Confidential Financing Memorandum San Jose, … - 2665 North 1st St.pdf · Confidential Financing...

Confidential Financing Memorandum San Jose, California

(916) 446-8700 • www.palmercapital.com

Palmer Capital, Inc. (“Palmer Capital”) and the buyer (“Buyer”) of the property referenced herein (“Property”) present this Confidential Financing Memorandum (“Memorandum”) to assist the recipient(s) (“You” or “Your”) in evaluating the Property and it is intended for Your use only. This Memorandum contains brief, selected information pertaining to the Property and should not be considered all-inclusive or permanent. The information in this Memorandum has been obtained from sources believed to be reliable, but has not been verified and is not guaranteed. You should independently verify each item of information and have the same reviewed by Your tax advisor and/or legal counsel. Assumptions, projections, estimates and/or opinions are provided as examples only and all information is subject to change, error, omissions and/or withdrawal without notice. Palmer Capital and Buyer assume no responsibility for and make no warranty as to the accuracy or completeness of any information in this Memorandum. Palmer Capital and Buyer expressly disclaim any implied or expressed warranties of merchantability, fitness for a particular purpose or non-infringement of intellectual property relating to this Memorandum. In no event shall Palmer Capital or Buyer be liable for any damages resulting from the reliance on or use of any information in this Memorandum, including but not limited to direct, special, indirect, consequential or incidental damages. By accepting receipt of this Memorandum, You agree to the following: (a) This Memorandum is of a highly confidential nature, will be held in the strictest confidence and shall be returned to Palmer Capital upon request; (b) You shall not contact any property manager, employee or tenant of the Property regarding the Property or this Memorandum, without prior approval of Palmer Capital or Buyer; and (c) You understand and agree that Palmer Capital represents Buyer and not You. Neither Palmer Capital nor Buyer shall have any obligation to pay any commission, finder’s fee, or any other compensation to any broker or other person. You may provide information to persons retained to evaluate the Property only after first obtaining a signed confidentiality agreement from such persons and providing a copy of such agreement to Palmer Capital. By accepting receipt of this Memorandum, you agree to defend, indemnify and hold harmless Palmer Capital and Buyer (including all of their agents, employees, subsidiaries, affiliated entities, successors and assigns) from and against any and all claims, disputes, litigation, demands, damages, liabilities, losses, judgments, expenses, fines, contributions, charges, injuries and/or costs and expenses, including reasonable attorneys’ fees, arising or resulting from acts by You. The Buyer expressly reserves the right, at its sole discretion, to reject any or all expressions of interest or offers to finance the Property, and/or to terminate discussions with any entity at any time with or without notice which may arise as a result of review of this Memorandum. The Buyer shall have no legal commitment or obligation to any entity reviewing this Memorandum or making an offer to lend on the Property unless and until written agreement(s) for the finance of the Property have been fully executed, delivered and approved by the Buyer and any conditions to the Buyer's obligations therein have been satisfied or waived.

Copyright © 2013 Palmer Capital, Inc.All use, disclosure and/or reproduction not specifically authorized is prohibited. All rights reserved. 00963368

IntroductIon

ProPerty SPecIfIcS

fInancIal analySIS

tenant

Market InforMatIon

5 ExecutiveSummary

7 CreditHighlights

14 AdjacentOwners

20 ParcelMap

22 FloorPlans

24 PropertyDescription

26 CashFlowAnalysis

28 RentRoll

30 RentRollComments

32 LeaseRollover

34 TenantProfiles

36 MarketExecutiveSummary

39 MarketAnalysis

44 Comparables

46 Maps&DrivingDirections

Table of ConTenTs | 3

AERIAL OF PROPERTY

AdjAcent Owner Legend

1 2665 North First Street (Subject Property) – Westcliff Group

2 Valley Office Centre - Barry Swenson Builder3 Orchard Technology Park - TPG Capital4 Valley Research Center - The Blackstone Group5 Trimble Research Park - Cornerstone Real Estate Advisors6 2701 Orchard Parkway - LBA Realty7 Valley Centre II - Lane Partners8 2720-2730 Orchard Parkway - Lane Partners9 2731 North First Street - American Red Cross10 2700-2710 North First Street - Sanmina Corporation11 2711-2717 North First Street - Lane Partners12 2600-2610 North First Street - Mission West Properties13 3011 North First Street - Novellus Systems Inc.

101

Bonaventura Drive

Lafayette Street Montague Expressway

North First StreetWest Trim

ble Road

Milpitas (4 Miles)

San Francisco(45 Miles)

Santa Clara(4 Miles)

OverviewWestcliff Group, Inc. in partnership with Epoch Realty Capital (collectively the “Sponsor”) is under contract to acquire 2665 North First Street (the “Property”), a high quality office building located in Silicon Valley’s coveted Golden Triangle in San Jose, California. The 122,619 square foot Property is 100% leased and occupied by nine tenants. The Sponsor intends to acquire the asset and execute a straight-forward value-add business plan by extending leases and stabilizing the rent roll.

HigHligHts· Proven Sponsorship team is led by Epoch Realty Capital with experienced property management provided by Borelli

Investments.· Substantial equity being invested via the acquisition – demonstrating strong Sponsor commitment.· 100% leased asset with diverse tenant mix providing secure cash flow to service the loan.· Quality asset offers flexible floor plates to accommodate a variety of tenant requirements.· Excellent location in the heart of Silicon Valley – one of the strongest markets in the nation.· In-fill location provides substantial barrier to entry – translating to upward pressure on rental rates and secure downside

protection for lender.

TransacTiOn OverviewThe Sponsorship is seeking a floating rate loan to finance the acquisition and fund its value-add business plan. The value-add plan includes upgrading base building components during the first year of the loan and proactively renewing and re-leasing space at the Property. The loan will provide the flexibility to fund costs for the renovation budget and pay for tenant improvements and leasing commissions.

sources & uses

Sources & Uses LTC Total Initial Funding Future Funding

SourcesSponsor Equity 25% $6,525,000 $6,525,000 $0 Senior Loan 75% $19,575,000 $14,575,000 $5,000,000 Total $26,100,000 $21,100,000 $5,000,000

UsesPurchase Price $20,500,000 $20,500,000 0Closing Costs $600,000 $600,000 0TILC Cap Ex costs $5,000,000 $0 $5,000,000 Total $26,100,000 $21,100,000 $5,000,000

ExECUTIvE SUmmary | 5

Address:

2665 North First StreetSan Jose, California 95134

loAn Commitment:

$19,500,000

loAn Per squAre Foot:

$159

in-PlACe noi debt Yield:

14.79%

totAl rentAble AreA:

122,619 square feet

oCCuPAnCY:

100%

YeAr built:

1985

The PrOPerTy is lOcaTed in The hearT Of silicOn valley in The cOveTed

GOlden TrianGle. iTs visibiliTy and access are sTrOnG cOmPeTiTive

advanTaGes fOr The sPOnsOr’s leasinG sTraTeGy

CrEdIT HIgHLIgHTS | 7

CreditHiGHLiGHtS

spOnsOrshipThe Sponsorship is a joint venture between Westcliff Group Inc. (“Westcliff”) and Epoch Realty Capital (“Epoch”). A brief overview of each entity is provided below and additional information is available upon request.

