Jazz Semiconductor Inc.’s operations in its longtime industrial facility in Newport Beach already have an agreed-upon expiration date of March 2027.
The end could come sooner, depending on the outcome of noise-related litigation underway between the semiconductor manufacturing firm—one of the city’s largest employers— and its development-focused landlord.
Jazz, the U.S.-based arm of Israel’s Tower Semiconductor Ltd. (Nasdaq: TSEM), has its domestic headquarters and fabrication facility at the El Capitan building at 432I Jamboree Road, a 323,357-square-foot wafer chip fabrication facility near the Newport Beach-Irvine city line.
The building is owned by an affiliate of Irvine-based Shopoff Realty Investments LP, which bought it and several adjacent parcels, totaling about 25 acres, in 2014.
Commercial buildings on the adjacent parcels, once owned by fellow chipmaker Conexant Systems, have been torn down and are now being replaced by the first phase of the residential Uptown Newport project, whose master developer is Shopoff Realty.
Jazz was spunoff from Conexant in 2002.
Uptown Newport will have more than 1,200 homes and apartments. What now holds Jazz’s facilities is earmarked for the last construction phase. The El Capitan building, one of Newport Beach’s largest industrial buildings, will be demolished to make way for housing.
Jazz’s lease extends through 2022, with a five-year extension option that the company says it plans to exercise.
Litigation puts the 2027 end date in question.
Under terms of Jazz’s 2013 amended lease with a Shopoff Realty affiliate, the semiconductor company agreed to put noise abatement actions in place at the fabrication facility “to meet existing noise standards and certain additional noise standards to facilitate development” at Uptown Newport, according to the landlord.
The standards haven’t been met in several years, and aren’t close to being met, Shopoff’s lawyers said in court filings in March. The landlord has argued that that represents a material default in the lease and gives it the right to terminate it, an action it has yet to pursue. The lawsuit would be the first step toward eviction if Shopoff gets a favorable ruling in Orange County Superior Court.
Jazz “does not agree and is disputing these claims,” the company said in its latest quarterly report.
The chipmaker said in legal filings that Shopoff’s initial complaint is a “thinly disguised ploy to force Jazz to incur significant legal costs or face unlawful eviction” from the facility, which is one of seven buildings Tower Semiconductor uses to make semiconductor wafers.
Tower Semiconductor’s only other U.S.-based facility is in San Antonio, Texas. Others are in Israel and Japan.
In addition to basic manufacturing and office space, the Newport Beach facility has about 120,000 square feet of clean-room space, according to regulatory filings.
Shopoff’s website indicates that the tenant pays about $2.2 million in annual rent for the entire facility.
A major interruption in its Newport Beach operations “would have a material adverse effect on the consolidated financial position” of the company, Jazz said in its financial statements.
Building a new fabrication facility in Orange County or another location would likely cost tens of millions of dollars.
Tower Semiconductor executives said last week that they continue to invest in the Newport Beach facility, which is now operating near full capacity. They said the investments should boost manufacturing there of semiconductors made with silicon-germanium by about 15% starting next year.
Employee Base
Jazz employs about 800 people at the facility, according to its legal filings from earlier this year, which say the city has waived Jazz’s compliance with sound-level regulations at the facility because it wants the employer to stay there until 2027.
The company is among the eight largest employers in Newport Beach, according to city records, and is second to Broadcom Inc. on the Business Journal’s list of OC chipmakers.
Shopoff Realty is being represented in the case by Snell & Wilmer LLP, and Jazz’s representation includes Skadden, Arps, Slate, Meagher & Flom LLP and Keller/Anderle LLP.
The first Uptown Newport phase broke ground about a year ago. It includes a 462-unit apartment project being built in a venture between Shopoff and Newport Beach-based Picerne Group Inc. Leasing is scheduled to start next year.
The first phase will also include up to 218 for-sale condos, 6,500 square feet of restaurants, and a one-acre public park, according to Shopoff.
