The risk in the deal for Shorenstein is in keeping the building leased. The law firm has been in the building since it was built 10 years ago but has only two years remaining on its current lease, according to the source.
In explaining the reasons for the acquisition, Shorenstein chairman/CEO Doug Shorenstein describes 601 California is a "high quality building with efficient floor plates appealing to single or multiple tenants" located in "one of the premier university-owned and operated centers of innovation in the country…in one of the most supply constrained markets on the West Coast."
The R&D vacancy rate in Palo Alto is 3.7% on a direct basis and 7.5% on an overall basis, according to CB Richard Ellis. The average asking lease rate is $2.75 per sf per month. For comparison, the average R&D vacancy rate throughout Santa Clara County is 14.3% on a direct basis and the average asking lease rate is $1.35 per sf, according to CBRE.
Shorenstein purchased the property on behalf of its eighth investment fund. This is Shorenstein's second major investment in Northern California's Silicon Valley market this year. In October, Shorenstein purchased part of a construction loan for the development of Moffett Towers, a 900,600-sf office campus now under construction in Sunnyvale.
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