AEW Buys North San Jose Properties

By Jon Peterson

Boston-based AEW Capital Management L.P. has bought a 126,000-square-foot Orchard Parkway office and research and development complex in San Jose from San Francisco-based DivcoWest Real Estate Investments.

DivcoWest put the properties up for sale in May. The expectation at that time was that the complex would sell for approximately $40 million, which is very close to what AEW paid, according to a knowledgeable source. The property address is 3000 Orchard Parkway and 3030 Orchard Parkway.

The listing agent representing both buyer and seller was Colliers International, led by Senior Vice President Andy Zighelboim. The buyer, seller and broker all declined comment.

The properties have all the features of what most institutional investors refer to as “core plus” real estate investments. This implies strong current income from day one and the potential to add value down the road through various strategies such as re-leasing, redevelopment or expansion.

The properties are now 100 percent leased to Samsung Electronics Co. Ltd. and SAP AG, with Fairchild Semiconductor Corp. subleasing the SAP space for its corporate headquarters. The lease with Samsung expires Sept. 30, 2015, and the lease with SAP expires April 30, 2016. The current combined monthly rent of $182,000 through May of this year is approximately 35 percent below the current market rent of $246,000.

This disparity opens re-leasing opportunity for AEW in the future either with current or new tenants. The market fundamentals for R&D properties in North San Jose have been improving, with starting rents on a year-to-year basis—separate from tenant-borne maintenance, operating and property taxes—increasing 24 percent, according to research from Colliers.

AEW acquired the North San Jose property for one of its separate-account investment clients. The company manages a real estate portfolio valued at $47.5 billion, according to its Web site. This includes real estate assets and real estate securities on a global basis. Its client base includes institutional and private investors. The company has a regional West Coast office in Los Angeles.

DivcoWest acquired the property in 2006, buying on behalf of Market Square Capital Partners, a commingled fund that had a final closing on a capital raise of $650 million in 2006. One of the major investors in the fund is the California Public Employees’ Retirement System with a $100 million commitment.

Most close-ended commingled funds for pension funds and other institutional investors have a life term of six years to eight years, meaning that any assets held by the fund are typically bought and sold during that time period. The only variable is that some commingled funds are structured with one or two one-year extension options.

West Coast Commercial Real Estate News