Nortel Sells California Offices at Lowest Price Since Mid-1990s
2002-07-31 13:59 (New York)
Nortel Sells California Offices at Lowest Price Since Mid-1990s
Santa Clara, California, July 31 (Bloomberg) -- Nortel
Networks Corp. sold an office building in California's Silicon
Valley to South Bay Development Co. for about $23 million, the
lowest price per square foot in the area since the mid-1990s.
South Bay and partner Pacific Coast Capital Partners paid
about $65 a square foot for Nortel's vacant 359,000-square-foot
building in Santa Clara, said Mark Regoli, executive vice
president of the Campbell, California-based real estate developer.
Silicon Valley's office vacancy rate has risen to 32 percent
from 3.5 percent since the late 1990s Internet boom faded, and
rents have fallen to an average of $33 a square foot from a high
of $100. Nortel, North America's second-biggest maker of telephone
gear, spent about $40 million renovating the building and had it
on the market earlier for $50 million, Regoli said.
``It's a good opportunity to take advantage of the absolute
collapse in the commercial real estate market here,'' Regoli said.
``This is one of the first sales reflecting a new pricing dynamic.
There were tons of sellers who still wanted crazy numbers for
their buildings.''
About $400 million of property has been sold this year, down
from $2 billion typically, according to broker BT Commercial.
Earlier this month, Sun Microsystems Inc. sold its former
headquarters in Palo Alto, California to a Jewish community group
for $35 million. Nortel, Sun and Cisco Systems Inc. are trying to
find subtenants for about 2 million square feet of space.
The sale by Nortel at the lowest per-square-foot price since
at least 1996 is unlikely to lead to more transactions, said
Bradley Martin, a director with broker Cushman & Wakefield.
Unstable Market
``It looks like rental rates are continuing to move down a
little and vacancy rates are moving up,'' he said. ``Until you can
recognize a stabilized market and see improving real estate
fundamentals, you won't see buyers and sellers come to an
agreement.''
Nortel housed 1,200 workers in the building before
consolidating operations in a new, $200 million campus in Santa
Clara in May. The Brampton, Ontario-based company's shares are
down 86 percent this year. Nortel didn't immediately return a call
for comment on the building sale.
The low purchase price will let South Bay lure tenants even
in a slow rental market with rents starting at $10.20 a square
foot, Regoli said. The building sits across the street from Intel
Corp.'s headquarters and near a Marriott hotel and Highway 101.
``We feel there will be a window to make a cheap deal with
someone while the rest of the world is waiting at a higher
price,'' Regoli said.
Since South Bay was founded in 1970, it has developed more
than 12 million square feet of industrial and office space mainly
in the Silicon Valley, including buildings for Xerox Corp., Hasbro
Inc. and Western Digital Corp. Pacific Coast Capital Partners is a
real estate investor with offices in Los Angeles and San
Francisco.
--Elizabeth Hayes in the Los Angeles newsroom (323) 801-1265, or
at ehayes2@bloomberg.net. Editor: Kleege.
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