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