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December 04, 2017

Brocade's San Jose headquarters is sold following merger, layoffs

The Mercury News

George Avalos

SAN JOSE - After merging with chipmaker Broadcom and planning layoffs, Brocade Communications has sold its three-building San Jose headquarters and a nearby parking garage to a realty developer.

The move comes as Bay Area job growth has slowed this year. And while demand remains solid for Silicon Valley properties at the moment, a real estate expert and an economist sounded notes of caution about potential headwinds coming for commercial real estate.

The Brocade complex of three office buildings, totaling more than 541,000 square feet, sold for $225.5 million.
The sale was completed Nov. 30, according to county records. Brocade sold the properties in four transactions to separate affiliates controlled by Menlo Park-based Lane Partners.

But the real financial muscle behind the deal appears to be a lender operating under the name Parlex 6 Finco.

The Parlex 6 Finco entity, which corporate records show is a foreign limited liability company with offices in Manhattan, provided the Lane Partners group with $197.4 million in financing for the deal.

"This is a big purchase, and it makes sense that there is foreign money or money from outside the Bay Area coming in here," said Chad Leiker, a first vice president with Kidder Mathews, a commercial realty brokerage. "There is worldwide pent-up demand for Silicon Valley properties."

In the Brocade deal, the Lane Partners affiliates paid $78 million for the 130 Holger Way offices, $75 million for the 120 Holger Way building, $42.5 million for the 110 Holger Way offices and $30 million for the parking garage, the county records show.

The new owners and financiers of the campus and parking garage face the prospect that Broadcom, Brocade's new owner after its $5.5 billion purchase completed in November, could vacate the buildings as it slashes expenses.

Broadcom last month announced with President Donald Trump that the company plans to move its legal headquarters to the United States from Singapore. It already had operations in San Jose.

Broadcom's cost-cutting effort at Brocade has already begun. By sometime in January, 308 Brocade employees will be permanently laid off, according to state government documents.

The planned layoffs come as Bay Area and Santa Clara County job growth has dramatically slowed.

Over the 12 months that ended in October, the Bay Area job market expanded at an annual pace of 1.2 percent, compared with 2.9 percent in 2016 and 3.7 percent in 2015.

During the same one-year period, the Santa Clara County job market grew 1.5 percent, slower than 2.9 percent in 2016 and 3.5 percent in 2015, state labor statistics show.

The slower hiring trends could be a warning flag for commercial property investors who have paid top dollar for office buildings in recent years, including during 2017.

"The market is changing, and buyers today may find that it's a different story here in a little while for office vacancies and property values," Leiker said.

Despite a more sluggish job market in the Bay Area, various plans are being laid to develop new offices and upgrade existing ones. What's more, domestic and foreign buyers, including investors from Asia, have bought numerous office complexes.

Yet buyers should be wary, warned Stephen Levy, director of the Palo Alto-based Center for Continuing Study of the California Economy.

"Silicon Valley has a very strong economy, but job growth is slowing dramatically and there will be some disappointed property investors," Levy said. "It's musical chairs, and somebody will be left with the empty building."

For the full story, go to The Mercury News.

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