Westcliff groupWestcliff is the United States investment platform of the family office led by Ms. Bingfeng Yao in Beijing, China. Principals at Westliff have more than three decades of international investment experience, beginning with mining ownership and operations in China. Under Ms. Yao’s recent leadership, the family has expanded its holdings to include commercial real estate investment and development in Beijing, Shanghai, and the United States. Leading Westcliff’s United States investment operation is Mr. Zhuoshan Tan, a trusted colleague of Ms. Yao.

epocH realty capitalFormed in 2009 by Mr. Matthew Love, Epoch (www.epochrc.com) is a San Mateo-based real estate investment and development firm focused on value add, opportunistic and urban infill projects in Silicon Valley and greater San Francisco Bay Area. In addition to investing for its own account, Epoch acts as a joint venture sponsor and as an advisor to individual and corporate owners for entitlement, development, and redevelopment of commercial, residential and hospitality properties.

In 2012, Epoch formed a joint venture with Westcliff to acquire and reposi-tion office projects in the greater San Francisco Bay Area. The venture has since acquired the 120,000 square foot Fremont Business Park in Fremont and the 18,000 square foot Greenfield Plaza in Los Gatos. Fremont Busi-ness Park is a three-building Class B multi-tenant office park and Greenfield Plaza is a multi-tenant office and retail building in the North Downtown market. Both projects represent best-in-class assets in their respective submarkets.

property ManagerBorelli Investments (“Borelli”) will manage the day to day operations at the Property. In addition, Borelli manages several other properties in the market, including 2635 North First Street adjacent to the Property for its owner Barry Swenson Builders. Borelli currently manages property in Fremont for Westcliff. Borelli brings an experienced team of professionals with strong reputation and strong local contacts.

simPle value-add Plan The Sponsor’s investment strategy includes a straight-forward value-add plan to perform modest building upgrades and extend leases or re-lease space that is rolling in the next two years. Sponsor is seeking a loan that is sufficient to fund approximately 70% of the acquisition and 100% of the renovation budget and tenant improvement and leasing commissions planned for rolling tenants.

underwriTinG analysis

year In Place/Close 2013 2014 2015 2016 2017

economic occupancy 100% 91.36% 93.34% 85.20% 95% 95.05%net operating Income (1) $2,051,373 $1,732,738 $1,848,687 $1,904,945 $2,345,868 $2,389,232

debt service (2) $738,872 $901,141 $906,354 $977,381 $978,740 Net Cash Flow After Debt Service $993,866 $947,546 $998,591 $1,368,487 $1,410,492

Capital CostsTILC $925,217 $77,568 $1,375,063 $0 $229,178 Cap ex (3) $2,275,724 $25,260 $26,017 $26,798 $27,602 Total TILC Cap Ex $3,200,941 $102,828 $1,401,080 $26,798 $256,780 Cumulative $3,200,941 $3,303,769 $4,704,849 $4,731,647 $4,988,427

loan CalculationsStarting Balance $14,575,000 $14,575,000 $17,775,941 $17,878,769 $19,279,849 $19,306,647 Loan Advance $3,200,941 $102,828 $1,401,080 $26,798 $256,780 Ending Balance $17,775,941 $17,878,769 $19,279,849 $19,306,647 $19,563,427

Loan Per Square Foot $145 $146 $157 $157 $160 NOI Debt Yield 14.07% 9.75% 10.34% 9.88% 12.15% 12.21%Debt Service Coverage 2.35x 2.05x 2.10x 2.40x 2.44x

Perm loan U/W sensitivityPerm Loan U/W Reserves @ $1.00 psf $122,619 $122,619 $122,619 $122,619 $122,619 UWNCF $1,610,119 $1,726,068 $1,782,326 $2,223,249 $2,266,613 NCF DY 9.06% 9.65% 9.24% 11.52% 11.59%

(1) Net income is projected to drop due to downtime with rolling tenants.(2) Debt service based on 5.00% interest rate, interest-only, on Ending Balance of prior year.(3) Cap Ex in first year is based on Sponsor’s Renovation Budget.

8 | CredIT HIgHlIgHTs

excePTiOnal lOcaTiOnThe Property is located in the heart of Silicon Valley in the coveted Golden Triangle and its visibility and access are strong competitive advantages for the Sponsor’s leasing strategy. Key location factors include:

1. Public Rail Transportation runs along North First Street with a stop directly in front of the Property – The Bonaventure Stop.

2. San Jose International Airport is within four miles and a ten minute drive.

3. Close proximity to the world’s leading technology firms – Cisco Systems, EMC, Western Digital, Pixelworks, Dell, Oracle, etc.

4. Two miles to Highway 101 – connecting to San Francisco.

5. Three miles to Interstate 680 and 880 – connecting to the East Bay.

infill lOcaTiOn – barrier TO enTryThe Property benefits from high barriers to entry due to its central infill location, limiting the number of new competitive office properties that can be developed in the area. In the last ten years, there have been no additional office building deliveries in the North San Jose/Plumeria submarket. Any new development will require razing or renovating existing office product. For example, Lane Partners is completing an extensive and costly renovation of approximately 300,000 square feet of office space adjacent and to the west of the Property. Given the significant expense, Lane is reportedly asking for rents at $2.75 psf on a net basis – compared to $2.00 psf full service at the Property. Note that the Lane project is in an inferior location one block off and no visibility from North First Street and further away from the public transit. Any additional development in the submarket would push rents higher.

exCePtionAl loCAtion

CredIT HIgHlIgHTs | 9

101

101

608

880

880

608

san JoseInT'l aIrPorT

bonavenTUra sTaTIonlIgHT raIl

1

1

2

2

3

3

4

4

5

5

cOmpeTiTive BasisThe $167 per square foot purchase price offers the Sponsor a competitive basis to compete for tenants in the market. After completing its capital improvement plan during the first year of ownership, the Sponsor’s basis will be $190 per square foot. This compares favorably to competing properties, including the following investment activity in close proximity to the Property.

Insert Aerial or Satelite Image & show surrounding buildings from data in this file: “surrounding activity.xls”

Leasing prOspecTsBetween April 2015 and April 2017 there are 63 leases for at least 5,000 square feet expiring in the South Bay Market. Tenants include Dell, WebEx, EMC, Oracle, and other well known, successful corporations. Each of these tenants will be candidates to lease the Property’s third floor if Samsung does not renew its lease. Many of these tenants are paying rent well above $2.25 per square foot, and the Sponsor will be in strong position to compete.

3rd FLOOr spaceSamsung occupies the entire 3rd floor through 2015. Samsung may negotiate a long-term lease renewal at their lease expiration, however the underwriting assumes they vacate. The space is functional for a technology tenant with creative loft-style layout that fosters collaboration and teamwork among employees – critical factors for tech firms. The Samsung suite offers raised flooring – another valuable tech feature. The high ceilings provide wide-open feel with exposed duct work and south-facing glass ceilings that provide abundant natural light.

