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Downtown SJ Towers to Ssell in $150 Million Deal

September 9, 2015
Updated

 

Three of Downtown San Jose’s highest profile office properties are slated to sell, continuing the trend of institutional money pouring into the city’s central business district.

KBS Real Estate Investment Trust III said in a securities filing on Friday that it had entered into a purchase and sale agreement to acquire Almaden Financial Plaza, a three-building Class A office project at 1, 55 and 99 Almaden Boulevard. The asset is at one of the best corners in downtown, Almaden Boulevard and Santa Clara Street.

KBS said it agreed to pay $150 million, or roughly $360 per square foot, for the 416,127-square-foot complex, according to the filing. The seller is an affiliate of Embarcadero Capital Partners. An anticipated closing date wasn’t disclosed. The transaction is being arranged by the San Jose office of Eastdil Secured.

The transaction would mark another major office sale for downtown San Jose, which has seen a string of trades in the last two years or so. It also represents a second helping for KBS REIT III, which late last year snapped up 10 Almaden, one of the submarket’s top five towers, for $116.7 million, or about $377 per square foot.

The new deal, if consummated, vaults the non-traded REIT into the top owners of office property in downtown San Jose, and continues a trend of growing institutional ownership in a submarket that for years was dominated by local developers. Earlier this summer, Invesco Real Estate and Harvest Properties paid $62 million for SV Towers, a two-tower, 413,000-square-foot complex at 75 E. Santa Clara St. and 4 N. Second St. Other properties that have sold during the current cycle include 160 W. Santa Clara St., 225 W. Santa Clara St., 60 S. Market St.

Fueling the investor appetite is the expectation that downtown is poised to capture more tenants and achieve higher rents as the rest of Silicon Valley fills up and companies take a shine to new amenities and residential projects coming online there. The most recent figures from Cushman & Wakefield (formerly DTZ) peg office vacancy at 16.3 percent, its lowest number in years. Average asking rents were $3.14 per square foot for Class A space, Cushman said.

Many observers think those rents have room to grow and will still prove attractive to tenants compared to higher-priced areas. In addition, office sale prices — while rising — are still below replacement cost, or the cost to build new projects from the ground up.

If the latest deal closes, it will likely be a good one for seller Embarcadero Capital Partners, which acquired Almaden Financial Plaza in a deed-in-lieu of foreclosure back in 2012. Embarcadero pumped an undisclosed sum to renovate the lobbies and make other improvements.

Almaden Financial Plaza is currently 94 percent leased to 54 tenants with a weighted-average remaining lease term of 3.9 years, the SEC filing said. The project is home to tenants including Bridge Bank and City National Bank and includes an 800-stall parking garage.

The project, which was completed in 1983, was one of the first office tower projects in downtown San Jose as the city embarked to rebuild its downtown in the 1980s. It is one of the best-known projects developed by Lew Wolff, one of the most productive developers in downtown whose firm still owns the Fairmont San Jose.

KBS REIT III is a public non-traded REIT based in Newport Beach, California, and a unit of KBS Capital Advisors LLC. KBS REIT III generally invests in Class A office properties in major employment centers with stabilized occupancy and predictable cash flows, according to a prospectus.

KBS REIT II, a separate investment vehicle, owns a couple Silicon Valley properties, most notably the 610,000-square-foot Corporate Technology Center in north San Jose, which it bought (also from Equity Office) for $239 million in April 2013.

Through a spokeswoman, Embarcadero Capital declined to comment. KBS also declined to comment prior to the deal’s closing, a spokeswoman said.

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