SANTA CLARA — The official $210 million that was paid for a three-building Santa Clara office campus points to weakening real estate values for regional office properties.
The deal included an alliance of Bay Area real estate firm Ellis Partners and Boston-based hedge fund Baupost Group, according to documents filed with the Santa Clara County Recorder’s Office on Aug. 27.
When the buyers disclosed their purchase earlier this month, they declined to officially reveal what they paid for the property. Now, that price has come to light with the filing of the grant deed for the purchase of the campus.
The $210 million price is roughly half, or 47.7% below, the property’s assessed value of $401.9 million. The new owners paid 31.2% less than the $305.1 million that the seller, Clarion Partners, paid for the site in 2015.
The deal shows that even the presence of tech company Applied Materials as a tenant doesn’t guarantee immunity from the economic maladies that have come to afflict the Bay Area office market.
Declining property values have begun to show up on a widespread basis.
Stagnation in commercial real estate has hobbled growth in assessed values for Santa Clara County real estate, producing the smallest rate of increase in more than a decade, a new report states.
While the annual assessment roll for the county did manage to reach an all-time high of $725.7 billion, the 4.15% increase marked the slowest annual increase in combined values since 2012, the County Assessor’s Office reported in recent weeks.
Property value outcomes can affect revenue for an array of public agencies.
If real estate values turn soft in a region, the decline could choke a crucial revenue stream for cities, counties, regional agencies and school districts.
Applied Materials, one of the world’s largest and most successful semiconductor equipment makers, is the major tenant in the just-bought Santa Clara office complex, which is about 84% leased. The office hub is large enough to accommodate 1,800 to 2,300 workers.
At the time of the purchase, the buying group obtained a loan of $167.2 million from an entity operating as BREDS V Mortgage, county documents show. BREDS is an acronym for Blackstone Real Estate Debt Strategies, which are funds that are managed by Blackstone, one of the world’s largest private investment firms.
The office market’s weak values could entice savvy real estate firms such as Ellis Partners, which is betting on an upturn in the battered sector as tech companies seek expansion sites after years of retrenchment.
“The investment comes at a time of significant renewed leasing activity in Silicon Valley and a national flight to quality within the office sector,” Ellis Partners stated regarding the transaction.
