How tight is the Peninsula commercial real estate market for users that need big blocks of space?
So tight that a former Hewlett-Packard Co. campus on the Palo Alto-Mountain View city line—rezoned for housing after a bruising years’ long fight and vacant for at least five years—might be going back to corporate use.
According to three sources with direct knowledge of events, the so-called Mayfield Mall property at 100 Mayfield Ave. in Mountain View is the subject of interest from at least one large technology user. That user is contemplating an actual purchase, one source said, and is offering in the neighborhood of $100 million.
If such a deal were consummated, it would represent a roughly $40 million gain in a six-month period for Newport Beach-based William Lyon Homes, which emerged from Chapter 11 bankruptcy reorganization in late February. William Lyon bought the site from Hewlett-Packard in November for about $55 million. A call to William Lyon was not returned.
The property is fully entitled to allow its redevelopment into 258 attached and detached homes, said Mountain View Senior Planner Melinda Denis. A 2011 development agreement memorializing those entitlements also contemplates construction of two public parks and an underground tunnel beneath the Central Expressway to connect the site to the San Antonio Caltrain station adjacent to Showers Drive.
But, Denis said, that development agreement in no way prohibits a user from occupying the aging buildings, and a precise plan, or what some cities call a specific plan, specifically states that the buildings can be re-occupied.
Indeed, that possibility has bothered some of the property’s neighbors, who fear there would be more traffic from a workplace user than from new homes. Rights that HP had to add another 160,000 square feet of office space at the Mayfield site no longer exist, Denis said.
“I haven’t had any contact with Lyon in a couple of months, so I’m not sure about their plans,” she said. “They have agreed to the terms of the development agreement thus far. There were some funds required by certain dates, and they have come forward with those.”
HP originally began marketing the 27-acre property for sale in early 2003. It has a 488,000 square-foot campus, originally developed as a shopping mall, which HP converted to office uses after it bought the site in 1984. Until 2000, HP had housed some 1,600 workers there. By 2003, the site was largely empty.
HP put the property under contract with Pennsylvania-based homebuilder Toll Brothers Inc., which spent years negotiating with the city of Mountain View to reach an agreement for its redevelopment into housing. At one point the city approved as many as 450 new units of housing on the property. But the financial crisis eviscerated that vision, and the scaled-back version in place today is the result.
Vacancy fell in the Mountain View-Los Altos office market during the first quarter from 8.3 percent at the end of last year to 7.5 percent at the end of last month, according to a report released Tuesday by Colliers International. In neighboring San Mateo County, it was flat quarter over quarter at 12.5 percent.
“The gross absorption total of 1.33 million square feet is the lowest on the San Francisco Peninsula since the close of 2010 and is below averages seen in the last strong market cycle of 2006-2007,” the brokerage said.
But, the brokerage concludes, “A sizable portion of this drop can certainly be attributed to the lack of available large blocks of space in the local market.”
If a user does decide to occupy the property, there is no question that a sizable construction improvement bill awaits. The buildings have been vandalized through the years, and HP of course invested no significant capital, understanding that they would never be occupied again.
On a recent Saturday, a row of pink-flowering trees demarcating a Nita Avenue entrance off of San Antonio Road stood in contrast to the water-stained, beige-colored structure. An apparently abandoned vehicle sat in the middle of a parking lot with a lone shopping cart stationed nearby.
It is likely that a user would have to upgrade the property to meet the current California building code and the Americans With Disabilities Act, Denis said. “I don’t really know the buildings’ condition, but they would seem to need upgrading for modern technology and current building codes,” she said. “The precise plan was approved in 2006, and they have been vacant at least since then.”