By Nancy Amdur
KBS Real Estate Investment Trust III gained a prime Silicon Valley property with its recent purchase of the 16-story Class-A office tower Ten Almaden in downtown San Jose.
The non-traded REIT bought the 309,255-square-foot building from Equity Office Properties Trust for $116.7 million, or approximately $377 per square foot, according to a document filed last month with the Securities and Exchange Commission.
There was strong investor interest in the property, in part due to downtown San Jose’s proximity to public transportation and amenities, said Erik Hallgrimson, an executive managing director and principal at Cassidy Turley in San Jose, who leases the building and acted as the property’s leasing expert for the sale.
“There has been a markedly increased interest in downtown San Jose from tenants as well as investors, [and] we saw a great deal of interest from investors who previously had not shown a lot of interest in downtown,” Hallgrimson said, adding that there were multiple offers on the property. Investors seeking technology-focused investments who previously looked mainly in northern Silicon Valley are turning their attention to downtown San Jose, he said.
Over the past couple years many new dining and entertainment options have opened in the neighborhood, Hallgrimson said, and “downtown San Joe has a lot of what tenants are asking for.” Along with transportation access, which gives employers a deeper pool of employees from which to recruit, “there are amenities for employees—restaurants, bars, gyms, everything that creates an urban lifestyle—within walking distance,” he said.
“Ten Almaden has an outstanding location in San Jose’s downtown core, which is appealing to millennials for a variety of reasons, including its proximity to newly built housing” and destinations such as San Pedro Square and the SAP Center, home of the San Jose Sharks hockey team, said Steven Golubchik, the San Francisco-based managing director of HFF, in a news release. HFF marketed the building on behalf of Equity Office. Golubchik declined to comment further for this article. KBS did not immediately respond to requests for comment.
Downtown San Jose has 2,500 housing units under way or entitled and another 2,000 are under city review, according to the San Jose Downtown Association.
Ten Almaden, which sits on 1.6 acres at Almaden Boulevard and W. Santa Clara Street, was built in 1988 by developer William Wilson and underwent extensive renovations in 2010.
The building is 89 percent leased and as of Nov. 19, it was occupied by 15 tenants with a weighted-average remaining lease term of 4.7 years, according to the SEC filing. Tenants are from a variety of industries, including Citibank, Apigee, Comcast and Turner Construction Co. Also, investment advisor Loring Ward took two floors of the building earlier this year, Hallgrimson said.
The LEED Gold-certified building features a lobby with a three-story atrium lined with a glass wall and a four-level parking garage. Amenities include a fitness center with a pool, spa and locker rooms. The building is a half mile from the Diridon Transit Station and offers easy access to interstates and highways, included I-280, and Highway 101.
This sale marks just the latest in a handful of Class A downtown San Jose office towers that have changed hands over the past two years. Other recent sales include 225 W. Santa Clara, 160 W. Santa Clara, 60 S. Market and 50 W. San Fernando streets, Hallgrimson said.
KBS REIT III is part of Newport Beach, Calif.-based KBS Capital Advisors. The KBS portfolio includes three other San Jose properties: Corporate Technology Center at 100 Headquarters Drive and 200-475 Holger Way; 350 E. Plumeria Drive; and 3200 N. First St. KBS acquires equity properties in the office, industrial, multifamily and retail sectors.
Equity Office, which acquired Ten Almaden with its purchase of Cornerstone Properties Inc. in 2000, has recently been shedding much of its Northern California portfolio. The company’s parent Blackstone Group LP last week sold 26 Bay Area office properties to Hudson Pacific Properties Inc. for $3.5 billion.