Buchanan Earns 7.2 Cap Rate on $32.3MM Acquisition in Santa Clara

Newport Beach, Buchanan Street Partners, Bayland Building, Santa Clara, San Francisco, Bay Area

Newport Beach, Buchanan Street Partners, Bayland Building, Santa Clara, San Francisco, Bay Area

By Jon Peterson

Newport Beach-based Buchanan Street Partners has achieved a 7.2 percent cap rate on its acquisition of the 116,000 square foot Bayland Building in Santa Clara located at 2953 Bunker Hill Lane.

“This return is based on the in-place rents that make up the property at this time. We will have a chance to lower the cap rate over time. This is due to the fact that all of the tenants in the property have short-term leases that will expire by the end of 2019. The leases have current rates that are 30 percent below market,” says Robert Dougherty, a partner with Buchanan.

There is a total of four tenants in the property. The lead tenant is Inphi Corporation. Three of the tenants are growing rapidly, so there is no guarantee that all of them will remain in the property for the future because of increased space needs.

Buchanan is planning a value-add budget for improvements on the property of $6 million. The buyer of the property wants to elevate the asset’s profile and tenant appeal going forward. The work will include modernizing the building systems, updating common areas and increasing on-site amenities to attract and retain Silicon Valley’s innovative workforce.

Buchanan paid $32.3 million to acquire the asset. The building has a very strong location, since it’s walking distance to the Santa Clara Convention Center, Levi’s Stadium and a light rail station. “Being close to these facilities should be a big benefit to any other new tenants that we might bring to the property in the future,” said Dougherty.

The property was sold by Sleepy Hollow Investment Company, a real estate investment company based in Pleasant Hill. The firm was represented in the sale by the San Jose office of Eastdil Secured. The people involved in the sale included Greg Cioth, managing director, and Andy Zighelboim, director.

The acquisition in Santa Clara is Buchanan’s first investment in Silicon Valley since 2006/2007. The company has a primary focus of investing in office and R&D assets. It will also consider making investments in mid bay industrial and apartment properties. The investor looks all over the Bay Area for assets. This would include Silicon Valley, the East Bay, South San Francisco and in Marin County.

Buchanan could be investing some capital in the future in the region for the State of Wisconsin Investment Board. Last month, the pension fund approved a $100 million allocation into the Buchanan Separate Account II, as stated in a board meeting document from the pension fund. This is the same amount of equity that the pension fund awarded the manager for Buchanan Separate Account I in 2014.

SWIB wrote in an e-mail that the capital will be focused on properties in the western and southern regions of the United States. There will be multiple property types considered, and each asset must have a core-plus risk profile.

The pension fund stated in an e-mail that Buchanan will not have full investment discretion on the account. This means that the pension fund must approve each transaction for the account before a final closing on the acquisition can occur. The deals for the account may be acquired on an all-cash basis.

West Coast Commercial Real Estate News