GE Real Estate Sells Silicon Valley Portfolio

Marcus & Millichap Capital Corp, Silicon Valley, Bay Area, Marcus & Millichap, Santa Clara, San Jose, San Francisco

By Jon Peterson

Working through its real estate arm Arden Realty Inc., GE Capital Real Estate has sold a 340,000-square-foot office and research and development portfolio in Sunnyvale and Fremont to two investors.

San Francisco’s Terreno Realty Corp. paid $33.7 million to acquire 172,000 square feet at 1339 Moffet Park Drive, 904 Caribbean Drive and 914-918 Caribbean Drive in Sunnyvale.

Boston-based TA Associates Realty bought the remaining 168,000 square feet in Sunnyvale and Fremont. The price was not disclosed.

“We have seen a major rebound in the Sunnyvale area as vacancies for the property type have gone from 35 percent in 2009 to 10 percent now,” said Dave Karol, a director with Holliday Fenoglio Fowler L.P. in San Francisco. “Fremont is an area where there is still room for improvement.”

The Terreno portfolio is fully leased to molecular diagnostics company Cepheid for its corporate headquarters on a long-term lease. The company is a manufacturer and developer of technologies for DNA analysis. Last year, it had net income of $2.6 million on $278 million in revenues, after $5.9 million in losses in 2010 and $22.5 million in losses in 2009.

TA Associates bought five properties including 2300 Owen Street in Santa Clara and 46221 Landing Parkway in Fremont. The assets are fully leased but at rates that are up to 40 percent below market rates, creating an opportunity to increase the value as leases expire over the next four years.

This scenario fits an investment strategy that TA Associates has employed for a long time. The fund manager seeks real estate where it can add value over an extended holding period. One investment strategy employed is to add value by re-leasing an existing property.

Arden is based in Los Angeles and has a regional office at 160 Pacific Ave. in San Francisco. It originally marketed the properties for sale as either a single large portfolio or two smaller portfolios. The decision was made to split the offerings because the sellers believed the properties leased to Cepheid would attract real estate investment trusts and other yield-driven investors, while the other assets appealed more to a value-add investor, according to industry sources.

Terreno is a publicly traded company. It recently paid $3.6 million for a 24,000-square-foot multitenant warehouse at 490-500 Carlton Court in South San Francisco. The property sits one mile east of Highway 101 and two miles north of the San Francisco International Airport.

Neither Terreno nor Arden responded to requests seeking comment.

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