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MILPITAS, CA-Equastone recently made its first foray into the Silicon Valley, paying $11 million for a vacant single-story 100,041-sf building here that is built out for office and R&D use. The seller was South Bay Development.

The building sits on 6.34 acres at 1331 California Circle, which is located between Interstates 880 and 680 in the northeast corner of the Santa Clara County. Equastone acquisitions director Chris Stai tells GlobeSt.com that the building will receive a full interior and exterior cosmetic remodel, including a new glass lobby, while being marketed for lease or resale. The current asking lease rate is $1.35 per sf per month, triple net.

Equastone likes the product type and the market. Stai says neighboring markets have upzoned their commercial land, which will result in the redevelopment of a lot of underutilized class B properties (i.e. concrete tilt-up industrial buildings built out for office use) into higher density three- and four-story office buildings, multifamily residential projects and retail centers.

“It’s going to displace a lot of tenants that prefer the product type and lower occupancy costs while also decreasing the supply, which will put continued upward pressure on rents as the Valley’s job market continues to improve” Stai says. “And since there is substantial room for market rents to grow before rents can justify new construction, we believe existing properties will only become more valuable.”

In further justifying the purchase, Stai says that the Silicon Valley R&D market has posted positive net absorption for the better part of three years as new development remains constrained by increasing land and construction costs, increasing competition for existing space. The company plans on making additional acquisitions in the market.

Ken Candelaria and Justin Reilly of CPS had the disposition assignment for South Bay. Jere Hench and Romy Zeid from Wayne Mascia & Associates represented Equastone in the acquisition and also have the leasing assignment.

Equastone has been aggressive in making plays outside of its backyard. Last month, it agreed to pick up three million sf of Dallas-area office buildings. Among those buildings is the 634,381-sf Stemmons Place at 2777 Stemmons Fwy. As earlier reported on GlobeSt.com, Equastone is acquiring the portfolio from Crescent Real Estate Equities Co.

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