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[IMGCAP(1)]SAN FRANCISCO-The amount of surplus real estate that will hit the market this year and next as a result of Oracle Corp.’s pending acquisition of Sun Microsystems is still uncertain, but it is expected to be significant.The companies’ headquarters are 24 miles apart, their combined real estate portfolio totals nearly 33 million square feet and Oracle is known for rapidly integrating acquisitions.

[IMGCAP(2)]Over the last four fiscal years, Oracle has invested billions of dollars to acquire a number of complementary companies, products, services and technologies including BEA Systems Inc. [2008], Hyperion Solutions Corp. [2007], Siebel Systems Inc. [2006] and PeopleSoft Inc. [2005]. In integrating these purchases, Oracle–over the past three years–has vacated nearly four million square feet, according to its most recent annual report.

[IMGCAP(3)]“[Oracle] has a very good facilities department that understands how to do this; they are very good at unloading excess space,” says Bob Garner, an executive vice president with Cornish & Carey Commercial, a major brokerage player in the market that has worked on both sides of Oracle deals in the region. “When they made these acquisitions they have either kept them autonomous or folded them in completely and haven’t really taken more space. They are very efficient in the way they take these companies down.”

Following the Seibel acquisition Oracle quickly unloaded more than 700,000 square feet on the peninsula by buying out leases or subleasing, according to local brokers. Oracle also rapidly moved to shed excess real estate after the BEA Systems acquisition last year, but at least one piece of it has been tougher to unload due to market conditions.

One year before it was acquired by Oracle, in April 2007, BEA acquired 488 Almaden in San Jose. The 17-story, 381,000-square-foot office building and its 1,100-slip garage were completed in 2002 but never built out or occupied. BEA paid $135 million–$355 per square foot–for the building and by March 2008 had spent an additional $6.5 million on the fit-out for a mid-2008 move-in when it halted work due to the acquisition by Oracle. The building was promptly put on the market, went under contract in July for less than $100 million and fell out of contract by September, a victim of the tight credit market. The building remains empty and unsold.

Sun’s worldwide portfolio totals 12.8 million square feet, including 8.2 million square feet in the US and 4.6 million square feet internationally. About three quarters of the total, or 8.8 million square feet, is leased, with 5.2 million square feet leased in the US and 3.6 million square feet leased internationally.

Sun owns about two million square feet in the Bay Area, including just less than one million square feet in its headquarters city of Santa Clara and just over one million square feet in Menlo Park, according to its most recent annual report. Outside the region it owns just over one million square feet in Broomfield, CO and 400,000 square feet each in Farnborough, England and Linlithgow, Scotland. Sun reduced its owned square footage by 3.8 million square feet in 2008 via sale-leaseback transactions for properties in Louisville, CO; Newark, CA; and Burlington, MA.

Its 10-building 1.4 million-square-foot former Newark campus, which it sold in 2006 and fully-vacated in 2007, remains substantially vacant for its new owner, BioMed Realty Trust, which paid $216 million–$154 per square foot–to acquire it and tens of millions more to reposition it as Pacific Research Center, a life science campus. As of February, the development was 23% leased, the same position it was in 10 months earlier.

Oracle’s breakdown of its real estate in its annual report is much less detailed and the company was not responsive to attempts to obtain additional information. The company’s annual report states that it owns or leases 19.9 million square feet worldwide. That total includes its two-million-square-foot headquarters in Redwood Shores, 24 miles north of Sun’s headquarters. It also includes 3.8 million square feet that the company has vacated over the past three fiscal years as it integrated its acquisitions. The surplus space is either being marketed for sublease or has been subleased, the company states in its annual report.

In the past three fiscal years Oracle says it has allocated more than $900 million for the integration of BEA, Seibel and Hyperion–most of it for severance and excess facilities obligations. Oracle’s rent expense over the past three fiscal years–net of sublease income–has jumped from $175 million in 2006 to $276 million in 2008. Not including Sun Microsystems, that figure is expected to come in closer to $355 million in fiscal 2009.

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