Kennedy Wilson Selling Downtown San Jose Prize
Submitted January 11, 2012, 10:50 AM
Less than a year after taking title to downtown San Jose’s 360 Residences in a friendly foreclosure on the original developer, Kennedy Wilson Inc. intends to sell the 23-story high-rise housing tower to the highest bidder.
Robust tenant demand for the 213 luxury units—originally built as for-sale condominiums—has pushed occupancy to 85 percent, including the lease of three of six ultra-luxury penthouse suites where rental rates are more than $8,000 a month. Leasing velocity has exceeded the international real estate investment firm’s projected pace by six months.
“Our ability to gain title to the real estate and to complete construction, then lease it up as fast as we did speaks volumes about demand from renters in Silicon Valley and the strength of the technology business and its high-income earners,” Zech said. The wave of new, well-heeled residents has in turn sparked new interest from shop tenants in the nearly 11,000-square-feet of ground-floor retail space.
The building has been listed with Institutional Property Advisors, a Marcus & Millichap Co. whose principals include Stanford Jones, Salvatore Saglimbeni and Philip Saglimbeni. “It is pretty quickly going to go round trip,” Zech said. “We think it is going to be one of the biggest transactions in Silicon Valley in the last 12 months.”
Residents' median household incomes exceed that of the San Jose metropolitan area by a large margin, Zech said. They are highly technology focused and looking for an up-scale, full-service, high-rise living experience not offered elsewhere in Silicon Valley.
Kennedy Wilson has retained residential broker Georgie Huff to help it to lease the three remaining penthouse suites, Zech said.
Kennedy Wilson gained ownership of the building after buying a construction loan against the property from US Bank, then foreclosing on developer Chicago-based Mesa Development Corp. Pacific National Bank, which fell into receivership during the depths of the recession, originally lent Mesa $119 million to construct the property, which is situated in one of the more upscale corners of downtown, adjacent to a new San Jose Marriott, the city’s convention center, the historic Sainte Claire Hotel, which has just been acquired by a new investor group, and the fully renovated historic California Theatre, home to Opera San Jose.
The complex was one of four high-rise condo towers built in downtown San Jose during the housing boom, all moving forward at least partially in response to City of San Jose financial incentives. In total, the four delivered not quite 1,000 new, market-rate condominiums to downtown San Jose starting in 2006 and continuing over the succeeding several years. All four of the developments have struggled, and none of them has sold out, according to the Polaris Group, a research company. The other three towers remain condos.
Published reports put the total construction value for the building at $200 million. Units lacked flooring and appliances at acquisition, and Kennedy Wilson also spent to upgrade common areas such as the fitness center and the clubhouse, Zech said.
Assuming all units are leased at market rent, the building’s gross potential rental income is $8.3 million annually, and after expenses, renders well more than $5.8 million in net operating income, according to the offering documents. The property is being sold unpriced and free of all debt or other liens. Kennedy Wilson is selling a 100 percent fee-simple interest. The property’s address is 360 Market St.
