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May 15, 2015

Chinese investor snaps up Apple buildings in Sunnyvale as overseas investment takes off

Silicon Valley Business Journal

Nathan Donato-Weinstein

A Chinese real estate executive has paid north of $600 per square foot to acquire a Sunnyvale office project fully leased to Apple Inc., as Asian investment continues to ramp up and evolve in Silicon Valley.

Lane Partners last week sold 500 and 501 Macara Ave. to a limited liability company controlled by the family office of a Chinese real estate developer, according to title records and two sources with knowledge of the deal. The buyer paid just under $60 million, or about $620 per square foot, for the two buildings that total roughly 96,000 square feet, these people said.

Chinese investment in the Bay Area is nothing new, but more money is now flowing into more diverse asset classes and geographies, industry observers said. Whereas development-focused investors once played only in residential, they are now targeting commercial development as well. And while property investors previously focused on central business districts in "gateway cities" like San Francisco, they are now doing deals in well-located suburban business parks like Sunnyvale's Peery Park.

"I call it China 2.0," said Skip Whitney, a partner with Kidder Mathews who leads the firm's China Services Group and represented the Sunnyvale buyer. "Chinese investors now have gone through the initial stages of doing underwriting, due diligence and fact finding, and now they're realizing there are submarkets like Peery Park and sunnyvale where you have Class A assets.

"Peery Park is 'core' for Silicon Valley," said Whitney, who worked with Kidder's Eric Bluestein on the deal.

The growing tend means U.S. investors are facing well-capitalized new competitors for assets in a marketplace that is already all elbows. Last week, a Chinese-backed real estate company blew all other competitors out of the water for a 1.4-acre development site in downtown San Jose.

Whitney said his China Services Group alone has recently worked on $220 million worth of transactions with Chinese investors, with $130 million of that in the last six months. Helping drive investment in the U.S.: a slowing real estate market in China; relaxed regulations on overseas investments; and longer-term visas for businesspeople.

"The center of gravity for global investments is coming to Silicon Valley," said Bob Staedler, a principal at Silicon Valley Synergy, which works with overseas investors. "It's about safe haven deals in this current global market. This is where all the advancement is happening and you need to be near that."

A sampling of recent Bay Area transactions:

* In January, a subsidiary of the huge developer Oceanwide Holdings acquired a 186-acre property in Sonoma that's approved for a new resort, winery and luxury homes.

* In February, Oceanwide snapped up the massive First & Mission development site in San Francisco from TMG Partners and Northwood Capital Partners for about $300 million.

* In March, Genzon Property Group linked up with H&Q Asia Pacific to buy the Burlingame Point development site, where the partners plan to build a $300 million office project.

* Just last week, an entity affiliated with Beijing Damei Investment Co. bid $12.8 million for a 1.4-acre, city-owned development site in Downtown San Jose. Plans have not been announced.

The deals are transacting as Chinese businesses and real estate companies also set up shop here. One leg of Genzon's business plan is to attract Chinese companies to its Burlingame project, officials said at the time. The Sunnyvale buyer, whose identity Whitney declined to disclose, is also seeking to open a local office as it seeks more deals here. Increased business travel between Silicon Valley and mainland China is one reason why Hainan Airlines is launching nonstop service between San Jose and Beijing this year.

"More and more Chinese groups actually have their feet on the ground here rather than parachuting in," Whitney said.

Indeed, corporate leasing by Chinese firms is picking up. Transactions Whitney's group has worked on include BlueFocus, a public relations firm focused on Chinese brands, which took about 5,000 square feet at 1451 Grant Road in Mountain View; Qihoo, a large Chinese software company, which leased less a small office in downtown Sunnyvale; Kingsoft, the Chinese gaming and software company, which leased in Redwood Shores.

Bluestein, who is part of Kidder's 12-person China Services Group, said Chinese companies interested in Silicon Valley often start off focused on Palo Alto but end up expanding their site-selection shopping list because of tight availability in that market. The firms are generally starting off small - with 5,000 to 10,000-square-foot leases -and keeping an eye on costs.

"They're taking a bite of the apple," he said.

The buildings the buyer acquired in Sunnyvale represent a nice profit for seller Lane Partners and Pimco. The joint venture purchased them back in November of 2014 from Rreef for about $507 per square foot, or $48.7 million, according to property records.

Lane and Pimco have been astute investors in Sunnyvale, picking up numerous buildings there in 2013 and 2014. Since then, leasing activity has zoomed with a big assist from Apple's tremendous space appetite. Lane has sold off some assets, including 810 W. Maude and 470 Potrero Ave.

Lane has also submitted an early allocation request to develop about 207,000 square feet at 520 Almanor Ave.

For the full story, go to Silicon Valley Business Journal.

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