Google Continues its Sunnyvale Growth with $160.3MM Acquisition of Chesapeake Commons

By Vladimir Bosanac

Google is showing little signs of slowing its real estate ambitions, and in another recent acquisition in Sunnyvale, a city neighboring its hometown Mountain View, the technology giant acquired the Chesapeake Commons office buildings from Kilroy Realty for $160.3 million, according to public records.

The sale, which was first reported by the San Jose Mercury News, includes four buildings totaling 267,000 square feet bringing the transaction to just over $600 per square foot. Kilroy had purchased the same property, located at 1310-1325 Chesapeake Terrace Drive, in early in 2015 for $100.5 million, or around $376 per square foot, making healthy return on a three and a half year ownership of the asset.

Kilroy acquired the property from San Francisco-based DivcoWest. The real estate investment manager had owned the property since February of 2012 when it paid $73 million for the property. At that time, the seller was Chicago-based LaSalle Partners.

Since Kilroy’s acquisition, Google has been methodically accumulating properties in the neighborhood, and today the company owns nearly all the commercial buildings in the neighborhood bounded by N. Mathilda Ave., State Route 237 and E. Caribbean Dr. The area is home to thousands of Google employees, and the Chesapeake Commons office complex will add it the company’s footprint in the city.

The buildings on the Chesapeake Commons property are all two stories high and have an FAR of 30 percent to 35 percent, according to The Registry’s earlier reporting. There are many office projects along State Route 237 area that have been allowed for much higher FARs, as high as 70 percent, and even Kilroy’s executives at the time speculated that they may be able to increase the height of the buildings.

The two tenants in the property are Accuray and Cepheid. These tenants have not publicly announced plans to move, although they have leases in the project that last through 2019.

The transaction follows two other deals each over $100 million that Google executed in the month of November alone, as well as a $1 billion deal that the company struck with HCP for 12 buildings located in Mountain View, at a property formerly known as Britannia Shoreline Technology Park.

Earlier this month, the city of San Jose had announced that it was entering a purchase agreement with Google for several lots in the city that had been previously owned by the San Jose Redevelopment Agency. The total purchase price of $110 million includes seve sites, made up of 16 individual parcels that total about 21.3 acres. Currently, these sites are mainly surface parking lots serving transit users and SAP Center patrons along with several aging buildings used for training firefighters, which the city has long-planned to relocate and replace.

At the beginning of the month, Google also purchased two office buildings in North San Jose for $154.5 million. That sale was for an office complex located at 4300 and 4400 North First Street for a combined total of 377,000 square feet, which cost Google roughly $410 per square foot.

But these to deals pale in comparison to the deal that The Registry broke news on in late October, when Irvine, Calif.-based HCP announced that the company has placed under contract with Google for sale its 800,000 square foot Shoreline Technology Center campus in Mountain View for $1 billion. The campus is located across 12 buildings along Stierlin Ct. in Mountain View. The property, formerly known as Britannia Shoreline Technology Park, is 92 percent occupied by Google, according to HCP. The cap rate on the planned sale is 3.5 percent, based on the properties’ existing net operating income. The leases on the property now are 25 percent to 30 percent below market, according to HCP. This disposition is expected to generate a gain on the sale of around $700 million for HCP upon closing in the fourth quarter.

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