New York Investor Pays $36M For 91K SF San Jose Office Building

Even with Bay Area office buildings trading at steep discounts, a 91K SF San Jose asset commanded 9% more than its 2021 sale price, fetching $36M. But the new price tag isn't indicative of the asset's true value, a source close to the deal told Bisnow.

In an all-cash transaction, Blue Owl Real Estate Capital purchased 1010 Rincon Circle from a joint venture of Machine Investment Group and Baudpont Capital, according to The Real Deal. The buyer and sellers are all based in New York. 

In November 2021, the JV picked up the three-story asset for $32.6M. 

While the new price tag looks like a great deal for the sellers on paper, a closer look reveals a more mixed outcome.

“With a cap rate approaching 9%, this is a very different deal than when they acquired it,” said the anonymous source, an executive with direct knowledge of the deal.

When the prior owners bought the asset in late 2021, it was largely vacant, the source said. The prior owners invested capital to redevelop the asset into a high-end facility for Quanta Cloud Technology, a manufacturer of hardware and software for the data center industry.

The owner leased the asset to QCT in a 12-year deal, according to the anonymous source.

Like every other office market in the country, San Jose has faced its fair share of challenges over the past three years. But investment sales velocity has started to gain momentum, as sellers are “cutting losses after coming to terms with being unable to get stronger returns on their investments,” Kidder Mathews said in a first-quarter research report. 

The volume of office sales grew year-over-year in Q1. Approximately 953K SF of office properties in five transactions traded in Q1, up from about 691K SF in Q1 2023, according to the brokerage firm.

At the end of Q1, San Jose office vacancy stood at 16.6%, reflecting Silicon Valley’s continued preference for remote work.