What’s old is new again.
That’s the idea driving more and more commercial real estate renovations as investors rush to resuscitate outdated Silicon Valley office and R&D buildings.
The payoff? More deals for buildings that would otherwise sit fallow. For tenants, the renovated space comes with a lower-priced lease than new
MWest exemplifies the trend. The partnership of DivcoWest and TPG Real Estate has hired six architects and plans to spend more than $100 million renovating its aging portfolio acquired from Mission West Properties Inc.
"In my career, I don’t recall this much investment going into older space and rehabbing,” said David Tipton, a broker with Cresa Partners in Palo Alto.
Last week, Tipton represented Nimble Storage in a lease for about 165,000 square feet at 211, 251 and 282 River Oaks Parkway in San Jose. The vacant campus was built in the early 1980s, and Nimble wouldn’t have given it a second look but for $11 million in upgrades Bixby Land Co. pumped into the structures after buying them for $19.5 million in 2011.
Bixby is hoping lighting strikes twice, and is spending $23 million to redo Trimble Technology Park, a 234,000-square-foot project it acquired for $29.5 million last October.
"Our idea is, we can clean up the buildings that have good bones, but let’s also spend some money to create an interesting environment,” said Bill Halford, Bixby’s president and CEO.
The rehabs also allow investors to get buildings market-ready quickly, he said.
"If I tore down those buildings and went through the entitlement process, it could take two to three years to bring them to market," he said. "In a market that is as volatile as this one, a three-year wait for anything is potentially scary.
Michael J. Biggar, managing partner at Orchard Partners LLC, agrees. Orchard and Apollo Global Real Estate Management just paid Synaptics Inc. $12.6 million for its headquarters at 3120 Scott Blvd., a 78,000-square-foot building built in 1983. The partnership hired ARC TEC Inc. to upgrade the Synaptics property.
"There was a tremendous amount of construction between 25–30 years ago. They’re basically good buildings, but they need to be brought up to 2013 standards," Biggar said.
Craig Almeleh, senior principal and a founder of ARC TEC, says there’s a lot of life left in older Silicon Valley buildings.
"There’s always going to be 20,000-square-foot buildings that these little companies can rent for 90 cents a foot,” he said. “I think we’re blessed because there’s a lot of pockets of these everywhere. I don’t think we should lose those. That doesn’t mean we can’t fix them up."