FortBay picks up Stevens Creek office park in future change area
Originally published in the Silicon Valley Business Journal
Dozens of tenants will be writing rent checks to a new landlord after FortBay LLC added a second property to its Silicon Valley portfolio: Stevens Creek Executive Park, a roughly 167,000-square-feet multi-tenant office-and-retail complex on one of San Jose’s busiest corridors.
FortBay, in a joint venture with Colony Capital, paid about $53 million, or about $317 per square foot, for the 9.23-acre project at 4300-4340 Stevens Creek Blvd., across from Stevens Creek BMW. It includes about 137,000 square feet of office space and 28,000 square feet of retail.
Tom deRegt, a principal at FortBay, said the property fits in with FortBay’s investment criteria because it produces good cash flow with the existing use and has possible upside potential as a redevelopment site down the line.
“If you look along the corridor, it’s one of the strategic opportunity sites that could go to higher-density mixed-use,” deRegt said. “We’re right in between Apple to the north and Santana Row to the south.”
For now, though, FortBay is happy to keep signing office leases at the project, where there are roughly 100 office tenants. Most of them are small users, under 3,000 square feet. That’s an underserved market, deRegt said, putting upward pressure on rents — a good problem for landlords.
Current rents right now are about $2.75 per square foot per month, on a triple-net basis. FortBay expects to achieve an initial cap rate, a key measure of yield, of a little under 6 percent. The project had undergone a renovation, but FortBay intends to make some further improvements. Current vacancy is about 10 percent. FortBay has hired Bob Simpson and Mike Thompson of Cushman & Wakefield to handle leasing.
This is the second major acquisition in the area for FortBay, which is led by Perry Hariri, Lance Tate and deRegt. In December, the firm acquired the 208-unit Village Lake Apartments in Mountain View for $145 million. That project — also a JV with Colony Capital — is also considered a possible redevelopment at some point in the future.
As for Stevens Creek, the city is holdings meetings with a citizens advisory group to lay the groundwork for a new village plan, which will spell out the specifics of new development in the area — where, when and how much. FortBay is a member of that advisory group, and deRegt said the company wants to work within the parameters set by the city but that the key is the area’s infrastructure.
“Clearly office and commercial is the push with the city, but we need to balance some housing with that to make the transportation plans work,” he said. “The key is the jobs housing balance, a mix of commercial and residential.”
Nathan Donato-Weinstein covers commercial real estate and transportation for the Silicon Valley Business Journal.