By Meghan Hall
Major tech firms continue to be a magnet for investment and development activity, as witnessed by another recent Bay Area deal. Prometheus Real Estate Group has acquired an office property and potential development site in Los Altos for $48 million. The deal closed on October 14th, according to The Mercury News.
The 3.8-acre asset is located at 5150 El Camino Real. Public records show that the seller of the property was a limited liability company associated with Dutchints Development. Prior to this transaction, the property last traded in April of 2018. At the time, Dutchints Development acquired the asset for exactly as much as it sold it this past month: $48 million. Dutchints purchased the property from TA Realty, according to public documents.
Dutchints will use the money gained from the sale to repay a loan initially provided by Loancore Capital Credit REIT. The loan, which totals $42 million, was first provided to Dutchints in 2018. The loan was acquired at the time as Dutchints intended to redevelop the property.
Dutchints had originally received approval to develop 196-units at the site in September of 2019. The proposal included 24 three-story townhouse units plus 172 condominium units located in two five-story buildings along El Camino Real. 28 of the units were to be designated as affordable. Currently, the property is developed with a 78,950 square foot office building.
However, the project failed to move forward as Dutchints defaulted on its loan in March of 2021. KB Homes intended to buy the property for $60 million, allowing Dutchints to pay off investors, but KB later pulled out of the deal.
Prometheus’ plans for the property are unclear. The office on the property was originally constructed in 1982, according to a listing on LoopNet, and is near amenities such as San Antonio Center, anchored by retailers like Trader Joe’s. Google’s Bay View Campus and the Googleplex, as well as Apple’s Infinite Loop, are also not far away.
While Prometheus decides what course of action to take, the Silicon Valley office market continues to grapple with COVID-19. During the third quarter, the submarket saw its eighth consecutive quarter of negative net absorption, totaling -215,467 square feet, according to Newmark. Year-to-date absorption now stands at -1.6 million square feet. Pre-leased construction deliveries of 960,505 square feet prevented record low net absorption.
Overall vacancy also continued to rise, increasing to 14.2 percent, up from 10.9 percent at the end of the third quarter of 2020. However, asking rents increased just slightly by $0.22 per square foot to $4.99 per square foot. Additionally, adds Newmark, there is between seven to eight million square feet of tenant demand being tracked across Silicon Valley. The future of the office market remains somewhat in question, however, as spikes in the pandemic caused by the Delta Variant coincided with companies beginning to resume previously paused real estate activities. As a result, many companies are continuing to delay action and wait before moving forward with new commitments.