USAA Buys Asset in North San Jose for $190MM

By Jon Peterson

San Antonio, Texas-based USAA Real Estate Company has acquired the two-phase America Center Class A office property in North San Jose.

america center san jose The Registry real estateThe first phase of the project is a 430,852 square foot property in two buildings located at 6001 and 6201 America Center Drive, according to Legacy Partners Commercial’s Web site. The purchase price was around $400 per square foot or $172.3 million, according to sources familiar with the property.

USAA also has acquired the land for two 213,800 square foot office buildings to be developed for phase II. The price on this was $40 per square foot or $17.1 million, confirmed by multiple industry sources.

“The location of the property was very attractive for us. It’s near the new football stadium for the San Francisco 49ers and is also close to major public transportation in the area. This is becoming a more important factor for us going forward when we consider properties to by either in Silicon Valley or San Francisco,” says Justin Hildebrandt, executive director of investments for USAA Real Estate. He works out of the company’s regional office in San Francisco.

USAA bought the property from a joint venture of Foster City-based Legacy Partners Commercial and AIG. The seller sold the asset through HFF in its San Francisco office. The main person involved in the sale for HFF was Steven Golubchik, a managing director.

Legacy will remain in the project. This company is an equity investor in Phase II and also a property manager in this part of the project. This transaction is the first deal between USAA and Legacy.

The first phase of American Center property is now 83 percent occupied. Polycom occupies 100 percent of one of the buildings. Flextronics takes up three floors in the other building. There remains 73,000 square feet that is vacant that could be leased to one or two tenants.

“The value-added nature of this investment does not have anything to do with the existing leases. The current tenants have leases that were signed 18 to 24 months ago and they have a term that runs to at least 2020. The way to improve the value of our investment is with the leasing up of some of the empty space and the development of phase II,” said Hildebrandt.

USAA Real Estate is looking at starting the development of phase II at some point next year. “I would think that it would be started earlier than later. It could begin on a speculative basis or as a build-to-suit for a tenant. It would seem logical that technology oriented tenants would be involved,” said Hildebrandt.

The American Center property is located very close to the border of North San Jose, Santa Clara and Sunnyvale. This region has a current vacancy for Class A office buildings in the range of 11 percent to 12 percent, according to Hildebrandt.

USAA acquired the property for its open-ended core commingled fund, The USAA Eagle Real Estate Fund. The open-ended fund structure means that it always is open for new commitments from investors. This compares to closed-end commingled funds which have a specific time period as to when capital can be accepted from investors.

The Eagle Fund looks to buy properties across the country. These would include a combination of office, industrial, retail and apartments. The focus on the investments will be in growth markets. The majority of the assets will be core properties. On a long-range basis 20 percent of the fund is planned for non-core.

The initial capital raise for the Eagle Fund was started earlier this year. One of the investors in the commingled fund with a $75 million commitment is the New Mexico State Investment Council. It’s expected that investors in the commingled fund will achieve an 11.7 percent gross IRR for the first three years that the commingled fund is operational.

West Coast Commercial Real Estate News