UPDATED: October 22nd, 2014
By Jon Peterson
San Francisco-based Ellis Partners and New York City-based The Fortress Group have been selected as the buyers of the Pruneyard mixed-use office, retail and hotel asset in Campbell, according to multiple sources aware of the transaction. One of the other potential buyers of the property was Lennar Partners.[contextly_sidebar id=”cxjiFy3AuM4wQg6vaHueFEKKimPUrv6O”]Jim Ellis, managing principal for Ellis Partners, declined to comment when contacted for this story. The seller of the property is Equity Office. A company representative for Equity also declined to comment.
According to sources with direct knowledge of the transaction, the sales price will be in around $280 million.
Equity Office had brought the property up to market for sale in May of this year, and it has been working with the San Francisco and San Jose offices of Eastdil Secured during the sale process since.
The Pruneyard sits on 27 acres of land and totals over 618,000 square feet of office and retail buildings as well as a 171-room Doubletree by Hilton Hotel.
The office space is with three buildings and 365,229 square feet. This part of the project is 95.9 percent occupied. There is a significant releasing opportunity, according to the property’s offering document. It states that the in-place rents in the office space are 30 percent below market and 54 percent of the leases will be expiring by the end of 2016. There are a total of 85 tenants in the office buildings including technology, finance, professional services and government.
The retail part of the property totals 253,160 square feet. It’s anchored by a Trader Joe’s and Marshalls. This retail space is now 96.3 percent occupied. The trade area has very strong demographics; according to the property’s offering document, nearly 235,000 people reside within a three-mile radius of the property. This includes the affluent communities of Los Gatos, Monte Sereno and Saratoga.
The average annual household income is $106,000, which is 30 percent above the national average. The trade area has a highly educated population, with nearly 43 percent of the residents within the three miles that are aged 25 and older holding a bachelor’s degree or higher. The national average for this is 30.2 percent.
There is a feeling in the brokerage community that the retail part of the Pruneyard has a potential to be improved in the future. “I think that the property could be upgraded down the road. There are a couple of locations in the shopping center where a mix of local, regional or national tenants could be brought in that would make the property even more successful than it already is,” says James Chung, a senior managing director/principal with Terranomics in its San Jose office.
The expectation is that the Pruneyard will have significant net operating income growth over the next five years. It was stated in the offering document that the projected NOI over the first year of new ownership is $18.4 million. This is projected to grow to $26.4 million by year five under the new ownership. The reasons for this are below market leases and the potential to lease the hotel, which would lead to further contractual income.