Borelli Restructures

By Katherine Conrad, San Jose Mercury News, June 13, 2006 in the Commercial Real Estate Section, Spaces and Places column.

Longtime commercial real estate company Borelli Investment has restructured its management team, freeing Ralph Borelli from day-to-day responsibilities so he can handle land development deals, and making Buddy Parsons president. Borelli, who took over in 1977 for his father, founder Nelo Borelli, remains the CEO.

“We decided that having Ralph micromanaging is not the best use of his time,” Parsons said. “He is heavily invested in land transactions. That’s a huge amount of responsibility on his plate.”

The restructuring also allows Borelli Investments to beef up its current portfolio of 4 million square feet in the valley and San Joaquin County. Parsons is ambitious — he wants to double that figure.

About half of the company’s business is devoted to third-party property management, despite the fact that Borelli Investments has not sought out such accounts. Still, it has managed to build a sizable portfolio for a company with fewer than 30 employees, Parsons said.

 

Driven by Silicon Valley’s seemingly endless high-technology engine, millions of square feet of commercial space were constructed in Silicon Valley in the 1970s and 1980s. Much of this space consisted of large, one or two-story industrial and R&D buildings, built as part of sprawling campuses for high tech manufacturers and fabricators. But over the past decade, a lot of manufacturing jobs have moved elsewhere, to lower-cost areas in Texas, Oregon, or Massachusetts—or overseas. This has left a glut of vacant industrial buildings with functionally obsolete space on the market, with few prospects to fill it up.

At the same time, the San Jose metropolitan area’s rapidly growing population continues to put tremendous strain on the area’s housing supply. Prices have increased month after month, year after year, to levels that some analysts worry are too high.

With a drastic oversupply of industrial space and undersupply of residential space, it didn’t take long to identify the answer: Silicon Valley real estate’s own version of “recycling”.

16 Million Square Feet of Conversions

According to local brokerage firm Commercial Property Services (CPS), nearly 16.4 million square feet of commercial space at 150 sites are at some stage in the process of being converted to residential offerings.

With less than 3.2 million square feet already converted, the vast majority of that space will be transformed into much needed housing over the next few years. Almost 6.5 million square feet of space is under contract in the entitlement phase. Another 1.9 million square feet should soon be added to that, once an issue or two has been resolved with city planning departments.

“This movement from industrial to housing promises to reshape the Valley’s landscape,” says Ralph Borelli, president and CEO of Borelli Investment Company. “The 16 million square feet of space represents more than one-quarter of the vacant industrial space in the Valley, according to some estimates. The shift will be good for commercial rents—firming the market a bit—and also good for housing, cooling off what has been an overheated marketplace.”

A number of big-name builders are active participants in the conversion of industrial to residential space. For example, Southern California-based Shea Homes plans to demolish the longtime Underwriter Labs R&D facility in Santa Clara, replacing it with high-density housing. Shea is also looking at other potential conversion sites, from Mountain View to San Jose.

A New Breed of Condominiums

Besides residential condominiums and townhomes, there’s another type of condominium that is rising out of the dust created as old industrial buildings are recycled: business condominiums. Developers such as Borelli Investment Company, which has been at the forefront of the business condominium trend in Northern California, are actively searching for undervalued industrial properties to purchase, renovate, and convert to office condominiums.

For example, Borelli’s Junction Office Center was originally a vacant R&D complex on Junction Avenue just off Brokaw Road in San Jose. Borelli Investment Company purchased the two two-story buildings in 2005, investing nearly $10 million, and converting the space into 52 office condominiums ranging in size from 750 to 3,000 square feet—for a total of 77,400 square feet. Smaller companies, including medical and dental practices, can purchase office space at Junction and enjoy all the advantages of ownership, from tax benefits to potential appreciation

“The owners of the industrial buildings get a fair price for what had been a non-income producing investment,” Borelli explains. “And once the renovation is complete, companies that never dreamed of owning business property can afford to buy—putting an end to ever-rising lease rates. Recycling industrial space to business condominiums benefits everyone involved.”

The Space Race

There’s still plenty of demand for quality commercial space in Silicon Valley, as recent deals such as Adobe’s purchase of the San Jose Water Works acreage for future development in downtown San Jose suggest. Also, at some point, if millions of square feet of industrial space are converted to residential, there’s a danger of reaching a saturation point in the housing market.

But for now, it’s a case of spring renewal of a different kind, as industrial buildings with functionally obsolete space make way for a fertile crop of much-needed housing and other uses in Silicon Valley.

Buddy Parsons Promoted to President of Borelli Investment Company

Will handle day-to-day business development, client relations,
sales force management, and acquisitions

San Jose, Calif., June 5, 2006 — Buddy R. Parsons has been promoted to president of Borelli Investment Company, a leading San Jose-based provider of commercial real estate services, it was announced by Ralph N. Borelli, CEO.  In his new role, Parsons will be responsible for day-to-day activities in client relations, business development, sales force management, and acquisitions for the 50-year-old firm.  Borelli Investment Company provides a wide range of services for commercial real estate including property management, sales and leasing, land sales and repositioning, syndicated real estate investments, property development, construction management, asset management, and court-appointed receiverships.

Parsons has been with Borelli Investment Company almost continuously since 1978, when he started as a commercial leasing agent and property manager.  He left the company briefly in the mid-1980s for another career opportunity, but returned two years later-and has remained with Borelli ever since.  Most recently, Parsons was vice president of asset management. In the past few years, he has been involved in more than 500 lease transactions and helped close approximately $70 million in building sales.

