Cheap Rents Yield Tenants Fast
Submitted July 19, 2010, 7:58 AM
A partnership that bought a 1984 Fremont R&D complex in September at a third its asking price has fully leased the Silicon Valley property by leveraging its low basis into market-bottom rents.
Asilomar Partners, led by the valley’s Jason Peery and two business associates, bought the 195,000-square-foot Dixon Landing Research Park late last year for $7.5 million, or about $38 a square foot. That was less than a third the price once sought by seller UBS Realty, which listed the 14.2-acre complex at nearly $24.5 million, according to marketing material.
Asilomar originally marketed the buildings for 39 cents a square foot with another 11 cents a square foot in tenant-borne expenses. That compares to average asking rates for triple-net space of $0.67 a square foot in Silicon Valley’s 154 million square-foot R&D market, according to CB Richard Ellis.
The landlord wound up at an average signed-lease rate in the mid-40 cents a square foot with an average lease term of five years, according to the company. All but two of the nine tenants came from outside Fremont.
“When you are the lowest-priced game in town, you always get a look,” said Steve Kapp, a senior vice president with brokerage Cornish & Carey Commercial ONCOR International who has developed and worked in Fremont for two decades. Asilomar’s strategy forced other landlords to look again at their asking rates, Kapp said; some lowered prices. Rents in Fremont will continue to be depressed by similar transactions, Kapp predicted, with distressed sellers letting go at low prices and buyers able to undercut current rents based on a lower building basis.
Fremont’s tenant base has evolved along with the valley, Kapp said. Ten years ago, contract manufacturers such as Flextonics International and Sanmina-SCI Corp. were drivers; now, they are mostly gone. Before them were computer parts and components suppliers. More recently, solar technology and clean tech companies have begun to fill the void, with recent high-profile deals involving Solyndra Inc.’s start to its second Fremont manufacturing plant and Tesla Motors Inc. buying the former NUMMI auto plant in Fremont. The Palo Alto electric car maker cited the plant’s proximity to its headquarters and access to “best-in-class engineers in Silicon Valley” as reasons for its purchase. Tesla went public June 29.
Medical device and biotechnology firms are also finding their way in, Kapp said. He has begun to see tours by nanotechnology companies, though he is not aware of any signed leases.
The tenant profile in the Asilomar buildings includes e-commerce company Plimus Corp. Inc.; billing, management and enrollment outsourcing company Medical Management Resources Inc.; Imtec, a dental applications and technology company; and BioGenex Laboratories Inc., an information-technology company that caters to industrial and academic researchers in the life sciences. Plimus migrated from San Jose; MMRI came from Milpitas. Imtech left Sunnyvale and Biogenex is leaving San Ramon, according to Asilomar.
Dave Sandlin, a senior vice president for Colliers International in San Jose who has specialized in Fremont landlord representation, said Asilomar’s success does not indicate recovery. It shows the draw of the low-price leader. “The positives about Fremont are its access to cheaper labor pools because a lot of the employees come from the Central Valley, some as far as Tracy,” he said.
Asilomar’s partners include Jason Peery, a principal at Peery/Arrillaga, a private Silicon Valley commercial real estate landlord; Roger Fields, a principal at Peninsula Land & Capital, a Menlo Park private-equity company; and Ben Crockett, who manages Asilomar’s operations such as raising investment capital and property acquisitions and dispositions. Crockett worked for Peery/Arrillaga before its landmark 2006 sale of $1.1 billion in valley commercial real estate to RREEF Funds LLC.
Asilomar owns 350,000 square feet of Silicon Valley research and development space in four cities, all acquired vacant over the last four years, the company said. It has sold one San Jose property. All of its other holdings are now fully leased.
“We only buy things that are really good value, and we don’t mind properties that have hair on them or are in a complex legal situation. We are willing to wade through the thickets,” Peery said.
The company leased a third of the Fremont property without brokers, Peery said. The property is not for sale.
