Alexandria Buys Equity Share in Facebook’s Menlo Gateway Project for $78MM, Will Invest up to $430MM in Total

Alexandria Real Estate Equities, San Mateo, Bohannon Company, Menlo Gateway, Menlo Park, Facebook, Marriott Autograph Collection, Bay Club, Square Mile Capital Management, NorthMarq Capital, Heller Manus Architects, San Francisco, Silicon Valley, AECOM Capital Partners, Cuningham Group Architecture, McCartan Interior Design

By Vladimir Bosanac

Alexandria Real Estate Equities closed this month on a $78 million investment into a Menlo Park development that is under construction by San Mateo-based Bohannon Company, according to an announcement made by Alexandria on Tuesday, November 29, 2017. The Menlo Gateway project is a 16-acre master-planned development comprised of a 250-room Autograph Collection hotel currently under construction and a total of approximately 773,000 square feet of office space to be built in phases. The office component is fully leased to Facebook.

The investment that Alexandria completed gives the company an 18 percent equity share in the development at present. It spent $60 million to acquire that equity and another $18 million in debt for a total of $78 million. The company plans to achieve a 49-percent equity share in the development by the first quarter of 2019, when its total investment will reach $430 million ($282 million for the equity and $148 million in debt). The debt portion would be for non-recourse construction financing for phase two of the development.

The first phase of the development, which has been completed, is located at 100 Independence Drive in Menlo Park and comprises 252,000 square feet of space. Phase two, which is slated for the fourth quarter of 2019 delivery, is planned to deliver 521,000 square feet at 125 and 135 Constitution Drive.

The opportunity for Alexandria seem obvious, based on the investor presentation revealed this week. The location is billed by the company as Greater Stanford submarket, where tenants such as Google, HP, Dell and Amazon are present and are severely constraining supply of office space. On top of that the city of Menlo Park is also home to Facebook, a company that is taking over the Menlo Gateway project as a key element of its headquarters expansion strategy that encompasses more than five million square feet.

The project is developed by Bohannon Company, which is transforming a dated industrial park into a vibrant urban center that includes an eight-story office building (phase one), an 11-story Marriott Autograph Collection hotel, outdoor event facilities and a state-of-the-art Bay Club fitness facility. Bohannon broke ground on the project in March of 2016. Earlier this year the company obtained a $145 million construction loan from New York-based Square Mile Capital Management through NorthMarq Capital.

The office buildings are designed by architecture firm Heller Manus Architects, an internationally recognized San Francisco-based architecture and urban design firm. The buildings feature floor-to-ceiling views of the San Francisco Bay and surrounding foothills, as well as open, collaborative workspaces with an outdoor terrace. The buildings are targeted to achieve LEED Gold certification for environmental sustainability.

The Autograph Collection hotel, which also broke ground at the same time as the office building, is a full-service, four-star hotel inspired by the culture of innovation in Silicon Valley. It features 250 guest rooms, landscaped courtyards and gardens, an exceptional food and beverage experience, as well as a 20,000 square feet of flexible indoor and outdoor meeting and event space—including a ballroom, an executive boardroom with a terrace, and an event lawn. The hotel is a joint venture of Ensemble Real Estate Investments and AECOM Capital Partners. Minneapolis-based Cuningham Group Architecture has been selected as the project architect, and McCartan Interior Design, based in New York, is providing interior design services.

Finally, The Bay Club fitness center, adjacent to the hotel, will provide a state-of-the-art active lifestyle facility. The Bay Club, a California-based fitness and hospitality corporation, offers 24 modern “everyday resorts” on 10 campuses located throughout California. Headquartered in San Francisco, the Bay Club will also operate Café Vida, an on-site healthy gourmet restaurant featuring a Cal/Mex-inspired menu served in a relaxed environment with indoor and outdoor seating.

Phase two of Menlo Gateway will include two additional office buildings. Each office building is planned to include an accompanying parking structure along Bayfront Expressway.

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