Property 2665 North First StreetBuyer Westcliff GroupCOE PendingPrice $20,500,000 / $167 psfAsking Rent $2.00 psf FSGComment Subject Property

Property 2560 North First StreetBuyer The Irvine CompanyCOE 6/22/2012Price $120,000,000 / $273 psfAsking Rent $2.25 psf FSG

Comment Six Class B properties acquired for $273 psf - 87% leased.

Property valley Centre IIBuyer Walton StreetCOE 6/20/2012Price $64,000,000 / $101 psfAsking Rent $1.75 psf NNN

Comment Eleven buildings 43% leased. Plan to invest $35/sf Cap Ex.

Property Valley Office CentreBuyer Barry Swenson BuilderCOE 3/1/2013Price $10,500,000 / $146 psfAsking Rent $1.85 psf FSG

Comment Two properties 80% leased. Sig-nificant redevelopment planned.

10 | CrEdIT HIgHLIgHTS

renOvaTiOn PlanThe Property was renovated in 2007, which included energy efficient upgrades. In its first year of ownership, sponsorship plans to complete an extensive renovation plan with approximately $2 million budget. The itemized capital budget is below. With this plan, Sponsor intends to improve the building visibility and main entrance as well as upgrade the common areas.

renovation budgetCost

General Building CapEx/Deferred MaintenanceElevator Mechanical $25,000 Skylights Caulk and Film $25,000 Fire Life Safety $50,000 HVAC $30,000 Parking Lot $200,000 Subtotal $330,000 Construction Contingency (10% of Hard Costs) $33,000 Construction Management (5% of Budget) $18,150 Total $381,150 Exterior UpgradesExterior Paint $40,000 Landscape (arborist) $50,000 New lobby doors/store front-type glass $100,000 Remove entrance canopy and tile $175,000 Exterior Lighting $20,000 New monument signage and exterior sign package $50,000 Subtotal $435,000 A&E and City Fees (20% of Hard Costs) $87,000 Construction Contingency (10% of Hard Costs) $43,500 Construction Management (5% of Budget) $28,275 Total $593,775 Interior UpgradesLobby Walls $350,000 Lobby Ceilings $50,000 Lobby Flooring $75,000 Lobby Lighting $25,000 Lobby Furniture $35,000 Common Restrooms $210,000 2nd Floor Corridor Lights/Paint/Flooring $75,000 Elevator Cab and exterior glass $100,000 Interior Signage and Directories $15,000 Subtotal $935,000 A&E and City Fees (20% of Hard Costs) $187,000 Construction Contingency (10% of Hard Costs) $93,500 Construction Management (5% of Budget) $60,775 Total $1,276,275 grand Total $2,251,200

CredIT HIgHlIgHTs | 11

sanTana roW CIsCoHP PavIlIon sony

lOcal ameniTiesThe property is located in close proximity to a variety of premier regional amenities including Downtown San Jose, The HP Pavilion– San Jose’s primary entertainment and sports arena, and Santana Row – The region’s luxury retail and residential destination. Santana Row features 500 individual residences, 70 retail shops, 20 full service restaurants, nine spas and salons, a movie theater and Boutique Hotel Valencia.

1 bonaventure rail stop2 san Jose airport3 Cisco Campus4 downtown san Jose5 santa Clara University6 santana row7 new 49ers stadium site8 linkedIn9 google 10 facebook11 apple12 Intel13 sony14 adobe systems

15 stanford University16 Moffet Federal Airfield17 emC18 oracle & sun

microsystems19 Kla-Tencor20 Pay Pal21 lodging & Hotel

Concentration22 santa Clara golf &

Tennis Club23 ebay24 guadalupe river Trail

12 13

15

10

9

8

16

11

24

3 19

22

7

17

12 1813

1

2320

212

14 4

6

5

101

101

2. 3025 Orchard Parkway

- Blackstone Group

3. Orchard Montague Park

- Pacific Coast Capital Partners

4. North First Street Business Park

- Boston Properties Inc.

5. 60 East Plumeria Drive

- Sanmina Corporation

6. 2701 Zanker Road


7. 2700-2710 North First Street

- Sanmina Corporaton

8. 2727 North First Street

- Winbond Electronics Corporation


- Lane Partners

10. Valley Office Center

- Barry Swenson Builder

11. Orchard Technology Park

- TPG Capital

12. Valley Centre II - Lane Partners

13. 2720-2730 Orchard Parkway

- Lane Partners

14. Orchard Park - LBA Realty


- LBA Realty


- Novellus Systems Inc.

17. Montague Square

- Embarcadero Capital Partners

18. 3099 Orchard Drive

- Eugene Zaballos Trust

19. 3055 Orchard Drive

- TMG Partners


- Allied Telesis Inc.

21. 3000-3030 Orchard Parkway

- AEW Capital Management


- Contrarian Capital Management


- DivcoWest


- LBA Realty

25. Trimble Research Park

- Cornerstone Real Estate Advisors

Legend1. 2665 North First Street

(Subject Property) - Westcliff Group

Orchard Parkway

Orchard Parkway

East Plumeria Drive

Lafayette Street

Lafayette Street

Montague Expressway

Wes

t Trim

ble

Roa

d

North First Street

North First Street

Zanker Road



adJaCenT oWners | 1514 | adJaCenT oWners

2

2. 2740 Zanker Road - Equity Office Properties

3. 2870 Zanker Road - Stockbridge Capital

4. Valley Technology Center II - Blackstone Group

5. Valley Centre II - Lane Partners

6. Valley Office Centre

- Barry Swenson Builder


- Lane Partners


- Winbond Electronics Corporation




- Mission West Properties

11. 73-75 East Trimble Road

- Mission West Properties

12. Silicon Valley Center

- The Irvine Company

13. North First Office Center

- Blackstone Group

14. 110-128 Component Drive

- ME Fox & Company Inc.

15. Component Industrial Park

- Prologis

16. 150-200 East Trimble Road

- LBA Realty

17. 2625-2635 Zanker Road

- Associated Catholic Charities

18. 2645 Zanker Road

- Conti Real Estate Inc.

19. Valley Technology Centre

- Equity Office Properties

20. North First Street Business Park

- Boston Properties Inc.

21. Central Park Plaza

- Stockbridge Capital


- KBS Realty Advisors

23. Montague Business Center

- Franklin Street Properties Corp.

24. Montague Corporate Center

- Menlo Equities

25. Cadence Campus

- Cadence Design Systems Inc.

