East Coast REIT Buys Leased Sunnyvale Building

By Jon Peterson

Newton, Mass., -based Select Income REIT has acquired the 96,415 square foot 350 West Java research and development building in Sunnyvale. The publicly traded real estate investment trust paid $291 a square foot, or $28.05 million, for the property, according to an S-11 document it filed Nov. 23 with the Securities & Exchange Commission.

The transaction produced a 7 percent yield, or capitalization rate, according to industry sources, based on current rent produced by the property. Phil Mahoney, executive vice president with Cornish & Carey Commercial Newmark Knight Frank in Silicon Valley, said the terms reflect market conditions.

“I think this is a standard deal for the Sunnyvale area. The property is a good, solid piece of real estate in a market that will be improving going forward. Being close to Moffett Towers and near public transportation should help it out,” he said.

Select Income bought 350 Java from Boston-based The Rockpoint Group, which was represented in the deal by Colliers International’s Andy Zighelboim, a senior vice president in its San Jose office. Both the seller and the broker declined comment for this story.

Rockpoint acquired the property not quite two years ago, paying somewhere from $110 a square foot to $120. At the time the 1984 vintage property was vacant. The fund manager invested nearly $50 a foot in tenant improvements, according to industry sources. This paid off earlier this year when Rockpoint leased the entire building through December 2022 to Ruckus Wireless Inc.

Ruckus, which went public on November 16th, sells carrier-class Wi-Fi solutions to service providers and enterprises to solve network capacity and coverage challenges driven by the rapid adoption and use of mobile devices such as smartphones, laptops and tablets. It had revenue of nearly $100 million in the first half of this year, according to an Oct. 5 prospectus on file with the SEC. The firm uses the Sunnyvale property as its corporate headquarters.

Rockpoint determined earlier this year that it had made all the value-added improvements to the property it could, according to industry sources.

According to its Web site, Select Income owns two additional properties in the greater San Francisco Bay Area: 47131 Bayside Parkway in Fremont with 100,728 square feet; and 2235 Iron Point Road, with 96,022 square feet in Folsom, a two-story R&D property.

The newly formed REIT, which completed its initial public offering of stock in March, is a nationwide investor that primarily owns properties fully leased to single tenants.

Rockpoint sold West Java for its opportunistic commingled fund Rockpoint Real Estate Fund III, for which it raised $2.5 billion in equity ending in July 2007. There were a total of 55 transactions completed for the fund.

Rockpoint is now looking to buy properties for its next commingled fund, Rockpoint Real Estate Fund IV. The capital raise continues with the total projected at $2 billion to $2.75 billion. The San Francisco Bay Area is a targeted market for offices, apartments and hotels.

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