Arden Sells Into Rising Market

Jon Peterson

Los Angeles-based Arden Realty Inc., the commercial property arm of the General Electric Co., has placed a nine-property, central Silicon Valley office and R&D portfolio on the market for sale.

The properties, which have 394,000 square feet as a group, are located in Sunnyvale, Santa Clara and Fremont. The portfolio is 94 percent leased, according to documents reviewed by The Registry.

Arden has hired Michael Leggett, a senior managing director at brokerage Holliday Fenoglio Fowler L.P., and David Karol, an HFF director, as the listing agents on the sale. Both work in the company’s downtown San Francisco office.

Below-market rents on leases covering 9 percent of the total square footage expire each year over the next five years, effectively 44 percent over that time period, which should give the buyer the chance to increase rents and values, Karol said.

HFF brought the assets to market earlier this month. Karol would not comment on what the sales price or capitalization rate on the portfolio might be. The cap rate is a measure of yield. The seller has not set an asking price, nor has it been determined when offers will be due.

One of the portfolio’s largest tenants, leasing 170,000 square feet at 904 E. Caribbean Drive in Sunnyvale, is Cepheid, which maintains its headquarters at the location. Cepheid is a publicly traded molecular diagnostics company that focuses on genetic testing for gene-based diseases. It reported 2011 revenues of $277.6 million and net income of $2.6 million. Its lease has eight years remaining.

The portfolio also includes 914-918 E. Caribbean Drive and 1399 Moffett Park in Sunnyvale, and 2300 Owen St., 2525 Walsh Ave., 2701 Northwestern Parkway and 2895 Northwestern Parkway in Santa Clara. The two assets in Fremont are 46221 Landing Parkway and 48421 Milmont Drive.

The investment sales market in Silicon Valley should gather momentum this year, according to Colliers International. Last year, not quite 10 million square feet of office and research and development property changed hands in the valley. This year, Colliers expects that total to more than double to 20 million square feet. That equates to 11 percent of the valley’s total office and R&D stock changing hands, based on an estimated total of 220 million square feet of office and R&D buildings on the ground, said Jim Beeger, a senior vice president in Colliers’ San Jose office. “There is still going to be a sellers’ market because there will not be enough product to satisfy all of the buyers,” Beeger said.

By way of comparison, Colliers research shows there were 25 million square feet of Silicon Valley office and R&D buildings sold in 2006 and 22 million square feet sold in 2007, Beeger said.

“We have seen in a market like North San Jose where prices even for empty buildings have moved up 100 percent since September 2010. Prices are still rising for the leased properties as well,” Beeger said. Cap rates have also dropped in the last 18 months, falling from a range of 6 percent to 8 percent to less than 6 percent in the most aggressive deals. Prices, he said, are still going up.

Arden has a regional office in San Francisco on Pacific Street. The company did not respond to phone calls seeking comment. Arden was formed in 1996 and is a fully integrated office platform of GE Capital Real Estate and its parent, General Electric Co., according to its Web site. Including the nine properties posted for sale, Arden owns 27 properties in the region totaling 1.9 million square feet in San Francisco, Silicon Valley, Sunnyvale, Santa Clara, Palo Alto, Milpitas and Fremont.

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