Palo Alto-based Menlo Equities LLC and Boston-based Beacon Capital Partners are close to signing the first tenants for their speculative 750,000-square-foot office campus at 3333 Scott Blvd. in Santa Clara.[contextly_sidebar id=”8991804d420586e2cdfda20bb2939738″]After a slow first half of the year, leasing activity has blossomed in July, Gregg van Thaden, a Colliers vice president who is listing the property said July 18. He expects demand to strengthen more in the fall.
The first leases for single floors in a nearly 160,000-square-foot multitenant office building could be signed as soon as the next 30 days, said Don Reimann, a senior vice president with Colliers who is also on the leasing team. Demand is coming entirely from technology tenants, both small and large.
The partnership has developed three four-story buildings with approximately 150,000 square feet each in a first phase. It hopes to lease one building to multiple tenants and is including a café and fitness center as amenities. It is seeking single tenants for each of the two remaining buildings or one tenant for both.
A second phase using current land-use plans would allow two additional buildings, but Menlo Equities is back at the city of Santa Clara, seeking to increase the allowable development capacity on the 30-acre site by more than 550,000 square feet. “We are doing an EIR [environmental impact report] to take it up to 1.3 million [square feet], and we will do that if it is preleased,” said Jane Vaughan, a Menlo partner who oversees all of the company’s development.
Approximately 75 people attended a noon lunch and tour of the development sponsored by the Silicon Valley chapter of NAIOP.
The location is in the heart of Silicon Valley on unentitled land that Menlo acquired from Applied Materials in July 2011. Construction financing is coming from Wells Fargo & Co., Vaughan said. Milpitas-based Devcon Construction is the general contractor; RMW Architecture & Interiors were the designers for the steel-frame buildings, which feature pre-cast concrete and blue glass.
Asking rents are $2.95 a square foot a month offered on a “triple-net” basis, meaning the tenant is responsible for building operations, taxes and maintenance of the premises and building. The landlords are offering a $45 a foot tenant-improvement allowance, but Vaughan said much of the more expensive interior work has been done.
The site at U.S. 101 and Bowers Avenue is 1.5 miles from the rising San Francisco 49ers stadium and about 10 minutes from the Norman Y. Mineta San Jose International Airport. It is also adjacent to a 107-room extended-stay hotel that San Jose-based Barry Swenson Builder is constructing and a stone’s throw from a property that The Irvine Co. acquired last year from Equity Office. Irvine said at the time it expected to start its own speculative office development there as well.
Jeremy Fletcher, a senior managing director for Beacon, told a NAIOP panel discussing capital markets in March that his confidence in building speculative offices in Silicon Valley stemmed from leasing velocity and demand, the relatively less robust economic environment in other U.S. cities and the difficulty of getting construction financing.
“It could not have been a more challenging debt instrument to negotiate,” he said. “We couldn’t get a non-recourse construction loan, and I don’t see any speculative developments that aren’t recourse. I see the handcuffs on everything, and it will cauterize supply.”
To which Jeffrey Weber, a senior managing director for Eastdil Secured LLC in San Francisco, who also appeared on the capital-markets panel, replied: “The good news is that means it will take us longer to screw it up.”
Photo by Sharon Simonson