By Jon Peterson
San Francisco-based Ridge Capital Investors is targeting an 8 percent return for a nearly 100,000 square-foot North San Jose research and development building at 3001 Orchard Parkway.
Ridge Capital acquired the property along with its equity partner, Greenwich, Conn., -based Contrarian Capital Management, for $13.5 million, or $138.50 a foot, in an all-cash deal. The partners plan to spend another $80 a square foot, or approximately $7.8 million, to renovate the empty 97,480-square-foot building.
“We will be spending that amount on both an interior and exterior renovation. It will likely be completed sometime in the fourth quarter when we would hope to have the building leased to a single technology-oriented tenant,” said Trevor Wilson, a managing partner with Ridge Capital.
The seller was a joint venture of Menlo Park-based Lane Partners and JER Partners of McLean, Va. Andy Zighelboim, a senior vice president with Colliers International in its San Jose office, represented the seller. Zighelboim declined comment.
“There are very few options for tenants that are looking for one property that can accommodate around 100,000 square feet. We think that our property can fill this need,” Wilson said. Ninety percent of the space on offer will be office with the remaining 10 percent laboratory. The property was first constructed in the 1980s and sits on 5.62 acres.
“It’s our belief that when the asset becomes stabilized and occupied based on current market rents, the property would produce a cap rate in the 8 percent range. Our plan for now is to hold onto the property for the next five to seven years,” Wilson said.
The market for Silicon Valley research and development buildings has improved dramatically, posting occupancy increases in every quarter since the last three months of 2010, according to CBRE Inc. The rate of improvement has slowed in the last nine months, and in the first quarter of this year, occupancy rose only 14,000 square feet. Still investment sales are robust and average lease asking rates continue to rise, up 2 percent in the last quarter and 8.5 percent compared to a year ago.
Ridge Capital was formed in 2011. Wilson had been a senior director at Palo Alto-based Broadreach Capital Partners. Ridge has now completed six purchases with a total acquisition price of $140 million. The company looks for value-add opportunities to renovate or re-position properties in Northern California including the San Francisco Bay Area, Sacramento and Davis. Its preferred property types are research and development buildings and apartments.
Contrarian Capital is a distress-oriented real estate investor that typically targets distressed mortgage debt, rather than fee simple real estate purchases. According to its Web site, the firm prefers investments that range from $5 million to $50 million. Contrarian declined comment.