Silicon Valley Campus Commands $630M

391 San Antonio. Image via Google Street View

An affiliate of Brookfield Property Partners has acquired a two-building, WeWork-leased office complex in Mountain View, Calif., for $630 million, marking one of the largest recent deals in Silicon Valley. The seller was an affiliate of Merlone Geier Partners, a San Francisco-based private real estate firm that redeveloped an old shopping center at the site.

Part of The Village at San Antonio Center, a mixed-use project at El Camino Real and San Antonio Road, the asset measures 456,760 square feet of office space, along with a 10-screen ICON Theater, a parking garage and retail space, for a grand total of 576,921 square feet. The office component is fully leased to WeWork and occupied by Facebook with an enterprise lease.

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Brookfield Strategic Real Estate Partners III purchased the asset for about $137.2 million in equity, while Goldman Sachs, Credit Suisse arm Column Financial and Société Générale provided a $505.6 million loan for the acquisition, according to an analysis by Fitch Ratings. The transaction also included $12.8 million in closing costs, landlord obligations and gap rents.

Built in 2017, the LEED Gold-certified property is located less than half a mile from the San Antonio stop of the Caltrain system, offering convenient access to San Jose and San Francisco. The largely commercial area around the site includes a WalMart and Target along with single-family and multifamily housing. Google’s corporate headquarters, dubbed the Googleplex, is roughly 2 miles to the northeast.

The two office buildings are located at 401 and 391 San Antonio Road and measure 217,754 and 239,006 square feet, respectively, plus 24,301 square feet of ground-floor retail. The asset also includes a nine-story, standalone parking garage with 1,229 spaces, the movie theater building and a leasehold interest in retail space on the ground floor of the Hyatt Centric Hotel.

In addition to the 157-key hotel, the larger master development also encompasses The Village Shops, a 90,000-square-foot retail property anchored by Safeway, and The Village Residences, a 330-unit luxury apartment community that Brookfield separately acquired in late 2019.

Bright spot in tech hub

According to Reis Inc. data cited by Fitch, the asset is located in the Palo Alto/Mountain View/Los Altos submarket of San Jose, which is significantly outperforming the overall San Jose market. Office vacancy in the submarket was 13.5 percent at the end of 2020, with asking rents of $69.06 per square foot.

The broader San Jose office market recorded vacancy of 19.3 percent as of the fourth quarter of 2020. Vacancy is expected to rise to 20.2 percent in 2021 and 22.9 percent in 2023, while asking rents, currently at $47.50 per square foot, are projected to fall to $42.16 per square foot in 2022.

Brookfield Property Partners, one of the largest owners, operators and developers of real estate in the world, had about $88 billion in total assets at the end of December, including more than 250 properties across the U.S. On Thursday, Canada’s Brookfield Asset Management Inc. said it had reached a $6.5 billion deal to take its real estate arm private by purchasing all of the outstanding shares of Brookfield Property Partners LP.