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September 06, 2017

Exclusive: San Jose's matching RiverPark office towers hit the market

Silicon Valley Business Journal

Janice Bitters

The buildings have had a rocky history, including a loan default in 2013 and a five-year stretch when Riverpark Tower II sat vacant after being completed in the midst of the Great Recession in 2009 - about two decades after the first tower was erected.

But San Jose real estate insiders say that after a bumpy road, this is a prime time for the two approximately 300,000-square-foot buildings - which could be sold as a pair or individually - to come up for sale. Riverpark Towers are now mostly full. Office vacancy in downtown, which Kidder Mathews data pegs at about 12 percent, seems to be growing tighter by the day.

"It's the high-water mark of leasing demand - it's also the high-water mark for valuation," said Dave Vanoncini, senior vice president and managing partner for Kidder Mathews. "We're seeing the highest prices paid [in downtown San Jose] and the next deal might be the highest one."

Indeed, San Jose is seeing a record-breaking year. In July, AEW Capital Management set a record with its $80.15 million purchase of the 11-story Class A office tower at 303 Almaden Blvd. The sale worked out to $509 per square foot - a pinnacle for downtown real estate, but for how long?

Whether the two 16-story Riverpark Towers at 300 Park Ave. and 333 W. San Carlos St. will shatter that record remains to be seen. But Mark Bodie, executive vice president at JLL, said he can see the two buildings drawing strong interest.

"Downtown San Jose has been appealing to new tenants because of the density, new amenities and residential development," he said. "I think this project will appeal to investors because of the recent transformation of downtown San Jose and the scale of the project itself."

The news comes as more tech companies- major drivers in Silicon Valley commercial real estate demand - have started to pay closer attention to San Jose, a city long overlooked by such companies in the past

The biggest name eying the city is Mountain View-based Google, which is in talks with the San Jose officials to buy a set of key parcels in downtown to build a massive, mixed-use office development that could span up to 8 million square feet. Those talks are still preliminary, but have generated even greater excitement around real estate in the city, Vanoncini said.

Meanwhile, Adobe Systems earlier this year formally announced its intentions to build a fourth office tower next to its existing headquarters along Almaden Boulevard that would double its workforce in the area. That project could break ground as early as next year.

But it's not just the tech giants scooping up space in the city's urban core. In all, downtown San Jose was home to more than 100 tech companies as of 2014. In the past three years, about 77 tech companies have either signed or renewed their leases in the area, recent Colliers International data shows.

Riverpark Towers specifically is positioned to be an attractive home for tech tenants, Bodie said.

"It's been appealing to tech tenants because it's new, which is rare in downtown San Jose, and has offered a blank slate that has allowed tenants to build a creative office environment," he said.

Currently the two buildings are home to tech groups like Intacct and Xactly. Most recently, data storage company Cohesity signed a lease for 40,000 square feet in Riverpark Tower II, which was 85 percent leased as of July.

That was a milestone for Newmark brokers Anne Ralston and Phil Mahoney, who began marketing the property for lease in 2014 when it was still completely empty.

Bringing in Cohesity was an exciting moment, Ralston said in an interview in July after Cohesity singed its new lease.

"Cohesity was our first suburban [office] tenant," she said at the time. "Which is a big deal because we'd gotten several companies that had grown within downtown organically, which were Intacct and Xactly, but we had never gotten a suburban tenant to relocate to downtown."

The buildings have a bevy of amenities, including a block-long courtyard, fitness center, game room, bike-share program and a new Erik's Deli and a wine room.

Representatives from Steelwave did not immediately return requests for comments Wednesday.

For the full story, visit: Silicon Valley Business Journal

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