A private developer has snapped up two fully leased R&D buildings in a booming area of Santa Clara, where city officials hope to eventually see a spate of high-density residential units.
Swift Real Estate Partners sold the side-by-side properties at 2400 and 2424 Walsh Ave. late last month for a combined $27.6 million to Fortune Realty, an LLC that appears to be associated with Los Angeles-based developer Benjamin Efraim.
Efraim couldn't been reached for a comment last week or Monday.
The purchase is notable for a few reasons.
The properties sit within a 10-minute drive of Mineta San Jose International Airport and in the midst of several booming projects. Fast-growing chipmaker Nvidia Corp. is finishing up its new 525,000-square-foot headquarters nearly next door. A few miles down the road, Irvine Cos. continues to grow Santa Clara Square, which includes offices, residential and retail anchored by a new Whole Foods.
But perhaps most notably, the properties are slated in the city's long-term general plan to become a site for high-density housing. That's the long-term play, estimates Eric Fox, executive managing director at Cushman & Wakefield.
Fox was not involved in the recent transaction, but has helped broker sales of the two buildings twice in the past, and is familiar with the properties as well as the Santa Clara market in general.
"The leases still have several years to run," he said. "But I suspect they bought them to hold the buildings until they could get all of the entitlements finished and the leases burned off and then they'll tear them down."
Developers have been eager to propose new housing throughout the city, said Kevin Riley, acting planning manager for the city of Santa Clara, in an interview Monday. But properties with residential designations in the city's general plan - like the properties along Walsh Avenue - have been an especially hot commodity.
"Part of our strategy in putting those future phases out there was so somebody could make that decision to make an investment in the property," he said. "There's still some chance that the city will say 'no we are not going to go forward with that,' but it's a pretty good bet."
Kidder Mathews brokers Justin Hedberg and Geoff Hubbard brought Fortune Realty to Swift to negotiate a deal on the properties. Neither broker immediately returned requests for comments Monday afternoon.
But David Copeland, an asset manager with Swift, said in an interview Monday that he wasn't surprised that the property had attracted the unsolicited attention.
Prior to the sale, Swift had secured a new tech startup tenant to take up the full 30,130 square feet in 2424 Walsh Ave. while the Institute of Business Technology has long filled the nearly 60,000 square feet at 2400 Walsh Ave.
"We were content holding the properties for the near-term as we believe the surrounding submarket is improving significantly," Copeland said, noting the surrounding development that is "transforming the location."
"However, we were approached off-market by a buyer that recognized the same qualities that we saw in the market and we opportunistically decided to sell," he added.
The two buildings are part of a larger seven-building portfolio that Swift picked up back in 2014 for $83 million. Of that portfolio, which included five properties in Santa Clara and two in Sunnyvale, the only one that hasn't yet been sold sits near the two recent transactions at 2630 Walsh Ave., which is also slated for high density residential development in the city's long-term general plan.
Copeland said the San Francisco-based real estate company didn't have any immediate plans to market the last property in the original portfolio, calling it "an attractive long-term investment."
"This is a very high-quality building with unique characteristics and a quality tenant," he said.
That said, the buildings at 2400 and 2424 Walsh Ave. hadn't been marketed for sale, either.
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