Downtown San Jose Office Campus Trades at 77% Discount

If office valuations are bottoming out, a transaction involving a two-tower office complex in downtown San Jose could be a benchmark for how low the bottom may be in Silicon Valley.

The high-profile office campus known as 111 Market Square has traded for $34.2M, which represents a discount of about 77% compared to its last sale price of $141M in 2019.

The 325K SF campus, consisting of a 12-story tower and an adjacent 10-story tower at the corner of North Market Street and West St. John Street, was sold to a real estate entity headed by George Mersho, the Shoe Palace CEO, according to a report in SiliconValley.com.

Not only is this trade a discount on the 2019 transaction—the purchase price is also lower than a transaction for the property eight years ago, in 2016, the report said.

The purchase price for 111 Market Square translates to about $105 per square foot. Rubicon Point Partners paid $435 per square foot for the campus in 2019; in 2016, the campus traded for $199 per square foot.

The deal is the second heavily discounted office acquisition in San Jose in the past three months by a group headed by Mersho.

In December, a different entity headed by Mersho paid close to $24M, or about $151 per SF, for an 11-story building encompassing 157K SF at 303 Almaden Boulevard. The price was 70% below the $80M that the seller paid for the tower in 2017, which at the time was a record $509 per square foot.

According to CBRE marketing materials, 111 Market Square is considered a prime Class A campus. Rubicon Point Partners upgraded the lobbies and office in the building, as well as a connecting courtyard between the two towers.

The brochure also noted the prime location next to San Pedro Square, SiliconValley.com reported.

“Market Square enables tenants to seamlessly transition from office hours to happy hour without missing a beat. Enveloped by bountiful urban living options, chef-driven restaurants, craft coffee cafes, happy hour spots and diverse cultural destinations, tenants can experience a hub of activity just steps from the office,” the brochure said.

Office properties have been trading for heavy discounts throughout the Bay Area, especially in San Francisco, where the office vacancy rate is 35%.

Last year, Wells Fargo sold a 13-story Financial District office tower it had listed for $160M for about $40M. The bank bought the 355K SF building, located at 550 California Street, in 2005 for $108M, or $304 per SF. The sale price translates to about $125 per SF.

In 2022, JLL listed 550 California Street, but got no takers for the asking price. After Wells Fargo assigned Eastdil Secured to relaunch the listing in January 2023, the whisper price was slashed to $53 million.