The Irvine Co.’s recent foray into the Northern California tech mecca is paying off better than an Internet IPO, as Cisco Systems Inc. is taking 572,000 square feet in a deal that will mark the developer’s largest Silicon Valley lease yet.
It marks The Irvine Co.’s full-fledged arrival in one of the fastest-growing real estate markets in the country. The privately held Newport Beach developer already boasted Intel, Microsoft and Oracle as just a few of its high-tech tenants, but none of those leases approaches the size of the most recent Cisco deal.
And the transaction isn’t likely to be the last between the two. The Irvine Co. is hoping to sell Cisco on the idea of finding or building housing for the tech firm’s mushrooming employee base, though talks remain in a very early stage.
“In our business, the extent to which you can forge a relationship makes all the subsequent deals easier,” said Bill Halford, president of Irvine Office Co., a division of the Irvine Co.’s Investment Properties Group.
Cisco , which overtook software bulldozer Microsoft Corp. in market value a few weeks ago and has been on a capitalization seesaw with the company since , will take more than half the space at Irvine Co.’s million-square-foot McCarthy Center in Milpitas by occupying 10 of its planned 19 two-story buildings.
Halford said the deal grew from the relationship his firm has nurtured with the networking equipment maker over the past 18 months or so. The tech firm has a large real estate division to accommodate its swelling proportions.
Best Package
“They don’t view space as a commodity,” Halford said. “They view the relationship with the landlord as critical, because in their business, someone who’ll give them a better economic package up front may not be as interesting as someone who provides the best service and can continue to provide space as their businesses grows.”
That’s putting it lightly.
Cisco has become the world’s largest designer of networking hardware and software, an explosive market that has benefited from the billions of dollars of investments in new-economy infrastructure. The San Jose company posted sales over the past 12 months of $15 billion. Its market capitalization, meanwhile, has jumped from $180 billion last year to more than $500 billion, while its workforce grew from 15,000 people to 21,000 in the same period.
Though Cisco was already working on a new headquarters building and has 4.5 million square feet in San Jose, faster-than-expected growth forced the company to get more space in a hurry. It had worked with the Irvine Co. 18 months ago on a facility in West Los Angeles and about a year ago on its 63,440-square-foot building in UCI’s Research Park.
In the most recent deal, Greg Davies at CPS Commercial Property Services Co. and Mark Schmidt of Insignia represented The Irvine Co.; Todd Beatty, also of CPS, represented Cisco Systems.
The Irvine Co. took its first steps into Silicon Valley in 1996 with the purchase of a few research and development buildings and has become visibly more aggressive in developing the area over the past 18 months.
In addition to the sheer number of companies that have sprouted from the area’s fertile technology landscape, most Silicon Valley deals are larger , typically 100,000 square feet or more , than those in the Irvine Co.’s Orange County and northern San Diego strongholds.
Rapid Growth
“It’s not unusual for a company there to go from 15,000 feet to 100,000 feet in the span of a year,” Halford said. “We’re seeing more of that in Orange County, but they’re still in greater concentration (in Silicon Valley).”
Officials at The Irvine Co. made a conscious decision to target the high-tech market about five years ago. That move has turned out better than they foresaw, thanks to the degree to which the technology industry has transformed even non-tech businesses, which increasingly have demanded the Internet infrastructure and other new-economy accouterments typical in an information-age business.
The common denominator among OC, LA and Silicon Valley, Halford added, is the strong economic growth tied to technology and higher education.
Broadcom Corp. and Quest Software Inc., which lease space in the developer’s Irvine Spectrum center, are two of the company’s largest tenants locally.
In Silicon Valley, The Irvine Co. owns about 2 million square feet of leasable space and is developing another 1.5 million, in addition to the 3,000 residential apartments it has or is developing in the area.
Still, Halford added that he doesn’t expect his company’s Silicon Valley expansion to overshadow its Orange County presence anytime soon, especially as available space shrinks in Northern California.
“Our growth is a reflection of where the economy is going,” he said. “But I don’t think we’d ever have more property in Silicon Valley than we do here.” n
