(To read more on the industrial market, click here.)
SAN FRANCISCO-Locally based DR Stephens & Co. recently added three properties to its three-million-sf portfolio of industrial and R&D properties in Silicon Valley and the East Bay. Most recently, the private family-run business paid $13.32 million for 6550 Dumbarton, a 95,710-sf office/R&D building in Ardenwood Corporate Park in Fremont.
The property is fully leased to STI Technologies, which has occupied the building since it was built in 1999. The lease expires in 2010, at which time Donald Stephens tells GlobeSt.com he expects market rents will be much higher.
"What our goal is with any asset we acquire in an emerging market such as the Silicon Valley is to buy something that is well leased at today's values, hold it for five years, release it at higher rates, refinance it and then sit on it," Stephens says. "If we invest with a pension fund, we will recapitalize the asset once we meet their return objectives and bring in longer-term investors while maintaining our position."
First developed in 1982, Ardenwood Corporate Park has evolved into a biotech and technology center. Of the nearly 40 life science firms that have opened in Fremont within the past five years, nearly a quarter of them are clustered in Ardenwood Corporate Park. Across Highway 84 from the park, BioMed Realty Trust recently paid $125 million to acquire the 1.4-million-sf Sun Microsystems campus, which is being repositioned as life sciences space.
"If [Biomed] is successful and that is converted over the next three or four years, it will change the whole area into a life sciences hub," Stephens says. "We would have to put a lot of money into our building to take advantage of that, but monthly rents for biotech space start in the $3- to $4-per-sf range," whereas the current market rate for general R&D space is around $0.80 per sf per month.
Regardless, rents are expected to increase significantly over the next five years in the Silicon Valley assuming the recovery continues. "With virtually no land left in the heavily used areas, there's not going to be a significant increase in supply while demand is expected to continue increasing," Stephens says. "When that happens, availability tightens and rents go up."
With that scenario in mind, DR Stephens also recently acquired assets in Sunnyvale and Santa Clara. In Sunnyvale, the company paid $12.74 million for a 75,000-sf, fully leased R&D building at 810 Kifer Rd. In Santa Clara, the company paid $4.5 million for a 36,200-sf R&D building at 5102 Calle Del Sol that is fully leased. All three assets were acquired by DR Stephens & Co. through Stephens & Stephens XV LLC.
The Silicon Valley R&D market is the largest in the Bay Area with more than 154 million sf. Since peaking at 23.5% vacancy three years ago, the overall vacancy rate has fallen fairly steadily to 18.22% as of the end of September, according to NAI/BT Commercial.
The broker with the disposition assignment for 6550 Dumbarton was Kathy Kelleher of CB Richard Ellis. The seller was Ardenwood LLC, a group of local private investors.
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