Office/R&D Deal Winner: Moffett Place
Source: Silicon Valley Business Journal
When Jay Paul Co. started building Moffett Place, a 1.9 million-square-foot office campus in Sunnyvale, executives knew they had a great project in a hot real estate market.
They didn’t suspect how good it would turn out.
“I don’t think in our wildest dreams that one tenant would take all six buildings,” said Matt Lituchy, chief investment officer for San Francisco-based Jay Paul.
But that’s just what Google Inc. did last October in what’s believed to be the second-largest office lease since at least the Reagan era. Total lease obligation? About $1 billion, according to SEC filings.
“When a project is embraced by the marketplace, it absolutely is a validating factor that your instincts have been correct in terms of this is what’s attractive to tenants,” said C. Thomas Gilman, a principal with DES Architects + Engineers, which designed the project for Jay Paul.
It might have looked easy from the outside, but the story of Moffett Place exemplifies the bold — some would say “risky” — moves that have become a hallmark of the Jay Paul Co.
The developer pioneered the highly amenitized tech campus in the late 1990s, a format that has been copied many times ever since. Moffett Place’s genesis goes back to 2012, when Jay Paul started assembling 55 adjacent acres from multiple property owners — a huge undertaking. Entitlements were secured in late 2013, and because Jay Paul had run building permits through the city on a parallel track (instead of waiting until receiving planning approval), the developer was ready to start building weeks later rather than months.
The game plan for Moffett Place would be a little different from Moffett Towers, another Jay Paul mega-development also in the neighborhood that’s leased to multiple tech tenants. Architecturally, Moffett Place features a little more glass; also, most buildings are arranged around a large courtyard and amenities building, giving it an intimate feel despite its huge scale. “One other new feature on this project was the ‘high garden’ on one of our parking structures,” Gilman said. “It’s a 2.5-acre park overall. You can get out of your building and have a park-like setting.”
Google Inc. liked what it saw — but the Mountain View search giant (which already leased about 1 million square feet from Jay Paul at the Technology Corners campus, also in Sunnyvale) wasn’t the only one.
Jay Paul, which is represented by Newmark Cornish & Carey broker Phil Mahoney, had already been talking to tenants who wanted between one and three of the buildings. Then Google came along and — perhaps to differentiate itself in the competition — offered to take all six.
This has plusses and minuses. On the one hand, leaving some buildings available allows possible upside potential if rents continue to increase, and diversifies a basket of credit. But by the same token, the market could collapse.
“We’re not afraid of taking speculative risk,” Lituchy said. “But this is a once-in-a-lifetime opportunity. We had a tenant who has stellar credit, No. 1, and is willing to take any speculative nature off the backs of these buildings.”
The parties signed a letter of intent in July, but the lease wasn’t signed until October. The size of the lease meant a lot more scrutiny on both sides.
“It’s extremely complicated,” said Janette D’Elia, chief operating officer for the Jay Paul Co. “But part of our ability to get to the finish line more easily was because of the relationship the players have already established. You recognize what’s important to the other side. Everyone sees this as a joint effort. That made it a lot more enjoyable than other smaller deals I’ve done because we don’t have that same rapport.”
Could it happen again?
“I’d be surprised,” Mahoney said. “I’m working on some larger sites, but I don’t anticipate anyone leasing close to 2 million square feet at one fell swoop.”
- Deal value: $1 billion
- Size: 1.95 million square feet
- Landlord: Jay Paul Co.
- Tenant: Google Inc.
- General contractor: Level 10 Construction
- Lead lender: Wells Fargo
- Landlord broker: Phil Mahoney, Newmark Cornish & Carey
- Tenant broker: CBRE
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