Milpitas’ Value-Add Niche Draws Office Buyers

MILPITAS, CA—Sycamore Technology Park was constructed in 1983 with a total space of approximately 213,519 square feet and is currently 84% leased to two different tenants. The buildings are located at 475, 501 and 525 Sycamore Dr.

Vertical Ventures LLC recently closed on the acquisition of the three-building office/R&D campus for $45.5 million. The seller was a local Bay Area-based investor who 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.”

The property is located within the Oak Creek Business Park, located along the east side of Interstate 880, between East 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.

Vertical Ventures evaluated several property offerings in the area during the past few years and were compelled to execute on this opportunity.

“We like the competitive position within the market that this project enjoys and the opportunity to increase value,” said Hamid Rezapour, Vertical Ventures’ founder.

A NorthMarq team led by managing director Nathan Prouty secured $39.935 million 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 to both recognized the intrinsic value of this project and who 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. 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.

As a result, Milpitas has a unique strength in attracting and retaining high-tech companies engaged in R&D and advanced manufacturing activities. These firms are at the forefront of new technological innovations, both regionally and globally. In particular, Milpitas is highly specialized in computer and electronics design and manufacturing, according to an economic development strategy and implementation report by the city.

“Despite the challenging financing climate for office, lenders ultimately got comfortable with the combination of fundamentally sound real estate with durable in-place income from creditworthy tenants, coupled with an experienced operator who has a proven track record specializing in value-add lease-up repositioning in this market,” Prouty tells GlobeSt.com. “Lenders took comfort in the fact that Vertical Ventures has consistently delivered on similar strategies across their Silicon Valley and Bay Area office/R&D portfolio over the last decade.”

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.