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The Bay Area Real Estate Journal
Bidders for Surplus Public Property Don’t Meet $6 Million Expectation
Submitted June 23, 2009
Santa Clara County has rejected all bids for 3.6 acres of surplus county property in Mountain View because none of the bidders met a county demand for $6 million or more payable by Sept. 15 for the site.
Bidding for the site has been carefully monitored in some circles of the commercial real estate industry. Few property sales are consummated in today’s credit-starved commercial real estate market. Consequently, opinions vary widely as to what land and buildings are worth. The seven bids for the county site, which are public information, provide insight into what various sophisticated and seasoned Silicon Valley players believe the value of industrial land and development is in today’s market, said Gregory M. Davies, a vice president at CPS Commercial Property Services. Davies represented a client that considered bidding on the property.
“This is really a play for someone who was willing to buy and hold long term, but what long-term means in this market, who knows?” Davies said.
The bidders included Santa Clara’s Peery/Arrillaga, San Jose’s Barry Swenson Builder, Dollinger Properties of Redwood City and South Bay Development Co. in Campbell.
The highest bid came from San Jose’s Barry Swenson at $6.25 million, Klamecki said. But county staff rejected it outright because it did not contemplate close of escrow for a least a year, according to public records. The lowest bid came from Peery/Arrillaga at $1.65 million, Klamecki said.
The site includes a 33,120-square-foot industrial building once used by the county’s adult probation department.
Mountain View, home to Google Inc., is considered one of the most attractive locations in the South Bay. While Palo Alto is generally considered ground zero for Silicon Valley companies because of the ready access to Stanford University talent, Mountain View is a close second because of its proximity to Palo Alto and incrementally less expensive rents and housing.
Dostart Development Co. LLC in Palo Alto submitted the only bid that county staff did not reject outright. However, the staff characterized the $6.1 million offer as “illusory” in a memo to the board. According to that memo, $4.6 million of the total Dostart offer was contingent on Dostart’s securing permission from the city of Mountain View to increase the allowable development density on the site to 50 percent from 33 percent now. That means that for every two square feet of land, there could be one square foot of buildings compared to the maximum 3-to-1 ratio in place now.
The site is very close to a light rail station, which should increase its value to potential tenants and make it a stronger candidate for increased density. The property address is 590 E. Middlefield Road.
In an email in response to a reporter’s query, Steve Dostart, president of Dostart Development, said the building is old and had a very specialized use, making complete renovation or demolition necessary.
“It will be many years before there is any financing or a market for development, so this has greatly reduced what buyers can offer,” he said. “I firmly believe that, eventually, it will be a great site.”
Mark Regoli, a partner with South Bay Development, which bid $2 million for the site, said his company gave the land no value in today’s market.
“People are willing to buy, but they have to feel they are getting a very good deal,” Regoli said. “The risk of a vacant building and the cost of renovating it, which we felt would take $65 a square foot, mean that you need to get something like a 12 percent return on costs.”
Dave Dollinger of Dollinger Properties said it was no accident that the bidders were all local. Institutional players are largely out of the market, he said, and local companies are the ones who best understand the “intrinsic value” of a Mountain View location.
Dollinger specializes in the acquisition and renewal of older research and development space, making the county property a strong strategic fit. Leasing for his properties has improved in the last several weeks, Dollinger said, with the most active tenants looking for ground-floor space with manufacturing attributes measuring less than 20,000 square feet.
“I think a lot of CEOs are looking at office space and saying that it is just too expensive,” he said.
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