For LBA, the sale was an opportunity to maximize its return on investment several years earlier than expected. For Qualcomm, it was an opportunity to own rather than to lease, which made more financial sense for the company.
Qualcomm's brokers, Bill Fleck, Bart Lammersen and Steve Clark of Staubach, examined approximately eight potential sites that could accommodate Qualcomm before zeroing in on Kifer Corporate Center. "When you look at the amount of investment Qualcomm would make beyond what the [tenant improvement] allowance [LBA] would have provided and the P&L benefits from owning instead of leasing, coupled with the company's strong cash position, there were compelling reasons to own rather than rent," Lammersen tells GlobeSt.com.
LBA Realty principal Don Shaver tells GlobeSt.com he acquired the campus in 2005 with a lease to Applied Materials in place but winding down. The lease was scheduled to run through 2006. Instead, LBA negotiated a lease termination deal with the company at the end of 2005 and then invested in a significant makeover of the property.
As large blocks of space in the Silicon Valley began to diminish, interest in the campus grew. Colliers International, which marketed the building for LBA, says it had attracted numerous potential tenants when Qualcomm came calling about purchasing the campus outright. Indeed, while Qualcomm was in escrow to acquire the property, Lammersen says "three large public companies approached us to purchase or assign the purchase contract at a number significantly higher than what we paid."
While Qualcomm helped LBA make an extraordinary IRR on Kifer Corporate Center, LBA has helped others make healthy returns as well. In August, LBA paid $26 million for 600 Townsend East, a well leased, 82,848-sf building in San Francisco's Showplace Square District on the south side of Market Street. The seller, San Francisco based Flynn Properties, acquired the building largely empty 10 years earlier for less than $5 million.
"It was a good time to sell; it's almost a ridiculous gain," Flynn Properties president Greg Flynn told GlobeSt.com at the time of the transactions. "But the buyers did not overpay; we were just lucky enough to buy when the market was terribly distressed."
Shaver is thinking exactly the same thing about Kifer Corporate Center, and Lammersen agrees. "The profit was well justified; for them to buy it in the condition it was in, in a market with demand where it was, it was a high risk and they got a high return," Lammersen says. "If the market did not return and investment activity did not pick up, who knows what the outcome would have been."
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