26. Trimble Technology Center - MEPT

27. Trimble Distribution Center

- Prologis

28. 2581 Junction Avenue - Qualcomm

29. 455 East Trimble Road

- DR Stephens & Company



Legend1. 2665 North First Street

(Subject Property) - Westcliff Group

880

880

680

Zanker Road

Junction Avenue

Junction Avenue

Montague Expressway

Zanker Road

East Trimble Road

East Plumeria Drive

East Trimble Road

Bonaventura Drive

East Brokaw Road

Charcot Avenue

Component Drive

North First Street

Orchard Parkway

Milpitas(4 Miles)


4 4

2

3

adJaCenT oWners | 1716 | adJaCenT oWners

101

East Plumeria Drive

West Plumeria Drive

West Trimble Drive

North First Street

North First Street

Guadalupe Parkway

Orchard Parkway

Junction Avenue

San Jose International Airport



18 | norTH

soUTH

101

880

680

Charcot Avenue

West Trim

ble Drive

North First Street

North First Street

Orchard Parkway

Montague Expressway

East Trimble Road

Junction Avenue

Sunnyvale(9 Miles)

Milpitas(4 Miles) easT | 19

WesT

bonva

ventu

ra driv

e

east Trimble road

north first street

Parcel description

1 101-19-001name: 2665 north first street (Subject Property) owner: Westcliff Group Use: 123K SF Office

2 101-19-002name: 2611 North First Street owner: Barry Swenson Builder Use: 69K SF Office

3 101-19-003name: 2610 Orchard Parkway owner: TPG Capital Use: 204 K SF Office

4 101-19-004name: 2710 Orchard Parkway owner: Lane Partners Use: 212K SF Flex

5 101-19-006name: 2711 North First Street owner: Lane Partners Use: 76K SF Flex

6 101-19-009name: 2727 North First Street owner: Winbond Electronics Corporation Use: 50K SF Flex

7 101-30-010name: 2700 North First Street owner: Sanmina Corporation Use: 43K SF Flex

8 101-30-019name: 2674 North First Street owner: Spieker Investments Use: 22K SF Office

9 101-30-021name: 62-76 Bonaventura Drive owner: MAI Industries Use: 43K SF Industrial

10 101-30-020name: 86-96 Bonaventura Drive owner: Roger Mairose Use: 18K SF Industrial

11 101-30-028name: 2600-2610 North First Street owner: Mission West Properties Use: 171K SF Flex

ParCel maP | 2120 | ParCel maP

2017+20152014 20162013

floor 1

floor 2

Paramedic Tech Corp.110

17,462 SFAug-13

Dept. of General Svcs.100

18,508 SFAug-25

Bio Health College102

6,447 SFDec-13

Yageo AmericaCorp.212

3,461 SFOct-13

QuickStartIntelligence

2143,663 SFOct-13

Dept. of General Svcs.210

10,408 SFNov-17

Hitachi Cable200

3,650 SFJun-15

Samsung202

4,468 SFMar-15

Samsung208

2,048SFMar-15

Samsung204

5,750 SFMar-15

Powervation206

3,432 SFAug-14

Bio Health College207

4,515 SFFeb-14

FLexiBLe FLOOr pLaTesWith a central core and lobby area, the Property offers flexible floor plates on three floors that accommodate small and large tenants. This flexibility provides the Sponsor a significant advantage when attracting tenants of various space requirements.

Lobby

Lobby

22 | FLoor PLaNS

2017+20152014 20162013floor 3

Samsung310

12,933SFApr-15

Samsung300

27,028SFMar-15

lobby

floor Plans | 23

rentable square footage:

first floor: 41,263second floor: 41,395Third floor: 39,961Total: 122,619

year built: 1983-1984 / 2007land area: 5.0 acres

number of buildings: onenumber of floors: Three

Parking: 402 surface spaces (3.3 / 1,000)floor area ratio (far): 0.56 (Potential far up to 1.20 per san Jose’s 2030 Plan)

buildinG sysTemsbuilding Construction: Steel Frame and Wood Construction with painted stucco exterior walls

roof Construction: Combination of pitched and flat roof finished with standing seam metal panels and white emulsion coated built-up membrane.The roof features extensive arched skylights allowing natural light to the top floor.

HvaC: Heating and cooling to floor 1 and 2 is provided to occupied areas by means of a building central re-circulating system comprised of two Park-brand low-pressure boilers, and six Carrier-brand air handling units rated at 40-50 tons each with make-up air. Heat rejection for the air-handler units is provided by two Baltimore Air Coil cooling towers. The entire system utilizes variable-air volume mixing boxes. Heating and cooling to the third floor areas is provided by a total of 24 Trane or Carrier brand rooftop packaged units rated between 3 and 7 tons each. Tenant specific heat pumps here noted at grade, on the roof and in specialty equipment rooms.The HVAC systems are in good condition and were upgraded most recently during a 2010 renovation when a single compressor/chiller was replaced. The specialty HVAC units are tenant responsibility.

elevators: Two hydraulic elevators – each with 2,500 pound capacity and 16 persons.

fire/life safety: Fully fire sprinkled throughout the interior spaces.

electrical: Each tenant space is provided electrical service from the main building service. The building is equipped with a 277/480 volt 3 phase, 4 wire service rated at 4,000 amps.

back Up generator: Onan-branded diesel powered back up electrical generator on the roof to support life safety systems.

foundation: Reinforced concrete slab on grade foundation with continuous strip footings and pad footings depending on location.

uTiliTy PrOviderselectricity: PG&E

gas: PG&E

sewer: City of San Jose

Water: San Jose Water Company, City of San Jose

24 | ProPerTy desCrIPTIon

real esTaTe Taxesassessor Parcel number: 101-19-001

number of Parcels: One

ZOninG/resTricTiOnsZoning designation: IP - Industrial

easements/Covenants/restrictions:

None

flOOd / seismic / windflood Zone: AO Depth (within 100 year shallow flood plain, with depths between 1’ and 3’)

earthquake disclosure: Zone 4. Recent report available: SEL is 13% and SUL is 19%

Wind: Wind Zone 1 (130 mph)

inTeriOr buildinG infOrmaTiOnWalls: Common area walls are typically marble panels or painted drywall.

Windows: Floor to ceiling window lines on each floor.

number of restrooms: One set of restrooms on each floor.

lobbies: Building offers a large lobby area that is open to through the 3rd floor. There are granite floors in the main lobby and carpet in the common hallways.

Plumbing: Supply lines are copper. Waste piping is cast iron.

ProPerTy desCrIPTIon | 25

Actual Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 6/01/2013 (06/13-05/14) (06/14-05/15) (06/15-05/16) (06/16-05/17) (06/17-05/18) (06/18-05/19) (06/19-05/20) (06/20-05/21) (06/21-05/22) (06/22-05/23) (06/23-05/24)

Contract Rent PSF $24.17 $23.76 $24.90 $30.53 $31.58 $32.03 $32.52 $33.91 $35.05 $36.16 $37.38 $38.63

Market Rent PSF $24.98 $24.98 $26.23 $27.80 $28.63 $29.49 $30.38 $31.29 $32.23 $33.19 $34.19 $35.22

Replacement Rent PSF $37.74 $37.74 $38.87 $40.04 $41.24 $42.48 $43.75 $45.06 $46.42 $47.81 $49.24 $50.72

Market Rent Growth 5.0% 6.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

Contract Rent % of Market 96.8% 95.1% 94.9% 109.8% 110.3% 108.6% 107.0% 108.4% 108.8% 108.9% 109.3% 109.7%

Market Rent % of Replacement 66.2% 66.2% 67.5% 69.4% 69.4% 69.4% 69.4% 69.4% 69.4% 69.4% 69.4% 69.4%

