Sobrato Tests the Sales Market
Submitted August 31, 2010, 4:17 PM
The Sobrato Organization, one of the largest workplace and apartment landlords in the South Bay, is preparing the sale of a 12-building Silicon Valley portfolio measuring nearly 900,000 square feet.
The offering is being precipitated by the company’s ongoing efforts to diversify its asset base away from its historic concentration in offices and research and development buildings into rental housing and equities, said company Director Mike Field.
The buildings are located in Sunnyvale, San Jose and Fremont. Sobrato declined to release the names of the tenants.
With the sale, Sobrato will reduce its 6.8 million square-foot Silicon Valley workplace portfolio by 12 percent, Field said.
Sobrato, a family-owned firm founded by John A. Sobrato in 1979, owns and has developed some of Silicon Valley’s signature office buildings. The company built the highly visible 856,000 square-foot Apple Inc. headquarters in Cupertino. It also developed the 180,000 square-foot Netflix headquarters in Los Gatos, to name only a few.
This is the second relatively large portfolio that Sobrato has sold in the last several years in its efforts to diversify its holdings. In late 2004, it sold 650,000 square feet of similar properties for $62.5 million to South Bay Development Co. in Campbell and Pacific Coast Capital Partners LLC, now known as PCCP.
Sobrato’s Silicon Valley office and R&D holdings were 9.5 million square feet after that sale. At the time, John Michael Sobrato, chief executive officer, said it was arguable that the company was selling at the bottom of the market but that its exposure to office and R&D remained substantial and that diversification was the driving purpose.
While property values are not nearly as inflated as they were by the finance-induced bubble that popped in 2008, there is no question that investor appetite is high, particularly for leased properties with remaining term. The flood of foreclosed commercial buildings, which many anticipated and raised hundreds of millions of dollars in equity to buy, has not materialized. Meanwhile, few stable owners are posting properties for sale. That has produced what some have labeled a “scarcity premium” in prices for some properties that are offered.
That said, brokers report an expanding market in bank-note sales. Faced with the choice of foreclosing on properties that are collateral for non-performing loans and taking the hit to their capital reserves, banks are choosing instead to sell loans on a discounted basis to investors. Those investors are often buying with the intent of becoming the owners of the underlying property.
According to CBRE’s most recent market report on the Silicon Valley R&D market, almost 90 percent more sales transactions occurred in the first half of 2010 than in all of 2009.
While the total amount of occupied square footage in the South Bay continued to decline in the April through June quarter, falling nearly 890,000 square feet, nearly all of the negative absorption could be traced to drug maker Roche vacating its 13-building, nearly 900,000 square-foot campus in the Stanford Research Park.
Moriarty said he did not anticipate problems with buyers finding debt financing to support the purchase.
While Sobrato remains mostly associated with its office and R&D holdings, since 1990 the company has built a huge portfolio of 30 apartment properties with more than 7,000 units up and down the West Coast. Its most recent addition is the 243-unit Elements apartment community on Parkmoor Avenue in San Jose, completed this year, according to its Web site. Its holdings include complexes far from its Silicon Valley home in San Diego, Pasadena and Oxnard, Calif., as well as Redmond and Seattle, Wash.
