SAN FRANCISCO, CALIFORNIA (August 18, 2020) – Vertical Ventures LLC recently closed on the acquisition of a three-building office/R&D campus in Milpitas (San Jose MSA) for $45,500,000 with financing arranged by NorthMarq’s San Francisco office. The buildings are located at 475, 501 & 525 Sycamore Drive and are known as Sycamore Technology Park. Constructed in 1983, the buildings total approximately 213,519 sq. ft., and are currently 84 percent leased to two different tenants. The seller was a local Bay Area-based investor, which had owned the project since 2016.
Vertical Ventures plans to invest additional capital into the project, including market-ready renovations to currently unoccupied tenant spaces. “This is a high-quality project, with a great location, in a very desirable Milpitas submarket,” said Christopher Aust, head of acquisitions for Vertical Ventures. “We feel like we have a strong basis and the opportunity to add significant value through physical renovations and active asset management,” he added.
The property is located within the Oak Creek Business Park, located along the east side of Interstate-880, between E Tasman Drive and Montague Expressway. While average monthly asking rents for R&D space in the submarket average approximately $1.60 per square foot, current rents in the property are below that. “We like the competitive position within the market that this project enjoys, and the opportunity to increase value,” said Vertical Ventures’ founder, Hamid Rezapour.
A NorthMarq team led by managing director Nathan Prouty secured $39,935,000 in senior bridge financing for the acquisition and to fund capital improvement and future leasing costs for the project. “The market for bridge debt experienced significant disruption with the arrival of Covid-19 in the US. We saw many lenders pull back—shifting focus exclusively to multifamily product types, employing overly conservative underwriting, or raising yield requirements to unattractive levels for office,” said Prouty. “This resulted in the sourcing of a new lender relationship who both recognized the intrinsic value of this project and also had a stable lending platform with viable terms. There is still attractive debt out there today for office deals if you have the right real estate and the right sponsor with a demonstrable track record of success.”
The Milpitas area has undergone significant growth in recent years, bolstered in part by the growth of Tesla, the addition of three new BART stations, and thousands of new housing units coming on line. Many Bay Area R&D users are viewing Milpitas and neighboring Fremont with new enthusiasm, based on the new BART access, accessibility to major freeways, and new housing availability. Vertical Ventures has evaluated several property offerings in the area over the past few years and were compelled to execute on this opportunity. “We’re definitely excited to add this high-quality asset to our portfolio,” added Rezapour.
The seller was represented by the Cushman & Wakefield team of Eric Fox, Steve Hermann, Seth Siegel, Adam Lasoff and Ryan Venezia. Leasing of the project will continue to be handled by Cushman’s San Jose team of Gregory Davies, Eric Hallgrimson, Steve Horton, and Kelly Yoder.