Investors Like Downtown/Central Locations

SAN JOSE—After undergoing a significant remodel during the 11-year hold period, Cityview Plaza, an 11-acre 579,541-square-foot mixed-use asset, recently sold for slightly more than $280 million, according to sources close to the transaction. The buyer was Jay Paul Company, a San Francisco-based privately held real estate development firm.

The property was originally acquired in 2007 by an affiliate of Equus, BPG Investment Partnership VIII & VIIIA LP, a fully discretionary equity fund managed by Equus Capital Partners Ltd. The asset was 85% leased at the time of sale. As one of only a handful of true class-A projects in downtown, Cityview has a capacity to serve tenants ranging in size from 5,000 to 60,000 square feet.

The development spans an entire city block and includes a mix of nine class-A office buildings. The site encompasses 534,036 square feet of office space, 45,505 square feet of retail space, a 138,000-square-foot plaza and 1,071 parking stalls.

“Given the central location of Cityview Plaza, Jay Paul will do very well,” seller rep NKF capital markets’ Edmund Najera, executive managing director, tells GlobeSt.com. “In addition, downtown San Jose continues to get better and better, attracting larger tech tenants and providing the live/work lifestyle people want.”

Cityview Plaza is directly across from the Adobe worldwide headquarters. Adobe plans to develop additional office space in downtown, adding an estimated 10,000 jobs to the area. And, Google has already announced plans to take 8 million square feet of office space close to the property which is estimated to bring 20,000 new Google employees to the area, making it the largest Google campus in North America.

“We acquired the 67% leased Cityview Plaza in 2007 with a particular focus on the rare opportunity to secure a large well-located mixed-use property in the rapidly evolving downtown San Jose market,” said Chris Locatell, senior vice president and director of dispositions for Equus. “The investment strategy was to deploy our operating and project enhancement capabilities to maximize the property’s innate competitive advantages. The combination of more than $10 million in common area improvements to the property, market rental rate growth and substantially higher occupancy have resulted in over a 5% annual appreciation rate in spite of experiencing the deep, sustained global recession following shortly after our acquisition. By the same token, Cityview Plaza retains enormous potential for material value growth under the ownership of Jay Paul Company.”

The extensive repositioning strategy included capital improvements such as more inviting entrance points to the complex, landscaping, renovated lobby entries and significant common area improvements. On-site amenities added by Equus include a fitness center, a conference center, new restaurants and seating/meeting areas within the complex’s central plaza.

Managing all operational aspects of the project and the sale was Rob Butchenhart, vice president and manager of Equus’ West Coast office in Los Angeles and the asset manager for Cityview Plaza. NKF capital markets vice chairman Steven Golubchik, Najera and senior analyst David Hosler represented the seller in the transaction. Serving as counsel to Equus was the firm of Cox, Castle & Nicholson which was led by transactional attorneys Matt Wyman and Lindsey Barr.

“This was the right time as the market for large, mixed-use assets in Silicon Valley/San Jose is strong with limited opportunities. That said, we did however find the right buyer too,” Butchenhart tells GlobeSt.com. “While we had serious interest and a very competitive bidder pool, the combination of price, experience, capability and the short closing period made the decision to go with Jay Paul an easy one.”

Located within a central commercial area between the entertainment and art districts, the mixed-use property is a short walk to urban amenities including public transportation in the form of both Caltrain and a planned BART line. Cityview is located blocks from downtown light rail stops and about a mile from the Diridon transit station. The site benefits from access to the major arteries serving San Jose and the Silicon Valley, including highways 85, 87, 101 and Interstate 280.

“Market dynamics and timing helped as we have been a strong believer in the asset and San Jose overall,” Locatell tells GlobeSt.com. “We continue to believe rents and tenant demand will outpace the market as a whole, which is driving investor demand. This, combined with our desire to exit the investment due to the fund life cycle, played into our timing.”