the overall vacancy rate sat at 20.3 percent, while rents for Class A space came in at $4.50 per square foot, a savings for tenants who are looking to escape the rents of Menlo Park or Palo Alto, where Class A rates are nearly double that of Campbell’s.
Jeffrey Hornstein, Chief Investment Officer of JOSS, added, “Given the extreme high barriers-to-entry in Silicon Valley, we quickly gained comfort with the supply/demand dynamics of the market and were attracted to the opportunity to acquire a newly constructed office asset with structured parking at a discount to replacement cost. With vacancy rates now sitting in the low single digits and upward momentum in rent growth, JOSS is making an educated bet on the future sustainability of these trends.”