Investors grab big Palo Alto office building in hot market

PALO ALTO — From Silicon Valley’s earliest days, Palo Alto has been one of the region’s most coveted office markets, and a recent $145 million office property deal suggests the city’s investment allure remains intact.

An affiliate of Morgan Stanley Real Estate Advisor paid $145.1 million for a big Palo Alto office building at 601 S. California Ave., in a section of Stanford Research Park, on April 10, according to Santa Clara County records.

“Palo Alto is definitely a strong market,” said Erik Hallgrimson, an executive managing director with Cushman & Wakefield, a commercial realty brokerage.

It also appears that the value of the 112,000-square-foot building, now owned by PPF Office 601 California, an entity controlled by Morgan Stanley’s Prime Property Fund, has surged in recent years, according to property reports and public records.

“This remains a very high-priced, and very desirable office market,” Hallgrimson said.

In 2012, Alecta Real Estate paid $102 million for the building. In 2017, Blackstone Group paid Alecta $136.8 million. The most recent purchase of the building indicates a 6 percent increase in value over a one year period for the two-story office complex. A Securities and Exchnge Commission filing stated the building was constructed in 1998.

“The vacancy rate in Palo Alto is so low, and for buildings like this, the vacancy rate can almost be zero,” said Don Reimann, an executive vice president with Colliers International, a commercial realty brokerage.

The fast-rising appreciation of the office building is a reminder that it’s more than residential prices that have soared, bolstered by a robust economy and sturdy demand. Commercial properties can also become more pricey. The most recent sale takes the value of the building to the vicinity of $1,296 a square foot.

As an added enticement for a buyer, the principal tenant in the building is Wilson Sonsini Goodrich & Rosati, a venerable law firm in Silicon Valley.

“It’s a great time to be an owner of a commercial property, and the seller of a property,” Reimann said.

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Source:: The Mercury News – Business


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