Higher sales prices, shrinking inventories, and growing construction costs are creating urgency for businesses looking for commercial space.

San Jose, Calif., February 1, 2007 — 5-4-3-2-1 Liftoff! That thundering you hear is the sound of lease rates on Silicon Valley commercial real estate leaving the launching pad and climbing back toward sustainable levels. No one expects rents to go through the stratosphere, but after being exceptionally low for the past five years or so, lease rates on commercial real estate are due for a significant rise. Business owners and property investors who are sitting on the sidelines trying to time the market would be well advised not to wait any longer.

Let’s turn back the calendar a few years to understand what is going on. Following decades of steady appreciation in property values and healthy rental levels, the dot-com explosion of the mid- to late-1990s sent commercial real estate rents through the roof. The belief that almost any idea involving the Internet was a money-maker created a tremendous demand for commercial space in Silicon Valley by venture capital-based dot-com startups. But as so often happens, when the dot-com bubble burst in 2001, the overheated market cooled off quickly, driving rents down. Enormous amounts of inventory—at one point as much as 60 million square feet of space by some estimates—stood vacant. It was a renter’s market; companies leasing space felt they had the upper hand in negotiations with property owners.

Today, there are clear signs the commercial real estate market has come back into balance, after the rollercoaster ride of the past decade.

• Lincoln Property just purchased the four-building, 15-acre former Acer Computer campus on Trimble Road in San Jose for $27 million—handing Apollo Real Estate a tidy $8 million profit on the property it had bought less than a year earlier for $19 million.
• A joint venture between Westbrook Partners and Four Corners Properties just laid out $94 million for Montague Park in San Jose, providing the previous owners a $19 million profit in just 15 months.
• Significant rent increases of up to 30 percent have taken place over the past 12 months—with the upward trend especially noticeable on incubator spaces of 5,000 square feet or smaller.

“The evidence is indisputable,” said Ralph Borelli. “Big real estate companies are buying again in Silicon Valley. The bottom of the market for commercial real estate in the Valley was most likely reached in 2004 or early 2005. The rebound began in earnest last year, and this is fueling the rise in rents now being felt throughout the Valley.”

Multiple Contributing Factors

What is causing the recent increases in property values and rents? In Borelli’s opinion, there are several contributing factors:

• Strengthening job market—According to the Association of Bay Area Governments (ABAG), the South Bay experienced significantly stronger job growth than had been expected in 2006, increasing by 1.8%. The San Jose area outperformed California and the nation, and in fact only trailed the combined San Francisco/San Mateo/Marin area and Solano County in the creation of new jobs last year. ABAG expects the upswing to continue in 2007, with the South Bay predicted to add another 11,500 jobs—many in the technology sector.
• Rapidly decreasing inventories—With the job market on the rise, planning departments have approved the conversion of obsolete commercial and industrial property into residential space. Perhaps 25 percent of the vacant standing inventory has been or will be torn down for new housing by leading homebuilders such as KB Home, according to Borelli. At the same time, big-name businesses such as Google, Yahoo, and Apple have collectively purchased millions of square feet of space over the past several years—effectively removing these buildings from the rental base. This has decreased the vacancy rate for office space from 20 percent or more to approximately 10 percent, according to CoStar Group, the number one provider of information services to commercial real estate professionals in the U.S. and U.K. Industrial and “flex” space still shows slightly higher vacancy rates, but is definitely trending lower.
• Limited land—The Valley floor is largely built out. Unlike in the wide-open Sacramento area or the Central Valley, Silicon Valley has natural geographic obstacles to growth—the foothills on either side of the Valley—placing a finite limit on where building can be done. Open space regulations have slowed growth on hillsides, and areas such as San Jose’s Coyote Valley are still being held for future development. With so little vacant land available, land prices can’t help but increase.
• Rising construction costs—The cost of construction has also risen. It is simply more expensive today to build buildings than it was a decade ago. And the cost of new construction is considerably higher than renovating existing commercial/industrial space.

“The wild swings of the dot-com period are behind us,” Borelli remarked. “The most educated guess is that rents will quickly return to “pre-bubble” rates, as property owners look to get their economics back into line. Meanwhile, property values will resume their slow, but steady climb—making Silicon Valley commercial real estate a very good long-term investment.”

Important Implications for Business Owners

As business owners look to manage occupancy costs in the coming months and years, they have several viable options.

• Purchase space—Smaller companies and professional firms now have the same option of owning their own space as larger corporations. At business condominiums such as Borelli Investment Company’s Junction Office Center on Junction Avenue near Brokaw Road in San Jose, down payments start at $29,900 with 90 percent financing available from the SBA. Sales prices for brand new office condos in the $10 million Junction renovation are actually below the replacement cost if that space had to be built from scratch. Further, business owners can take advantage of significant tax write-offs, and also enjoy the potential appreciation predicted for Valley real estate.
• Lease quality Class B space—Rents on much of the Class A space that has changed hands at large premiums over the past couple of years have already jumped. Now is the time to look for quality Class B incubator office space (5,000 square feet or less) and sign longer-term agreements that lock-in lease rates.

