By Jon Peterson
In another investment premised on the superior returns of walkable, urban-infill real estate, White Plaines, N.Y., -based Rockwood Capital and San Francisco-based Four Corners Properties have acquired the 100,000-square-foot Water Tower Plaza office building in downtown Campbell for approximately $150 a square foot, according to sources with knowledge of the transaction.
The seller of the 300 Orchard City Drive brick-and-timber building, originally built in the late 1880s to house fruit and canning operations, was Campbell-based South Bay Development Co.
The existing office tenants are a mix of technology, media, marketing and health care enterprises. The retail portion, 5,000 square feet, is leased to Khartoum’s, a popular local saloon, and Komatsu Japanese Cuisine. The building is a block south of downtown Campbell’s main historic shopping and dining street, East Campbell Avenue, and is adjacent to light rail. It is now 94 percent occupied.
Rockwood previously owned and redeveloped Campbell’s most famous mixed-use development, The Pruneyard, selling it in 1999, according to the company. The Pruneyard and downtown Campbell are separated by state Highway 17 but are only about a mile apart. They are part of an emerging “walkable” cluster of neighborhoods in Campbell, according to Walk Score, which rates communities as walkable based on accessibility to basic necessities by foot as well as other factors.
Rockwood has recently acquired office buildings in Downtown San Jose and northern Mountain View in areas also identified as exceptionally walkable, particularly by Bay Area standards, according to Walk Score.
“This [Orchard City Drive] property has held its occupancy in the 90 percent-plus range for the past several years. This kind of performance is commensurate with the office market for downtown Campbell,” said Eric Fox, a senior managing director and principal for Cassidy Turley Commercial Real Estate Services in its San Jose office.
At the end of the second quarter, the Campbell office market with 2.3 million square feet had an overall vacancy rate exceeding 14 percent, including a small sublease offering, according to Cornish & Carey Commercial Newmark Knight Frank. That was down from a vacancy rate of more than 18 percent at the end of the first quarter, but up from 12.3 percent a year earlier.
Office rents in the downtown have increased by 10 percent in the last year, Fox said. Market wide, average, full-service asking office rents have risen from $2.58 a foot a month a year ago to $2.85 a foot a month at midyear, Cornish said.
“There is a major transformation underway in downtown Campbell. Many new boutique shops and restaurants are opening; new housing is being constructed, and a young tech-oriented population is moving to the city making the area an attractive office location,” Rockwood Vice President Jason Oberman said in prepared comments in response to The Registry. Oberman works in the company’s regional office in San Francisco.
“Water Tower Plaza features many of the characteristics Silicon Valley tenants desire. These include a brick exterior with exposed timber beams in the interior spaces, high vaulted ceilings, open floor plans and a landscaped outdoor courtyard area,” Oberman said.
Rockwood also plans improvements to the property, he added: “The architectural brick-and-timber elements from its past will be accentuated and the property’s outdoor areas will be improved into collaborative outdoor spaces.”
Rockwood made its investment in Water Tower Plaza for its commingled fund, Rockwood Capital Real Estate Partners Fund IX. The real estate manager is in the process of raising $1 billion in equity for fund IX. The fund’s limited partners are projected to achieve a 13 percent to 15 percent net internal rate of return.
Fund IX’s investment strategy is to buy properties with strong in-place cash flows and the potential for near-term income growth through various value-creation activities. The potential property types include office, retail, apartments, hotels, mixed-use and land.
The San Francisco Bay Area is one of nine targeted U.S. markets. The others are Southern California, Seattle, Las Vegas, Phoenix, southeast Florida, New York, Boston, and the Washington, D.C., Southern Maryland and Northern Virginia metropolitan area.
Rockwood identifies technology including biotech and green tech, venture-capital investment and Asian trade as the primary economic drivers for the Bay Area, according to Rockwood documents presented to the City of Ocala, Fla., General Employees’ Retirement Board. In Southern California, the investment manager singles out population growth, the defense, biotechnology, media, entertainment, tourism and aerospace manufacturing industries as well as Asian trade, as primary economic forces at work.
Cassidy Turley represented the buyer and seller in the transaction. Besides Fox, other brokers who worked on the deal include Erik Hallgrimson, Tucker Beim, Robert Gilley and Steve Hermann. Neither the buyers, sellers or brokers would disclose the purchase price.