Cumulative Rollover 29.00% 74.39% 77.36% 77.36% 85.85% 85.85% 85.85% 85.85% 85.85% 85.85% 85.85%

Potential Gross Rent $2,963,236 $2,913,284 $3,053,344 $3,743,737 $3,871,748 $3,927,451 $3,987,141 $4,157,858 $4,298,151 $4,433,536 $4,583,021 $4,737,282

Other Revenues $2,400 $2,400 $2,400 $2,400 $2,400 $2,400 $2,400 $2,400 $2,400 $2,400 $2,400 $2,400

Operating Expense Recoveries $348,439 $348,439 $310,492 $26,159 $67,147 $90,926 $100,632 $85,828 $60,445 $65,297 $91,673 $105,196

Expense Recoveries of Total Expenses 27.59% 27.89% 24.01% 2.00% 4.80% 6.35% 6.87% 5.66% 3.93% 4.07% 5.57% 6.22%

Potential Gross Revenue $3,314,075 $3,264,123 $3,366,236 $3,772,296 $3,941,295 $4,020,777 $4,090,173 $4,246,086 $4,360,996 $4,501,233 $4,677,094 $4,844,878

Downtime Allowance $(281,960) $(224,193) $(558,142) $(49,158) $(161,981) $(28,509) $(314,167) $(56,988) $(107,613)

Downtime of Potential Gross Revenue 8.64% 6.66% 14.80% 1.22% 3.96% 0.67% 7.20% 1.22% 2.22%

Physical Occupancy 100.00% 90.42% 93.31% 84.43% 100.00% 98.59% 95.47% 99.23% 92.40% 100.00% 98.59% 97.41%

Economic Vacancy Allowance $(197,065) $(149,423) $(34,429) $(182,370) $(225,062) $(174,017) $(129,250)

Economic Vacancy of Potential Gross Revenue 5.00% 3.72% 0.84% 4.30% 5.00% 3.72% 2.67%

Economic Occupancy 91.36% 93.34% 85.20% 95.00% 95.06% 95.20% 95.03% 92.80% 95.00% 95.06% 95.11%

Effective Gross Income $3,314,075 $2,982,163 $3,142,043 $3,214,154 $3,744,230 $3,822,196 $3,893,763 $4,035,207 $4,046,829 $4,276,171 $4,446,089 $4,608,015

Real Estate Tax Expense $253,000 $253,000 $258,061 $263,222 $268,486 $273,856 $279,333 $284,919 $290,618 $296,430 $302,359 $308,406

Operating Expenses $853,138 $853,138 $884,893 $891,959 $953,882 $979,208 $1,001,130 $1,040,422 $1,054,300 $1,105,810 $1,135,169 $1,165,952

Insurance Expense $24,000 $24,000 $24,720 $25,462 $26,225 $27,012 $27,823 $28,657 $29,517 $30,402 $31,315 $32,254

Management Fee Expense $132,564 $119,287 $125,682 $128,566 $149,769 $152,888 $155,751 $161,408 $161,873 $171,047 $177,844 $184,321

Total Expenses $1,262,702 $1,249,425 $1,293,356 $1,309,209 $1,398,362 $1,432,964 $1,464,037 $1,515,406 $1,536,308 $1,603,689 $1,646,687 $1,690,933

Expenses PSF $10.30 $10.19 $10.55 $10.68 $11.40 $11.69 $11.94 $12.36 $12.53 $13.08 $13.43 $13.79

Net Operating Income $2,051,373 $1,732,738 $1,848,687 $1,904,945 $2,345,868 $2,389,232 $2,429,726 $2,519,801 $2,510,521 $2,672,482 $2,799,402 $2,917,082

Change From Actual (15.5)% (9.9)% (7.1)% 14.4% 16.5% 18.4% 22.8% 22.4% 30.3% 36.5% 42.2%

Tenant Improvements $597,363 $47,722 $692,210 $127,393 $416,812 $128,103 $506,387 $147,683 $110,935

Leasing Commissions $327,854 $29,846 $682,853 $101,785 $312,653 $82,451 $650,503 $117,997 $83,189

Capital Reserve $2,275,724 $25,260 $26,017 $26,798 $27,602 $28,430 $29,283 $30,161 $31,066 $31,998 $32,958

Total Capital Costs $3,200,941 $102,828 $1,401,080 $26,798 $256,780 $757,895 $239,837 $1,187,051 $31,066 $297,678 $227,082

Cumulative Capital Costs $3,200,941 $3,303,769 $4,704,849 $4,731,647 $4,988,427 $5,746,322 $5,986,159 $7,173,210 $7,204,276 $7,501,954 $7,729,036

Net Cash Flow - UnLeveraged $2,051,373 $(1,468,203) $1,745,859 $503,865 $2,319,070 $2,132,452 $1,671,831 $2,279,964 $1,323,470 $2,641,416 $2,501,724 $2,690,000

Debt Service $862,500 $862,500 $862,500 $862,500 $862,500 $862,500 $1,111,221 $1,111,221 $1,111,221 $1,111,221 $1,111,221 $1,111,221

Debt Coverage Ratio 2.38 2.01 2.14 2.21 2.72 2.77 2.19 2.27 2.26 2.40 2.52 2.63

Cumulative Net Cash Flow - Unleveraged $(1,468,203) $277,656 $781,521 $3,100,591 $5,233,043 $6,904,874 $9,184,838 $10,508,308 $13,149,724 $15,651,448 $18,341,448

Cumulative Net Cash Flow - Leveraged $(2,330,703) $(1,447,344) $(1,805,979) $(349,409) $920,543 $1,481,153 $2,649,896 $2,862,146 $4,392,341 $5,782,844 $7,361,623

1 Contract rents are in-line with underwritten market rents – and both are significantly inside of the rent necessary to justify new construction.

2 Operating Recoveries are projected to decrease as rents are assumed to roll and base year expense stops are re-set.3 Current occupancy is 100% and 95% economic occupancy is assumed at stabilization.4 Real estate taxes are adjusted to reflect the sale.5 Operating Expenses are based on 2012 actual results, with modest adjustments where the Sponsor anticipates savings.6 Insurance expense is based on new quote. Earthquake insurance will not be required because the SEL is less than 20%.7 Management Fee Expense is based on 4% of Effective Gross Income.8 TILCs based on projected rollover assuming PTC and Samsung both vacate.9 Capital Reserve is based on Sponsor’s Renovation Budget.

