By Meghan Hall
The end of 2018 and the beginning of 2019 has seen several notable property sales in North San Jose around the City’s international airport, including Coleman Airport Partners’ purchase of 12.7 acres next to the airport and Embarcadero Capital Partners’ purchase of 2125 O’Nel Dr., an office building, for $24.15 million at the end of January. The list of transactions has grown longer, as Cushman & Wakefield announced today that its capital group completed the sale of 2755 and 2777 Orchard Parkway, two office and R&D buildings totaling 101,374 square feet. Called the Orchard Corporate Center, the property was sold by Los Gatos, Calif.-based South Bay Development Co. to San Mateo, Calif.-based Sierra Investments for $47,790,000 million, or around $471 per square foot, according to public records.
Eric Fox, Steve Hermann, Seth Siegel, Adam Lasoff and Ryan Venezia from Cushman & Wakefield brokered the deal.
According to South Bay Development Co. Vice President David Andris, while there was a lot of interest in the property, South Bay sold to Sierra Investments because they were a knowledgeable buyer.
“We had experience with [Sierra Investments] in the past,” said Andris. “We had confidence in them and they executed flawlessly. I don’t think we had a single hiccup during the entire time the purchase and sale agreement was in contract.”
The property was built in 2017 and was the first new construction on Orchard Parkway in 17 years, according to a property flyer marketing the asset. It is strategically located in San Jose’s Orchard Parkway Corridor and is easily accessible to the Santa Clara VTA and the Rivermark Plaza, which is anchored by Safeway, Starbucks and Jamba Juice. State Route 101 and Interstates 880 and 680 are also located nearby. San Jose International Airport is a five-minute drive away, while San Francisco International and Oakland International are about a 40-minute drive by car.
The goal from the beginning was always to resell the development once it was completed, said Andris.
“We have several other projects, all mid-rise buildings, and when we came across this land, we saw there hadn’t been a new one or two story building built in fifteen to twenty years on a spec basis,” he explained. “We felt there was a big gap in the market we could fill.”
According to a brochure describing the complex, the property features a 15,000 square foot outdoor courtyard, height ceilings and loading capabilities and an outdoor bar and barbecue. Glasslines and skylights are used to maximize light throughout both buildings.
The first building on the 5.31-acre site is a single story structure totaling 36,383 square feet. It is currently leased by based MegaChips Technology America Corporation, a subsidiary of Japan-based MegaChips Corporation. MegaChips moved into its building in September of 2017, with its lease expiring at the end of August 2027.
The second building, which totals 64,991 square feet and is two stories, has been entirely leased to Calix, Inc., which announced that it would be taking a lease in September 2018 and planning to start its move in the coming months. The lease is anticipated to last ten years, and the building will be the home of Calix’s new headquarters as it continues to grow as a communications cloud and software platform company. Calix was originally based in Petaluma, Calif., before choosing San Jose as its new home base. According to public documents, Calix is expected to pay a minimum of $3.227 million to lease the property in 2019, which comes to around $4.10 per square foot.
According to Cushman & Wakefield, there is a weighted average of 7.9 years of term remaining at the Orchard Corporate Center as well as staggered lease expirations, providing for stable cash flow and strong tenancy.
The North San Jose submarket is expected to remain strong in the future, as California’s largest City has become the home of major companies steadily expanding throughout Silicon Valley. Cushman & Wakefield stated that in Silicon Valley, there is an 8.7 percent direct vacancy rate, and that rent has grown by over 32 percent in the last three years. Major renovations have occurred at nearly every building situated on Orchard Parkway, said Cushman & Wakefield, significantly raising the value and quality of the neighborhood.
For South Bay Development Co., however, the cost of renovation almost equated to the price of new construction, prompting the company to build the campus from the ground-up.
“On our team, we have rehabbed and sold close to 98 buildings over the last 15 years,” said Andris. “It was our opportunity to take all of the lessons we have learned over the years and put them in a new, ground-up building.”
As of this writing, Cushman & Wakefield did not return The Registry’s request for comment.