Developer Expanding Efforts in Silicon Valley, San Diego
These are busy times for Dick Sim, whose investment properties unit of The Irvine Company has 42 buildings under construction.
But they could get busier.
“Right now I’ve got 79 buildings going through the (entitlement and planning) process and I can build all 79, but I’m not going to do that because we don’t have a market for that,” said Sim, who adds that the Irvine Co. generally tries to pre-lease 50% of any building before launching construction.
Sim expects to bring 50 new buildings (totaling about 2.5 million square feet) to market this year, with roughly 35 in Orange County and the rest in Silicon Valley and the San Diego area.
“There’s only finite demand,” Sim said. “I harken back to ’87, ’88 and ’89 when we built because the money was available. If Wall Street hadn’t (recently) shut the REITs off, we would be in an overbuilt situation right now.”
Tight Financing Disciplines Market
Unlike previous boom periods when cash availability was a constant and drove developers to overbuild, today’s lenders will offer 50% to 60% of a project’s total cost, meaning the developer and/or investor must put up roughly 40% equity, Sim said.
That is not necessarily a bad thing, he added.
“The marketplace in 2000 is much more disciplined from a developer’s standpoint because he has to put money in,” he said.
Of course, as long as the Cisco Systems of the world are willing to buy entire complexes of buildings, Sim will be glad to extend his construction department. Recently, Cisco Systems agreed to purchase 19 buildings in the Silicon Valley, where the Irvine Co. is making a strong push.
“Basically we bought this property up there and designed 19 buildings totaling almost 1 million square feet,” Sim said. “We were marketing (the business park) to a number of people and Cisco came to talk to us and rented not only those four buildings (which were close to completion), but another six we were about to begin construction on. Then, two weeks after that transaction ended they asked about the availability of the remaining nine buildings in the park.
“In my 40-year career in the business, we’ve never done a transaction like that, where one customer rented all 19 buildings in our business park.”
Following up on that success, The Irvine Co. is ground leasing some land from the city of Santa Clara where it will put about a half-dozen six-story buildings totaling 1 million square feet. The $150 million project, consisting of office and R & D; space, could eventually accommodate 2,000 to 3,000 people.
“This will be a campus development,” Sim said. “We’ll start construction later this year of either two or three buildings, depending on how pre-leasing goes.”
Marketing of the project is scheduled to begin in August.
“Who knows, maybe we’ll get lucky just like we did with Cisco,” said a hopeful Sim.
Still, even if one big user like Cisco Systems doesn’t step up, Sim said he won’t be overly concerned, considering how hot the market is in the Silicon Valley and the continued demand for additional space from hungry tech companies.
Campus Buildings in Demand
“What we find in the Silicon Valley is things are really tight,” he said. “What seem to be in demand are these large campuses.”
Given the strength of this market, the Irvine Co. will continue its aggressive diversification push into the Silicon Valley, and hopes to find additional development opportunities.
“We’re absolutely looking constantly,” Sim said. “We’re constantly in the market and we have an eye on a couple of things as well as couple of things in the San Diego market. We would like to own more well-located property in the Silicon Valley and the continued demand for additional space from hungry tech companies.
Campus Buildings in Demand
“What we find in the Silicon Valley is things are really tight,” he said. “What seem to be in demand are these large campuses.”
Given the strength of this market, the Irvine Co. will continue its aggressive diversification push into the Silicon Valley, and hopes to find additional development opportunities.
“We’re absolutely looking constantly,” Sim said. “We’re constantly in the market and we have an eye on a couple of things as well as couple of things in the San Diego market. We would like to own more well-located property in the Silicon Valley.”
As for San Diego, the push there hasn’t been as aggressive as up north, but that could change. The Irvine Co. is developing the Eastgate Technology Park in San Diego. Already, 10 buildings totaling 392,000 square feet have been built in the complex, and eight have been leased. Additionally, two buildings totaling 120,000 square feet are under construction, with a major lease for those buildings pending in the very near future, Sim said.
Plans call for beginning construction on the final four buildings in the project in August.
“That will complete all of the inventory we own in the San Diego area, so we’re looking at a couple of more pieces (of land) down there,” Sim said. “That’s been a tremendous market.”