CasH floW analysIs | 2726 | CasH floW analysIs

4

9

567

2

8

3

1

TenantSuite

% of Total

Square Ft

% of Total

Rent

Square

Footage

Actual

Monthly

Rent PSF

Market

Monthly

Rent PSF

Start

Date

End

Date

Monthly

Rent

Recovery

Method

Actual

Annual

Rent PSF

Market

Annual

Rent PSF

2665 North First Street

100 Dept. of General Svcs. 17,348 22.22% $3.16 $2.00Sep-09 Aug-25 14.15% $54,881 None$37.96 $24.00

102 Bio Health College 6,447 6.80% $2.60 $2.00Jul-03 Dec-13 5.26% $16,788 BY09 - CIT$31.25 $24.00

110 Parametric Tech Corp. 17,468 19.45% $2.75 $2.00Sep-08 Aug-13 14.25% $48,037 BY09 - CIT$33.00 $24.00

200 Hitachi Cable 3,650 2.68% $1.81 $2.00Nov-07 Jun-15 2.98% $6,607 BY12 - CIT$21.72 $24.00

202 Samsung 4,468 3.35% $1.85 $2.00Oct-12 Mar-15 3.64% $8,266 BY13 - CIT$22.20 $24.00

204 Samsung 5,750 4.31% $1.85 $2.00Jan-13 Mar-15 4.69% $10,638 BY13 - CIT$22.20 $24.00

206 Powervation 3,432 2.36% $1.70 $2.00Aug-10 Aug-14 2.80% $5,834 BY12 - CIT$20.40 $24.00

207 Bio Health College 4,515 4.15% $2.27 $2.00Nov-09 Feb-14 3.68% $10,249 BY09 - CIT$27.24 $24.00

208 Samsung 2,048 1.53% $1.85 $2.00Dec-12 Mar-15 1.67% $3,789 BY13 - CIT$22.20 $24.00

210 Dept. of General Svcs. 10,408 8.70% $2.06 $2.00Dec-09 Nov-17 8.49% $21,492 None$24.78 $24.00

212 Yageo America Corp. 3,461 2.49% $1.78 $2.00Nov-11 Oct-13 2.82% $6,161 BY11 - Combined$21.36 $24.00

214 QuickStart Intelligence 3,663 3.34% $2.25 $2.00Apr-13 Oct-13 2.99% $8,242 BY07 - CIT$27.00 $24.00

300 Samsung 27,028 12.59% $1.15 $2.25Oct-12 Mar-15 22.04% $31,082 NNN$13.80 $27.00

310 Samsung 12,933 6.02% $1.15 $2.25Jan-13 Apr-15 10.55% $14,873 NNN$13.80 $27.00

122,619 100.00% 100.00% $246,936 $2.01 $2.08

0 0.00%Total Available Space:

$24.17 $24.98

renT roll | 2928 | renT roll

TenantSuite Date PSF

Rent Increases Termination

RightsOptions

Initial

Occupancy Underwriting Comments

100 Dept. of General Svcs. 1 - 5 Yr YSep-09 1st Floor - $30-Tenant may terminate lease any time effective on or after 08/31/17.

102 Bio Health College 1 - 5 YrJul-03 1st Floor - $30-Renewal notice required no earlier than 180 days nor later than 120 days. Option rent is FMR.

110 Parametric Tech Corp. Sep-08 1st Flr 110 - $20-Assume Tenant vacates at lease expiration.

200 Hitachi Cable Jul-13 $22.32

Jul-14 $22.92

1 - 3 YrNov-07 2nd Flr - $20-Renewal notice required no earlier than 12 months and no later than 9 months. Renewal rent is greater of prior

rent or FMR.

202 Samsung 2 - 3 MoOct-12 2nd Flr - $15-Tenant has two 3-month extension options for all suites on an "all-or-nothing" basis -- 120 days notice and 90

days notice prior to the expiration of the lease in Suite 300 is required for the 1st and 2nd options, respectively. While there

are different expiration dates for the suites, there is one option notice date. Base rent in an option is same as base rent in last

year of lease. Underwriting assumes Samsung vacates at lease expiration.

204 Samsung 2 - 3 MoJan-13 2nd Flr - $15-Tenant has two 3-month extension options for all suites on an "all-or-nothing" basis -- 120 days notice and 90




206 Powervation 1 - 2 YrAug-10 2nd Floor - $30-Renewal notice required no earlier than 180 days or later than 120 days. Renewal rent is greater of prior rent

or FMR.

207 Bio Health College Nov-09 2nd Floor - $30-

208 Samsung 2 - 3 MoDec-12 2nd Flr - $15-Tenant has two 3-month extension options for all suites on an "all-or-nothing" basis -- 120 days notice and 90




210 Dept. of General Svcs. 1 - 5 Yr YDec-09 2nd Flr - $20-Tenant may terminate lease any time effective on or after 11/30/13.

212 Yageo America Corp. Aug-06 2nd Flr - $15-

214 QuickStart Intelligence Mar-07 2nd Floor - $30-Tenant was acquired by Corinthian Colleges Inc. and the lease was assigned on Jan 29, 2013

300 Samsung 2 - 3 MoOct-12 3rd Floor - $10-Tenant has two 3-month extension options for all suites on an "all-or-nothing" basis -- 120 days notice and 90




310 Samsung Jan-14 $14.21

Jan-15 $14.64

2 - 3 MoJan-13 3rd Floor - $10-Tenant has two 3-month extension options for all suites on an "all-or-nothing" basis -- 120 days notice and 90




renT roll CommenTs | 3130 | renT roll CommenTs

TenantSuite

% of Total

Rent

Square

Footage

End

Date

Monthly

Rent

% of Total

Square Ft

Contract

Annual

Rent PSF

at Expiration

Market

Annual

Rent PSF

at Expiration

Option

Annual

Rent PSF

at Expiration

Market

Annual

Rent PSF

Actual

Monthly

Rent PSF

Actual

Annual

Rent PSF

Market

Monthly

Rent PSF

2013

110 Parametric Tech Corp. 17,468 19.45% $2.00Aug-13 14.25% $48,037 $24.00 $24.00$2.75 $33.00 $33.00

212 Yageo America Corp. 3,461 2.49% $2.00Oct-13 2.82% $6,161 $24.00 $24.00$1.78 $21.36 $21.36

214 QuickStart Intelligence 3,663 3.34% $2.00Oct-13 2.99% $8,242 $24.00 $24.00$2.25 $27.00 $27.00

102 Bio Health College 6,447 6.80% $2.00Dec-13 5.26% $16,788 $24.00 $24.00$2.60 $31.25 $31.25

31,039 32.08% $2.00 25.31% $79,227 $24.00 $24.00Total: $2.55 $30.63 $30.63

31,039 32.08% 25.31% $79,227 Cumulative Total:

2014

207 Bio Health College 4,515 4.15% $2.00Feb-14 3.68% $10,249 $24.00 $24.00$2.27 $27.24 $27.24

206 Powervation 3,432 2.36% $2.00Aug-14 2.80% $5,834 $24.00 $25.20$1.70 $20.40 $22.20

7,947 6.51% $2.00 6.48% $16,083 $24.00 $24.52Total: $2.02 $24.29 $25.06


2015

202 Samsung 4,468 3.35% $2.00Mar-15 3.64% $8,266 $24.00 $25.20$1.85 $22.20 $23.55

204 Samsung 5,750 4.31% $2.00Mar-15 4.69% $10,638 $24.00 $25.20$1.85 $22.20 $23.55

208 Samsung 2,048 1.53% $2.00Mar-15 1.67% $3,789 $24.00 $25.20$1.85 $22.20 $23.55

300 Samsung 27,028 12.59% $2.25Mar-15 22.04% $31,082 $27.00 $28.35$1.15 $13.80 $14.64

310 Samsung 12,933 6.02% $2.25Apr-15 10.55% $14,873 $27.00 $28.35$1.15 $13.80 $14.64

200 Hitachi Cable 3,650 2.68% $2.00Jun-15 2.98% $6,607 $24.00 $26.71$1.81 $21.72 $22.92

55,877 30.47% $2.18 45.57% $75,254 $26.15 $27.55Total: $1.35 $16.16 $17.14


2017

210 Dept. of General Svcs. 10,408 8.70% $2.00Nov-17 8.49% $21,492 $24.00 $28.34$2.06 $24.78 $43.01

10,408 8.70% $2.00 8.49% $21,492 $24.00 $28.34Total: $2.06 $24.78 $43.01


2024+

100 Dept. of General Svcs. 17,348 22.22% $2.00Aug-25 14.15% $54,881 $24.00 $34.85$3.16 $37.96 $52.10

17,348 22.22% $2.00 14.15% $54,881 $24.00 $34.85Total: $3.16 $37.96 $52.10


lease rollover | 3332 | lease rollover

suite 202, 204, 208, 300 & 310

samsUng InformaTIon sysTems amerICa square footage: 52,227

www.sisa.samsung.com lease expiration: March 2015 April 2015

Comments:

Samsung Information Systems America (SISA) is a wholly-owned subsidiary of Samsung Electronics. SISA is focused on researching emerging technology to create new businesses and developing new technologies to enhance Samsung’s products. SISA was founded in 1988 and focuses on the Operating System, User Experience, Digital Television , Printer, Data Storage, and Wireless Protocol sectors. Working with entrepreneurs, leading universities, and Samsung’s internal product and venture divisions, SISA provides opportunities for researchers and developers of new technology to leverage the expertise and resources of Samsung Electronics. The company is headquartered in San Jose, California with offices throughout the US.

suite 100 & 210

sTaTe of CalIfornIa deParTmenT of general servICes square footage: 27,756

www.dgs.ca.gov lease expiration: August 2017 November 2013

Comments:

The Department of General Services (DGS) acts as the general business manager for the State of California. The DGS provides a variety of services to California state agencies including procure-ment and acquisitions solutions, real estate management and design, environmentally friendly transportation, professional printing, design and web services, and funding for the creation and construction of safe schools. The DGS operates two separate entities within 2665 North First Street: the California Unemployment Insurance Appeals Board (Suite 100) and the California Franchise Tax Board (Suite 210).

suite 110ParameTrIC TeCHnology CorPoraTIon square footage: 17,468

www.ptc.com lease expiration: Aug-13

Comments:

Headquartered in Needham, Massachusetts, Parametric Technology Corporation (PTC) develops software used in computer-aided design, manufacturing, and mechanical engineering (CAD/CAM/CAE) applications. Its Creo product is used to create 3D computer models for aircraft engines, car bodies, mobile phones, and toys. PTC also offers the Windchill software suite, which enables collaborative content and process management. The company’s Mathcad application automates mathematical calculations for engineering purposes. PTC sells directly, through resellers, and through systems integrators including IBM, Hewlett-Packard, and Accenture. Founded in 1985, PTC grew rapidly and released its initial public offering on the NASDAQ in 1989.Today the company employs more than 6,000 people and serves more than 27,000 businesses around the world.

suite 102 & 207bioHealth College square footage: 10,962

www.biohealthcollege.edu lease expiration: December 2013 February 2014

Comments:

Founded in 2003, BioHealth College is an Accrediting Council for Continuing Education & Training (ACCET) accredited university focused on providing careeroriented training in the Biotechnology, Pharma Tech, Medical Assisting, and Business Administration fields. With accelerated programs allowing students to start a new career in as little as seven months, BioHealth College provides small class sizes and a hands-on learning environment. BioHealth College also maintains a career placement division dedicated to supporting graduates entering the workforce.

34 | TenanT ProfIles

suite 200HITaCHI Cable square footage: 3,650

www.hca.hitachi-cable.com lease expiration: Jun-15

Comments:

Hitachi Cable America, Inc.(HCA) is Hitachi Cable’s Sales and Marketing Headquarters in North America. The compnay specializes in Import/Sales of Hitachi Cable Group products including networking products, optical components, wires and cables, copper products and semiconductor materials. Export/Sales of various materials and products to Hitachi Cable Group companies Marketing and Business Developments in the North American Market.

suite 206PoWervaTIon square footage: 3,432

www.powervation.com lease expiration: Aug-14

Comments:

Founded in 2006, Powervation delivers energy-efficient solutions for power systems used in Networking, Storage and Computing applications. The company’s digital power IC technology brings fully automatic adaptive control to DC/DC conversion for the first time in a reliable package that reduces design complexity and cost, increases power-supply performance and accelerates time to market. Powervation is headquartered in Cork, Ireland, with sales offices in San Jose, California and Hong Kong.

suite 212yageo amerICa CorP. square footage: 3,461

www.yageo.com lease expiration: Oct-13

Comments:

Established in 1977, the Yageo Corporation has become a world-class provider of passive-compo-nent services with capabilities on a global scale, including production and sales facilities in Asia, Europe and the Americas. The corporation is uniquely positioned to provide one-stop-shopping, offering its complete product portfolio of resistors, capacitors and inductors in both commodity and specialty versions to meet the diverse requirements of customers.

suite 214QUICKsTarT InTellIgenCe square footage: 3,663

www.quickstart.com lease expiration: Oct-13

Comments:

Training over 11,000 IT Professionals and Developers per year, QuickStart Intelligence is embraced by Microsoft as a leader in training courses such as Windows Server training, SQL Server training, SharePoint Server training, Windows 7 training, Visual Studio training, and Lync Server training. QuickStart Intelligence has offices throughout the US and QSLive which allows students to attend training courses from anywhere in the world.

TenanT ProfIles | 35

36 | marKeT exeCUTIve sUmmary

MarketexecutIve SuMMary

2665 North First Street is located in San Jose, California, which is the county seat for Santa Clara County. As of 2010, the County had a population of 1,781,642 and is the most populous county in the nine-county Bay Area region. It is also one of the nation’s most affluent.

More specifically, the Property is located in the North San Jose/Plumeria office submarket, situated at the connection of US highway 101 and Interstate 880, the Bay Area’s major transportation corridors. Sitting just north of Downtown, the North San Jose/Plumeria submarket is defined by its central, infill market and established commercial base.

In Santa Clara County, over 71% of jobs are in white collar professions that include technology, management, healthcare, office and sales. As an example of the region’s business appeal, three major tenants recently moved into the South Bay/San Jose market; Google moved into 715,988 square feet, Amazon/Lab 126 moved into 581,000 square feet and Juniper Networks moved into 318,000 square feet.