“As more property changes hands at increased prices, rental rates and property values are going to continue to climb,” Borelli commented. “The risk of less predictable markets is largely behind us. The time for businesses to act is now.”

Having celebrated its 50th anniversary last year, Borelli Investment Company is one of the oldest commercial real estate firms in the Santa Clara Valley. The company provides a full range of commercial real estate services—from development and construction management to land sales and consulting for sales and leasing. More information about Borelli Investment Company’s services may be obtained by calling (408) 453-4700 or visiting www.borelli.com.
Having celebrated its 50th anniversary last year, Borelli Investment Company is one of the oldest commercial real estate firms in the Santa Clara Valley.  The company provides a full range of commercial real estate services-from development and construction management to land sales and consulting for sales and leasing. More information about Borelli Investment Company’s services may be obtained by calling (408) 453-4700 or visiting www.borelli.com.

Contact: Ralph Borelli, CEO Borelli Investment Company 1770 Technology Dr. San Jose, CA 95110 Ph: 408.453.4700 Fax: 408.453.4636 E-mail: ralph@borelli.com http://www.borelli.com

Major Land Sales at Old Hacienda Gardens Shopping Center

Announcing the Approval and Sale of the North Half of the Hacienda Gardens Shopping Center on September 22, 2005 San Jose, California

Now called Willow Glen Place

A 206 Unit Residential   Townhome Community will be Developed by Toll Brothers

Borelli Investment Company would like to thank:

The Sellers: KT Properties The Buyers: Toll Brothers The City of San Jose

Brokered by: Ralph Borelli and Tom Zolezzi

Patricia Robinson and Ron Van Wagner Win Borelli Broker “Race”— Get Luxury Treatment and Exclusive Trackside View

The San Jose Grand Prix is indeed “more than a race” as its slogan declares. While Sebastien Bourdais was steering his #1 McDonald’s Ford-Cosworth/Lola/Bridgestone to victory on the tight 1.44 mile downtown circuit, Canary Foundation was raising approximately $1,070,000 to further its goal of finding new ways to detect cancer at its earliest, most curable stages.

Meanwhile, Borelli Investment Company was doing its part to support both the race and the fundraising efforts. Ralph Borelli auctioned rides in his vintage #22 Maxwell House stock car—a former pole sitter at the NASCAR Daytona 500—with all the money going to the charity.

In addition, the company offered a series of prizes for anyone who closed a deal or referred leads for office condominium sales, sales and leases of other Borelli properties, or property management contracts. First through third place awards included seats in Borelli Investment Company’s two-story, luxury trackside suite, pit crew access, cash vouchers, and for the grand prize winners—rooms for the weekend at the Hilton hotel. Everyone who closed a deal or made a referral got grandstand seats to see the race.

The top producers for 2006 were brokers Patricia Robinson and Ron Van Wagner of Grubb & Ellis, who worked together on a transaction to purchase office condo suites 128 and 138 at Borelli’s Junction Office Center in San Jose.

Congratulations to Patricia and Ron, and thanks to all who contributed to Canary Foundation or supported this great motor sports event that continues to gain traction in San Jose. See you at the starting line next year!

For years, Morgan Hill residents have had to do the majority of their shopping in neighboring communities to the north or south—San Jose or Gilroy. Little did they know that behind the scenes, Borelli Investment Company was quietly looking for a way to put together a land transaction that would lead to the largest retail project in Morgan Hill’s history.

In 1976, Ralph Borelli began talking to a group of landowners, including the Guglielmo family of the winery that bears its name, about selling their land for development. Various obstacles arose—complications due to land being passed from one generation to another, entitlement issues, and zoning changes—and nothing happened. At one time or another, other developers tried to build homes and then office buildings, but each time, failed negotiations and litigation caused the land to remain barren.

Then, not quite three years ago, Borelli saw another opportunity. Negotiations began again, with J.P. DiNapoli Companies, Inc. and Browman Development Company laying plans for a contemporary 650,000 square foot, 66-acre retail center anchored by a Super Target store. After nearly three decades of behind-the-scenes spadework, Borelli was finally able to bring together the patchwork of parcels to complete the land transaction and pave the way for construction to begin.

“One parcel had been owned by the Guglielmo family for more than 80 years,” said Borelli. “Another parcel had multiple owners with varying interests and concerns. Finding the right terms to ensure the transaction was acceptable to all the landowners and the developers, and would also meet the city’s general plan provisions, was not easy.”

Perfect Fit for Morgan Hill

The new shopping center will feature retail businesses that will minimize competition with Morgan Hill’s revitalized downtown. Its contemporary, art deco design will also set it apart from the traditional indoor mall or “big box” retail centers surrounded by acres of concrete and asphalt. The buildings will be very colorful, washed in bright earth tones that fit well with the surrounding hills and valley floor. Shoppers will enter off Cochrane Road by driving up a main boulevard that runs between the buildings. The buildings will also be connected by pedestrian walkways with courtyard-like gathering places.