“Buddy and I go back a long way, and he is well prepared to lead the company,” said Borelli.  “One of his greatest strengths is his focus on client satisfactions and meeting individual client requirements.  The company’s various clients, investors, and partners will be in very good hands with Buddy as president.”

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 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

Borelli a Local Leader in Property Management Services

What comes to mind when you hear the Borelli Investment Company name? Do you think of Borelli as a leader in syndicated commercial real estate investments in Silicon Valley?

Or as one of the top land brokers in Northern California?

Or perhaps you are more familiar with Borelli’s reputation as a trendsetter in the hot business condominium segment?  Borelli Investment Company is indeed all of these things.

But what many people don’t know is that Borelli Investment is also a leader in providing high-quality property management services for commercial real estate-both for its own syndicated partnerships and for third-party property owners.

“We actively manage more than four million square feet of space in a real estate portfolio worth nearly $1 billion today,” says Ralph Borelli, CEO of Borelli Investment Company.  “Over the past 50 years, we have evolved a number of innovative business systems and processes for managing commercial property.  These systems and processes-plus truly personalized attention from our experienced team-are what generate high occupancy levels, excellent tenant retention, and increased asset value for owners, as well as a positive experience for tenants.”

Better, More Cost-Effective Maintenance

When service is needed—on an air conditioning unit or because of leaky plumbing, for example—tenants and owners want pretty much the same thing. They want the problem fixed as quickly and efficiently as possible.

Borelli Investment Company is one of the only locally-based, boutique property management firm to use the Landport web-based property management system to organize and streamline service requests and work orders—so tenant problems are resolved quickly and cost-effectively.

Landport eliminates the confusion often created by a barrage of calls, faxes, and e-mails, enabling tenants to submit service requests with just a couple of keystrokes, and helping Borelli to manage and track work orders through to completion.

“Even though we have only recently implemented Landport, we’ve already seen a significant improvement in communications among owners, tenants, service vendors, and our staff,” says Buddy Parsons, president of Borelli Investment Company. “Tenants are better served and owners will ultimately save money and enjoy a more favorable lease renewal rate because of satisfied tenants.”

A Closer Accounting

Another tool Borelli has relied on for many years is the SKYLINE property management system that provides powerful capabilities including:

• Lease management
• Property management
• Accounting
• Operations reports
• Billing and collections
• Cash management

Silicon Valley Commercial Condo Cavalcade

There is a wave of commercial condominium construction and conversions washing over the Western real estate markets including Silicon Valley and the Bay Area. The question at hand is whether this is a trend related to the unrelenting frantic public pursuit of real estate or a permanent addition to the currency of commercial real estate.

Prior to the current condo boom, there had been just a handful of projects built over the years. In the late 70s and early 80s there was a brief but halted rush to response to the then tight leasing market. We still recall the lavish open house at the Humboldt Bank Building in San Francisco in 1980 promoting the launch of classic commercial condo ownership to be followed on at 311 and 351 California Streets. 2021 The Alameda followed in San Jose a few years later as did 28 North First Street in Downtown San Jose. Things went awfully quiet as the market was crushed by the 20% inflation busting prime rate enacted by the Fed in 1981 (the final blow to extreme inflation resulting from huge war expenditures and social program growth — good thing that can’t happen again!).

Along the trail since then, there have been a smattering of industrial and business park horizontal condo developments, but so few as to even talk of any trend. Think of Borelli’s De La Cruz development of 1991 and Jack Balch’s projects to name a few. Vertical office building conversions were rarer still

Well, rolling to tape forward, it seems as though we have had a perfect storm allowing for a new wave — low interest rates, voracious real estate appetites and the rise of the ethnic buyer community fueled principally by residential boom time equity.

The undisputed commercial condo king is Bob Eves of Venture Corporation out of Mill Valley (who knew?) who has certainly taken the most bullish position — $600 million in development in six western states, 600 sold or committed to date mostly in the Bay Area and San Diego. His view is clearly that we have a new permanent market for these hot sellers and he has found that any one ethnicity representing 15% of the population reflects in at least an 80% buyer base. This was the case in his Silicon Valley projects including a 100% Asian buyer community in Newark and an 80% Hispanic buyer demographic in his San Diego project. Ralph Borelli certainly comes in next at 184 horizontal units in Silicon Valley with buyers split three ways between Asian, Indo Asian, and Caucasian. Prices for these units all fall between a low of $240 to a high of $325 per square foot.

The more complex vertical office building condo conversion market is just starting to come to life, not the least due to the fact that there isn’t much land left to build new urban office structures. Key conversion projects in the market include 12 South First in San Jose (Old Bank of America Tower) and 114 Sansome in San Francisco, The Adam Grant Building. It will be very interesting to see how these go — so far so good as the San Francisco project opened escrow on six units in their first two weeks and the largest unit in the San Jose project is in escrow. 1879 Lundy in San Jose, a 56,000 square foot two-story office conversion available through Ritchie Commercial is getting a big early response with one escrow per week for units as small as 875 square feet. There is no question that the smaller the units the higher the demand. None of the developers see much interest over 5,000 square feet. San Francisco units are seeking $400-$500 per square foot with $200-$300 per square foot being achieved in San Jose.

By Mark Ritchie

Ritchie Commercial Real Estate