By Jon Peterson
Glendale, Calif.-based PS Business Parks has paid $16 million or $134 per square foot to acquire the 119,000 square foot Orchard Business Park in San Jose.[contextly_sidebar id=”k2e4ylRd015DAjnXl6tOD8AGmQjSWZgI”]This property is considered to be a multi-tenant flex park. “One of the things that we liked about this property was that there are many small tenants in the property. This kind of real estate is not built very much anymore in Silicon Valley. We are still a believer in owning real estate that is occupied by small tenants,” says Dick Scott, a divisional vice president for PS Business Parks. He works out of the company’s regional office in Santa Clara.
The Orchard Business Park was sold by Los Angeles-based Colony Capital. The real estate opportunity fund manager traded the property through the services of CBRE. “This property attracted a great deal of interest, although the capital sources were all domestic buyers. These included a mixture of real estate investment trusts, pension fund managers and private capital sources,” says Joe Moriarty, an executive vice president with CBRE in its San Jose office. He worked on the transaction for the company.
Moriarty thinks that the fact that the property is leased to small tenants as being a plus and sees the market very limited in that regard. “I think many investors liked the idea of buying real estate in the Valley that is leased to many small tenants. This kind of real estate has a scenario where there is much larger demand that there is supply to accommodate these tenants,” said Moriarty.
Both the buyer and seller decline to comment on what the cap rate was on this transaction and how far below market many of the existing rents are in this complex. There is going to be a re-leasing opportunity once 80 percent of the existing leases in the property expire over the next two years.
Orchard Business Park has been performing very well for its owners. The park is now 96.7 percent occupied with 54 tenants. The average size taken by the tenants is 2,100 square feet, and the property itself is made up of a total of eight buildings.
PS Business Parks owns a good number of properties in Silicon Valley that are occupied by small tenants. One of these is located contiguous to Orchard Business Park. This is the 164,000 square-foot Charcot Business Park in San Jose that has no current vacancies.
PS Business Parks has made the San Francisco Bay Area one of its prime markets. In this region it owns a portfolio of 30 business parks totaling 7.2 million square feet. This portfolio is now 95.8 percent leased. These assets are located in the East Bay, Mid-Peninsula and Silicon Valley.
Almost exactly one year ago, PS Business Parks paid $60.5 million all in cash to acquire the 340,000 square-foot Bayshore Corporate Center in san Mateo. At the time, Scott announced that the purchase represented a significant beachfront for the organization.