In addition to the 127,000 square foot Target, major anchor tenants signed for the center include Petco, Staples, and Cost Plus World Market. Shoppers can also expect a choice of national restaurant chains. The center is scheduled to open in the summer of 2007.

“We wanted to bring the South Valley something unique,” said John B. DiNapoli, vice president of JP DiNapoli Companies. “This center will offer South Valley residents a shopping experience they can’t find elsewhere.”

Persistence Pays Off

The 30-year effort to secure a deal was the longest of Ralph Borelli’s career, which has been marked by numerous awards for his ability to complete complicated land transactions.

“Sometimes, it just takes time,” commented Borelli. “Very few land transactions in Silicon Valley are simple any more. Fortunately, our firm has the skills and experience to keep working on a transaction like this and help make a much needed shopping center a reality.”

 Named Best Renovated Building of 2006 by Building Owners and
Managers Association – Silicon Valley

San Jose, Calif., October 18, 2006 — Borelli Investment Company’s Junction Office Center, a two-building, 77,000 square foot office condominium complex at 2051-2055 Junction Avenue in North San Jose, has been named Best Renovation of 2006 by the Building Owners and Managers Association (BOMA) Silicon Valley. Offering 52 units from 750 to 3,000 square feet,JunctionOfficeCenterhas been another in a series of successful business condominium projects for Borelli, with more than 50 percent of the complex already sold or in escrow. Businesses can buy—not lease—space at Junction, and enjoy all the tax benefits and potential long-term appreciation usually available only to larger organizations capable of purchasing an entire building.

Originally built in 1984, the two two-story buildings set around a central courtyard had aged significantly over the years. Borelli Investment Company invested nearly $10 million in the renovation, completing a sweeping upgrade that included a new roof, sophisticated new heating and air conditioning system that offers better zone control and greater efficiency, upgraded elevators, completely redone restrooms with showers, ADA improvements, a full seismic retrofit, a new parking lot, and extensive landscaping. A new facade brought out the sweeping glasslines and saw the addition of awnings over the two entrances. The elegant lobbies feature high ceilings and polished granite floors, with a number of works of art as added touches.

“Borelli Investment Company has a distinguished reputation for the work they do in commercial real estate development and management,” said Robert Jacobvitz, executive director of BOMA Silicon Valley. “The judges were impressed with the high quality of the retrofit.JunctionOfficeCenterhas a unique role as an office condominium created from old concrete tilt-up buildings. This is a very good example of Borelli’s innovative business model, and may be the wave of the future inSilicon Valley.”

Many Business Conveniences

Each of the 52 office suites is fully carpeted and includes a coffee bar with sink and cabinets. Condo owners are provided individual controls for heating and air conditioning, have separate metering for electrical usage, and enjoy high-speed web browsing and Internet access over the building’s T1 line as part of their regular association dues. Additional customizing is easy, because businesses own, not rent, the space.

All owners can use the state-of-the-art common conference room with the latest meeting support tools such as large-screen video, Web-based videoconferencing, audioconferencing, and PowerPoint capabilities.

JunctionOfficeCenter’s location in the heart of the technology-rich Golden Triangle—formed by the intersections of I-880, Hwy 101, and Hwy 237—reduces commutes and makes it easy to see clients any time of the day. The complex is close to a VTA light rail station and a short drive toMinetaSan JoseInternationalAirport. The generous parking ratio of 5.3 spaces per 1,000 square feet provides plenty of spots for employees and customers, and on-site services include UPS, FedEx, and US Postal Service drop boxes.

“We are so enthusiastic aboutJunctionOfficeCenterthat we recently purchased several units and moved our company into 5,500 square feet of space there,” remarked Tom Purtell, chief operating officer of Borelli Investment Company. “We are pleased to have been chosen by BOMA Silicon Valley for this honor, and think this speaks to the quality and attention-to-detail owners will find at Junction. This is an office smaller businesses will want their customers to visit, again and again.”

Interested businesses can learn more about JunctionOfficeCenterby contacting Larry Bengiveno at Borelli Investment Company at (408) 453-4700 or larry@borelli.com.

About BOMA Silicon Valley
BOMA Silicon Valley has served the commercial real estate industry for over 22 years. Founded in 1983, BOMA Silicon Valley today represents well over 75 million square feet of commercial real estate inSilicon Valley. The Association is dedicated to professional, ethical property management and provides its members with legislative advocacy, industry information, educational opportunities, and a forum for networking with peers.

Borelli Investment Company is one of the oldest commercial real estate firms in the Santa Clara Valley, with more than 50 years of experience. The company provides a full range of commercial real estate services—from development and property management to land sales and consulting for sales and leasing. More information about Borelli Investment Company’s services may be obtained by calling (408) 453-4700 or going to www.borelli.com

Contact:
Buddy Parsons, President
Borelli Investment Company
2051 Junction Avenue, Suite 100
San Jose, CA 95131
Ph: 408.453.4700
Fax: 408.453.4636
E-mail: info@borelli.com
http://www.borelli.com