Red Sea Sells Data Center After 18-month Hold

SANTA CLARA, CA-The Red Sea Group has re-traded a single-tenant data center here that it picked up 18 months ago. The Los Angeles-based data center investor sold the 21,000-sf building for “north of $11 million,” which is nearly double what it paid for the asset in spring 2006, according to a GlobeSt.com story at that time.

Red Sea Group SVP Mitch Kralis, while declining to comment on the gain, tells GlobeSt.com that significant value was added by extending the lease of the building’s sole tenant, Electric Lightwave, which is now owned by Integra Telecom.

Electric Lightwave has nine years remaining on a market-rate lease. When Red Sea Group acquired the asset in March 2006, Electric Lightwave had 3.5 years remaining on its lease and was paying a below-market rent.

“We like the deal because of the contraction that has happened in the whole data center telco marketplace in the US, let alone in the West, let alone California,” Kralis told GlobeSt.com at the time. “A lot of the space was built three, four, five years early and now it’s all being gobbled up, especially in the Silicon Valley.”

The supply-demand imbalance is what helped Kralis extend and improve the terms of the Electric Lightwave lease and, as a result, add several million of value to the asset. “We’re still bullish on the bullish on the data center market,” he says. “We plan to acquire a few more by year’s end.”

The Electric Lightwave building sits on 1.3 acres at 3075 Raymond St. The new owner is 3075 Raymond Santa Clara LLC, an individual Southern California investor who acquired the asset as the back end of a 1031 Exchange. Greg Cortese with the Royston Group of Los Angeles had the disposition assignment.

The family-owned Red Sea Group originated in Tel Aviv, Israel, and came to the US commercial real estate market in 1992. In 2004, Red Sea Group USA, led by its president Avner Papouchado, CFO Max Brandt and EVP Mitch Kralis shifted the US headquarters from Dallas to the Los Angeles area. The company’s portfolio includes $1 billion of hotel, office, industrial, retail and residential properties in Eastern and Western Europe, South Africa, Asia and North America.