Campbell Sees First Apartments Built In a Decade

Cambell The Registry real estate

By Jon Peterson

The South Bay community of Campbell, a lesser light in the pantheon of famous Silicon Valley places, is drawing investor interest thanks to its thriving historic downtown and the steady strength of The Pruneyard, a bustling office and retail center originally developed in the late 1960s. It is now owned by Equity Office.

San Francisco-based Bay West Development has plans to redevelop an existing office complex at 1677 Bascom Ave. into 172 apartments and retail space, implementing an evolution that the city has sought since at least 2001.

It will be the first new apartment development in Campbell in at least 10 years, said Steve Prosser, associate planner with the city of Campbell. “Our city for the most part is built out, and a redevelopment is the only way to add new apartments to the area,” he said.

At the same time, Chicago-based Waterton Associates LLC has placed the 252-unit Parc at Pruneyard property at 225 Union Ave. on the market for sale. Waterton has owned Parc at Pruneyard since 2008 when it acquired the property for $53.5 million.

The multifamily-focused real estate investment firm has retained the Palo Alto office of Institutional Property Advisors and Sal Saglimbeni, vice president investments, to list the property.

Both the Parc at Pruneyard and the Bay West development site are within walking distance of the Pruneyard complex and a short drive, bike ride or trip on the local transit service to the historic downtown. The Pruneyard tenants include multiple restaurants and a Trader Joe’s grocery store. Quaint architecture, narrow streets, better-quality dining and a popular farmer’s market characterize the pedestrian-scale downtown.

With 6.4 square miles on Silicon Valley’s southwestern edge, Campbell has not gained the commercial profile of some regional cities such as Santa Clara, Cupertino and Mountain View, all of which have very famous corporate residents—Intel, Apple and Google, respectively. Campbell’s largest employer is Barracuda Networks Inc. with not quite 400 workers; its next largest are Safeway Inc. and Fry’s Electronics, according to the city’s 2012 Comprehensive Annual Financial Report.

But the town of 40,000 has worked to revitalize and build its downtown, and the Pruneyard, which has evolved over decades, somewhat improbably represents much of what modern land planners strive to create: lots of housing and amenities within walking or biking distance to keep people out of their cars.

“The eye test for me is that there is a great deal of activity in Campbell,” said Steve Hunt, a senior vice president with Colliers International in San Jose who specializes in the leasing and sale of office buildings. “I walked through the downtown area recently, and there were a lot of people there and the retail buildings looked full or nearly full.”

Bay West would not release the projected cost of its apartment development, which includes the construction of 14,000 square feet of retail. The company expects to break ground in April and to complete the development approximately 20 months later. It has backing from a financial partner, but Matt Gingery, a partner with Bay West, declined to say who it is.

The existing four office buildings, which had been about two-thirds occupied, are being vacated now and should be empty in the next 45 days, he said.

Waterton acquired the Campbell property for its joint venture with the California State Teachers’ Retirement System, Waterton Residential Properties X, formed in 2008 with $222 million in equity. The pension fund contributed $200 million and the balance came from Waterton. The ownership split of the assets reflects the same 90-10 ratio of the equity contributions.

“We think there will be a lot of interest [in Parc at Pruneyard] because of the market that it’s in and how the market has performed over the past year,” Mark Stern, a Waterton senior vice president of multifamily investments, said.

“Buyers will like that renters in the complex are within walking distance of both downtown Campbell and the Pruneyard Shopping Center and are close to a stop for the Valley Transportation Authority light rail for public transportation,” Saglimbeni said.

Both the seller and his broker projected that the ultimate price paid for the property would reflect an initial yield, or capitalization rate, of less than 5 percent.

The property, built in 1968, is being offered without a listed price. The current occupancy is 97 percent, consistent with the overall market. “Rents have increased by 11 percent over the past 12 months, and we don’t think that the market has peaked,” Saglimbeni said.

Waterton as a company owns one other asset in the San Francisco Bay Area, the 242-unit Los Prados Apartment Homes at 2205 E. Leland Road in Pittsburg. The real estate manager would like to have more of a presence. “The region is attractive from a jobs growth and demographics basis. It’s also a very competitive market for buyers. I would suspect that I will be spending a lot of time in the market this year,” Stern said.

Photo courtesy of Arjani Homes

West Coast Commercial Real Estate News