Grosvenor Pays $47MM for Santana Row-Area Building

560-S-Winchester_San Jose The Registry real estate

By Sharon Simonson

[dropcap]G[/dropcap]rosvenor Americas has acquired a Winchester Boulevard office building adjacent to the booming Santana Row shopping and lifestyle center, paying approximately $470 a square foot, or $47 million.

[contextly_sidebar id=”2fca7c78c0c15569bffa3e60b17f33e6″]The 560 S. Winchester building is fully leased to Rockefeller Group Business Centers, Cushman & Wakefield and Merrill Lynch Wealth Management, according to Grosvenor.

The capitalization rate, or initial yield, is between 9 percent and 10 percent, said a source with direct knowledge of the transaction.

“Employers are increasingly demanding benefits for their employees as they focus on recruiting and hiring. We feel like this location offers those benefits. The West Valley has one of the lowest vacancies in the Bay Area,” said Sommer Johnson, investment manager for Grosvenor its San Francisco office. “It is already one of the strongest markets, and it will continue to improve over the years.”

The relatively near-term lease expiration of a major tenant in the property is expected to provide a value-add opportunity, Johnson said. He declined to identify the tenant. The building itself is already in excellent condition, he said.

The deal illustrates anew the vibrancy of the regional economy even within an international context—both buyer and seller are European companies—and the particular strength of commerce in the southwest San Jose neighborhood.

“It is a very interesting opportunity, a strong location, a quality building,” said Jeff Cushman, executive managing director for Cushman & Wakefield in Silicon Valley. Cushman originally sold the property to Deka Immobilien Investment GmbH, a Frankfurt, Germany, real estate fund manager.

“Silicon Valley continues to be the pacesetter for the U.S. economy, if not the world,” Cushman said.

In California, Grosvenor is focused on buying in the Bay Area, Los Angeles and Orange County, Johnson said. He joined the company 18 months ago but worked in the Bay Area before then. He also has had positions with Tishman Speyer and Shorenstein Properties.

Grosvenor Americas’ holdings in the Bay Area include three San Francisco buildings on Union Square: 185 Post St., where De Beers is the ground-floor tenant; 180 Post St.; and 251 Post St. All of them are mixed-use buildings with ground floor retail and offices above.

It also owns and developed the Hamilton Marketplace in Novato, a retail shopping center; Los Gatos Village Square; and Westgate West on Prospect Road in San Jose.

Grosvenor believes in “living cities and urbanization,” said Lorin Horosz, director of marketing communications for Grosvenor Americas. “People are choosing to live in downtown areas, and the company continues to focus its energies on those opportunities. We have been in the place-making business for 300 years, and we want to continue to evolve that in the markets we are active in, including San Francisco and Silicon Valley.”

Grosvenor has been close to buying multiple San Francisco buildings similar to those that it already owns on Union Square—historic properties with offices over high-end retail—but has been outbid, Sommer said. “We feel like this has some similar attributes,” he said. “In this case, we really liked the building and stretched more than we had.”

He believes the Bay Area will continue to perform well for several more years, Johnson said. When it does slow, he does not anticipate a precipitous fall like that of the dot-com era. “The market moved a bit earlier in San Francisco, so there might be more legs to the recovery in the valley, but there is still good opportunity in both,” he said.

Grosvenor Group Ltd. is a U.K.-based privately owned property group with offices in 19 cities worldwide. It has had a San Francisco office since 1977. The company has regional investment and development businesses in Britain and Ireland, the Americas and Asia Pacific. Its international fund management business operates across all these markets and also Continental Europe.

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