By Jon Peterson
Cupertino-based Hunter Storm Development has decided to test the market by putting up for sale the first two office buildings that are part of the Gensler-designed Coleman Highline development in North San Jose. The company did not provide pricing guidance at this time, but the move marks a significant initiative by the Silicon Valley development firm during a time when most acquisition and leasing activity had been placed on hold as a result of the global Covid-19 pandemic.
“We are going to test the market with this sale. We are under no pressure to sell the two buildings at this time. We have long-term financing on both assets and if we don’t get what we think is a fair price, then we will still be the owner of the assets going forward,” said Deke Hunter president of Hunter Development.
The two properties that are up for sale are 1143 and 1155 Coleman Avenue, also referred to as Building 1 and Building 2, and they total roughly 350,000 square feet. They represent the first phase of the nearly 1.5 million square foot campus Hunter Storm is developing at the site in various phases. The company had engaged Eastdil Secured and Preferred Capital Advisors to assist in the marketing of the first two buildings, and, according to Hunter, these two firms will also represent the developer in buildings 3 and 4 of the Coleman Highline project when those properties hit the market.
The Coleman Highline mixed-use project is planning to include 8 office buildings, four amenity buildings, a hotel and retail space once the full project gets built out. The development is right next to San Jose’s Mineta International Airport, and it offers a number of amenities—walking distance to the Santa Clara Caltrain station, which will also receive BART trains in the future, proximity to the Avaya Stadium and just blocks from Santa Clara University and many hospitality and retail amenities.
“I think that being close to mass transit still makes a lot of sense on a long-term basis. Its unclear at this point how mass transit will be used, but it will be used again at some point in the future,” said Hunter.
The two buildings are both fully leased to Roku, the manufacturer of video streaming devices, founded by a former Netflix Vice President, Anthony Wood. The leases for these buildings were signed in mid 2018.
Hunter understands that the nature of the current work-from-home environment may have an impact on the property, but he also thinks that the connectivity of working in an office will come back at some point down the road. “Today’s working situation does allow for employees to sustain their jobs. At some point in the future, companies will want the connectivity benefit to return in some type of an office arrangement,” said Hunter.
Some industry anecdotes have identified buildings with long term leases to be more favorable in the new, post-Covid climate. While properties with leases expiring over a shorter term also meant increased rents going forward, the new environment may now bring unpredictability in that model, since it is uncertain if current tenants may renew their leases of if others will be in line to take over the space in case they do not. Therefore, a property with long term leases may seem like a better investment until the downturn recedes.
In either case, the market will dictate how much appetite there for this type of development.