Starwood Capital has acquired the Pacific Shores Center, a 1.7-million square foot, 10-building office park in Redwood City, California, for a reported price of around (€635 million) as opportunistic real estate investors increasingly focus on the recovering Silicon Valley market.
The deal is the first in the region for Starwood, which bought the property from San Francisco-based developer Jay Paul and Chicago-based private equity real estate firm Walton Street Capital. Investment bank Credit Suisse was also part of the ownership consortium. The sellers spent $500 million on the development of Pacific Shores Center, which came to symbolize both the excess and the downfall of the dot-com era. The complex includes a spa, walking trails, a baseball diamond and a rock climbing wall. During construction, which began in 1999, approximately 90 percent of the complex was pre-leased. By 2002, however, the collapse of the Silicon Valley office market and the bankruptcy of one of Pacific Shores’ largest tenants, left almost half of the buildings in the complex vacant.
The recovery of Pacific Shores, where occupancy is now reportedly around 90 percent, mirrors the recovery in the broader Silicon Valley office market. Large companies such as Google, Yahoo and Apple are all making significant additions to their property holdings. According to broker Richard Ellis, vacancy in the region fell to 11 percent in the third quarter of 2006, the lowest level in five years.
“There was a lack of institutional acceptance [in the Silicon Valley marketplace] after 2001,” Stuart Shiff, a principal with San Francisco-based private equity real estate firm DivcoWest, told Private Equity Real Estate magazine earlier this year. “After the RREEF and Blackstone deals, I think it opened up a lot of investors’ minds.”