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May 25, 2015

Chinese Real Estate Tycoon Pays $60m to Become Apple's Silicon Valley Landlord

Mingtiandi

Michael Cole

The mainland tycoon picked up 501 and 500 Macara Avenue for $60M

The family office of a major Chinese real estate developer set new highs for Silicon Valley real estate this month by acquiring an office park in Sunnyvale, California for a reported $60 million.

The mainland property tycoon paid approximately $620 per square foot ($6673 per square metre) for 96,000 square feet (8,900 square metres) of office space that is currently rented to Apple Inc in the city just north of Apple's home base in Cupertino.

The investment in Silicon Valley office space by the Chinese developer, whose Shanghai-listed vehicle is said to be among the 20 largest real estate companies in China, appears to confirm the much anticipated migration of mainland investors into second-tier international markets in search of yield.

Chinese Investors Discover Silicon Valley Core

The Chinese developer purchased 500 and 501 Macara Avenue in Sunnyvale, which also borders Google's hometown of Mountain View, from a joint venture belonging to Lane Partners and Pimco. The US-based investment firms had purchased the two buildings in November last year for $48.7 million, setting themselves up for a profit of over $11 million in just over six months, as recounted in the Silicon Valley Business Journal.

The two office park properties are part of the Peery Park business district in the city of 140,000 people, and are considered prime properties in that part of Silicon Valley.

According to Skip Whitney, Executive Vice President of Kidder Mathews China Services, more Chinese investments in Silicon Valley are on the way, as prime locations rapidly disappear from the San Francisco market.

"There are very limited core deals left for acquisition in the city," the partner at the West Coast-based property consultancy told Mingtiandi during a visit to Shanghai. "I think this is a trend that you are going to see more of."

Having Apple signed on as a long-term tenant for the office park assets was a key factor in closing the yield-driven asset acquisition, Whitney said.

Spreading Beyond Gateway Cities

While the Sunnyvale deal is not the first time that a Chinese investor has wandered away from major US gateway cities to make an acquisition, it does mark one of the first cases where a mainland buyer has picked up a mature commercial asset for the investment yield.

There have been a number of Chinese investors pursuing development projects in California, including Oceanwide Holdings, which is developing two California deals worth a combined $500 million; China Vanke, which teamed with Tishman Speyer for the successful Lumina condo block; and Guangzhou R&F, which has four projects underway in the Golden State.

To date, the only other mature asset acquired by a Chinese developer strictly for its investment return was Genzon Group's $350 million purchase of the former Standard Oil Building at 225 Bush Street in San Francisco last year. And the Bush Street property still falls within a major US gateway city.

While the price paid for the Peery Park properties might be a new high in Sunnyvale, just a couple of suburbs over in Menlo Park, assets in prime locations such as Sand Hill Road are going for as much as $1800 per square foot ($19,400 per square metre). Peery Park is now attracting more tenants such as Apple, which has maxed out its space in Cupertino and LinkedIn, which is being crowded out of nearby Mountain View by Google's expansion.

In European markets, Chinese investors are already moving beyond the confines of central London to look for higher yielding assets on the continent. Sunnyvale's small size may preclude it from becoming a new San Francisco for Chinese investors, many analysts expect that more mainland buyers will follow the lead of this family office in heading past the gateway cites, into smaller communities in the US in the search for yield.

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