By Meghan Hall
The desire for Silicon Valley office properties remains high, as another major property traded hands this week. However, in a rare twist, the property has been bought — and leased — before construction has finished and the paint has dried. According to Santa Clara County documents, 221 N. Mathilda Ave. — called Grove 221 — in Sunnyvale was purchased by a San Francisco-based affiliate of Stockbridge Capital Group for $183 million, or about $1,253 per square foot. The 146,000 square foot building was previously owned by Spear Street Capital, and human genome research company 23andMe inked the lease for the space back in May 2018, with move-in anticipated for this year.
The news was first reported by the San Jose Mercury News.
The capital source that Stockbridge used on the purchase was its core open-ended commingled fund the Smart Markets Fund. This fund has a current gross asset value of $2.3 billion, and it was formed in 2011. The amount of leverage on the fund at the portfolio level is now at 22 percent. The leverage on the acquisition will be less than 50 percent.
Spear Street Capital bought the property for $16.1 million and obtained a $10 million-dollar loan on the building in 2015. The then-owner worked with SmithGroupJJR to redevelop the 4.3-acre greenfield site, located at the corner of Mathilda Ave. and West California Ave., near the Sunnyvale Caltrain station. The office building features large floor plates up to 49,500 square feet, a parking garage and several outdoor amenities, including a deck, courtyard and outdoor kitchen. Additional amenities such as a third-level patio, bike repair and storage, lockers and showers are also part of the redeveloped project. The site also includes a 1,200 square foot historic home, which, when finished, will be a new multi-purpose conference and amenity space for 23andMe.
The office also includes a custom 2,000 square foot laminated piece of glass artwork that will span the building’s east façade. The piece was commissioned from artist Stephen Galloway, and the artwork will reflect the site’s history as an orchard, according to a statement from SmithGroupJJR. The interior of the building will feature floor-to-floor windows and industrial elements to create an open and modern warehouse feel.
Stockbridge was not concerned about buying a property leased to a single tenant. “We did underwrite the corporate risk there is on this property. We felt that even if something would happen to 23andMe, we would still feel good about owning the property given the amount of tenant demand there is for space in the Sunnyvale market,” says Alan Purser, managing director with Stockbridge. He works out of the company’s Atlanta office.
Stockbridge considers the San Francisco Bay Area to be one of its targeted markets for the Smart Markets Fund. Its other main markets on the West Coast are Seattle, Portland and Los Angeles. The commingled fund looks to buy a mixture of office, industrial, retail and apartment products.
The development is one of the first of the new buildings to comply with Sunnyvale’s Peery Park Specific Plan, designed to encourage the creation of higher-density developments and Class A office projects.
The sale shows the eagerness of investors to snap up office space throughout not just Silicon Valley, but the greater San Francisco Bay Area. Last week, CIM sold a trio of Oakland office towers for $500 million, while Mori Trust bought a three-building complex in San Jose for $429 million in cash. Grove 221’s location in Sunnyvale, amid a hotbed of redevelopment and in close proximity to other major tech employers such as Google, Amazon, Facebook and Apple, make it an attractive buy in an increasingly competitive market where investors are keen on maximizing their returns.