By Meghan Hall
While downtown San Jose has seen capital pour in for ground-up construction and infill development, investors are also keen on purchasing existing properties with value-add potential as the Bay Area’s largest city continues to grow. For San Francisco-based Rubicon Point Partners, this has meant the $141,350,000 acquisition of San Jose’s Community Towers, as they were known in the past, now known as Market Square. Rubicon Point paid close to $437 per square foot for the two buildings, which total 323,529 square feet. The seller is Ridge Capital, Inc., who originally paid $64.8 million to acquire the towers in 2016.
The listing agents on the sale was Newmark Knight Frank’s Steven Golubchik and Grant Lammersen, both vice chairmen, and Managing Director Edmund Najera.
Ridge Capital and TPG Equity bought Community Towers from Swift Real Estate Partners, who had purchased the towers back in 2014 for $40 million.
The Mercury News first reported the transaction last week. The Mercury News also reported that Rubicon Point obtained $93.5 million in financing from Bank of America to help purchase the property.
The two buildings are located at 111 W. St. John St. and 111. N. Market Street and were originally constructed in 1963 and 1965, respectively. According to a project brochure produced by Cushman & Wakefield and Ridge Capital Investors, the towers have both have undergone internal and external renovations between 2016 and 2018, including exterior façade modifications, a first floor retail conversion, new outdoor courtyard and expansive fitness room complete with locker rooms, yoga, strength training and cardio areas.
The sellers invested $28.5 million in the property over the course of their ownership, including $1.1 million for the fitness center, $530,000 for the courtyard renovation, $2.1 million for fully-renovated lobbies, $3 million for roof replacement and building center upgrades, and $5.7 million in other exterior renovations.
According to the brochure — dated February 2019 — the South Tower at 111 W. Saint John had nine suites left to lease, ranging in size from 1,111 square feet to 13,241 square feet. The North Tower had just four suites, ranging from 976 to 8,851 square feet in size. Currently, the two buildings are now 81 percent leased; 111 W. Saint John is 71 percent leased, while 111 N. Market is 91 percent leased.
48 percent of the net rentable area in the property is either vacant or will expire in the first three years. Tenants that are expiring in years one to three have current rents that are 38 percent below market. The average remaining lease term for tenants in the property is 4.7 years.
The property is located in an up-and-coming area of San Jose near St. James Park with numerous residential developments planned for the area including Full Power’s Silvery Towers which will deliver 643 units, and North San Pedro, proposed by Barry Swenson, which will total around 900 units. The offices are also located near Interstates 280, 680 and 880, as well as Highway 87. A variety of cafes and restaurants from City Bagels and Donuts to Firehouse are nearby for future tenants.
While commercial office fundamentals in Silicon Valley finished out at a more modest pace at the end of the first quarter of 2019, office activity — in terms of both leasing and acquisitions — is expected to build throughout the year, according to Cushman & Wakefield’s Silicon Valley Office Q1 Marketbeat. While all of the top sales of the first quarter were in North San Jose, with price per square foot ranging from $334 to $710, strong fundamentals and investor optimism is strong for tech-driven real estate. Value-add opportunities, notes Cushman & Wakefield, have been scarce, and in-fill markets along the transit corridor between San Jose and Oakland will remain of particular interest to investors.