San Jose bills itself as “the capital of Silicon Valley.” Seven major universities annually inject thousands of graduates into the local economy and one result of this concentrated smart workforce is that more patents are produced in San Jose than any other city in the U.S.

tHe property is located at tHe connection of us HigHWay 101 and interstate 880, tHe bay area's Major transportation corridors.

sIlICon valley ComPanIes

marKeT exeCUTIve sUmmary | 37

Market HigHligHts• The South Bay/San Jose market ended the first quarter 2013 with a vacancy rate of 10.0%.• The vacancy rate was down over the previous quarter even as rental rates increased.• The South Bay/San Jose market registered positive net absorption in 2012.• There has been significant leasing activity momentum over the past three years.

subMarket HigHligHts• The overall class A and B vacancy in the North San Jose/Plumeria submarket is 11.3% which is a 48% decrease from the

peak vacancy in the first quarter of 2009.• The submarket has seen a positive net absorption of 376,000 square feet since the first quarter of 2011.• Average monthly rents are currently at $27.25 per square foot FSG, a 9.6% increase from the previous quarter.• Average household income within a five-mile radius is over $100,000 and the population is expected to grow 3.4% by 2016.

The PrOPerTy is siTuaTed in The sOuTh bay/san JOse markeT,

which has a class a and b Office invenTOry Of 82.7 milliOn

square feeT

seCTIon | 39marKeT analysIs | 39

MarketanaLySiS

Market2665 North First Street is located in San Jose, California. The property is situated in the South Bay/San Jose market, which has a class A and B office inventory of 82.7 million square feet.

The South Bay/San Jose market is part of the Silicon Valley, which is the epicenter for the world’s top technology-related businesses. Technology companies are attracted to the region’s highly educated workforce and world class educational institutions, its high concentration of private equity and venture capital, its internationally diverse demographic base and an entre-preneurship and innovation unmatched by any other region in the world.

subMarket2665 North First Street is further defined by its location in the North San Jose/Plumeria submarket. The submarket is experiencing competition for deals--both sales and leasing--as tenants search for space and job growth remains strong. This class A and B submarket consists of 3.9 million square feet in 57 buildings.

vacancy analysisThe overall class A and B vacancy rate in the South Bay/San Jose market is 10.0% which is 130 basis points lower than the North San Jose/Plumeria submarket vacancy of 11.3%.

Regarding the submarket vacancy, over the last five years there has been a 48% decrease from the peak submarket vacancy in the first quarter of 2009 when it was 21.6%. The vacancy rate trough was 9.4% in the third quarter of 2008. Over the last year, the submarket vacancy rate has remained relatively flat, although there has been a 40 basis point increase in the most recent quarter.

absOrPTiOn analysis The South Bay/San Jose market has absorbed 6.1 million square feet since the first quarter of 2011. Over that same time period, the submarket has seen a positive net absorp-tion of 376,000 square feet, an average net absorption rate of 42,000 square feet per quarter.

Many Silicon Valley submarkets are registering single digit vacancies. As the Silicon Valley continues to grow its tenant base, demand will remain strong in the North San Jose/Plumeria submarket. For example, Cavium leased 113,381 square feet in June 2011, eBay leased or subleased 137,712 square feet in mid and late 2011 and most recently, Fastback, Logosol and OnNet signed lease deals for 26,000 square feet.

renTal raTe analysisThe current average South Bay/San Jose market rental rate is $28.87 per square foot FSG for class A and B office. In the North San Jose/Plumeria submarket, the current average rent is $27.25 per square foot FSG, which is 5.6% less than the market rent. Over the last five quarters however, the submarket has shown a 29% increase in rents versus 3% for the market.

Interestingly, the submarket rent is a 9.6% increase from the previous quarter and this most recent quarterly increase is the largest one in the last five years.

In terms of adjacent market activity to 2665 North First Street, Barrett Business Services leased 6,000 square feet at $25.80 PSF FSG (est.), Fastback leased 14,700 square feet at $24.00 PSF FSG (est.) and Gala-Net leased 3,400 square feet at $25.92 PSF FSG (est.) over the last year. All were located on North First Street.

VACAnCY

AbsorPtion

rentAl rAte

0%

5%

10%

15%

20%

25%

30%

2008 1Q 2008 4Q 2009 3Q 2010 2Q 2011 1Q 2011 4Q 2012 3Q

Submarket Vacancy %Market Vacancy %

-1,000,000

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

2008 1Q 2009 1Q 2010 1Q 2011 1Q 2012 1Q 2013 1Q

Submarket Net AbsorptionMarket Net Absorption

$0

$10

$20

$30

$40

2008 1Q 2009 1Q 2010 1Q 2011 1Q 2012 1Q 2013 1Q

Submarket Total Average RateMarket Total Average Rate

40 | marKeT analysIs

leasinG PrOsPecTsIn terms of possible tenant opportunities in the submarket due to the expiration of existing leases, there are a number of large users who will be in play. Micron Technology’s lease expires in April 2015 and they currently occupy 145,184 square feet; Nimble Storage (December 2013 - 34,395 square feet), Tessera Technologies (July 2015 – 61,226 square feet) and NaviSite (November 2016 – 66,350 square feet) are also leasing prospects for 2665 North First Street.

insTiTuTiOnal OwnershiPThe following are institutional owners of office properties located in the North San Jose Submarket.

Institutional ownersBlackstone

KBS Realty AdvisorsMet LifeEquusLegacy

J.P. MorganInvescoHines

TA AssociatesIrvine Co.

AEWProLogis

Clarion PartnersDivco West

Starwood CapitalBoston Properties

demOGraPhic analysis2665 North First Street is located in an affluent demographic region of Silicon Valley. The average household income within a five-mile radius is over $100,000 and the population is expected to grow 3.4% by 2016. Silicon Valley is known for being a hub of entrepreneurship, innovation and bold ideas. Because of this concentration of cutting-edge compa-nies, the area will continue to have upward pressure on wages to attract talent and an ever-increasing foreign migra-tion of workers to fill the skills gap. This is evidenced by San Jose’s projected economic growth rate of 4.7% through 2016; which makes it America’s third fastest-growing city according to Forbes.

VAlleY business Center demogrAPhiCs

1 mile 3 mile 5 milePopulation2011 6,176 112,922 452,622 2016 Projection 6,450 117,132 468,069 % Growth 2011-2016 4.4% 3.7% 3.4%Average HH Income $132,053 $106,644 $101,917

marKeT analysIs | 41

maJOr emPlOyerssilicon valley Top employers

employer full Time silicon valley employees business TypeCisco 15,492 TechnologyCounty of Santa Clara 14,957 GovernmentKaiser Permanente No CA 13,500 HealthcareApple, Inc. 12,000 TechnologyStanford University 11,020 Higher EducationOracle Corp. 8,000 TechnologyStanford Hospital & Clinics 7,924 HealthcareLockheed Martin Space Systems 6,900 AerospaceState of California 6,569 GovernmentGoogle Inc. 6,000 TechnologyIntel Corp. 5,871 Technology

In 2012, the nine-county Bay Area added about 92,000 jobs. Of that total, Silicon Valley - defined as Santa Clara and San Mateo counties - accounted for 46 percent, or 42,000 jobs. “This is prodigious job creation,” stated Russell Hancock, president of Joint Venture Silicon Valley.

Major employers in the Silicon Valley include some of the world’s most iconic business brands including:

major silicon valley employersApple

GoogleFacebook

Cisco SystemsIntel

Hewlett-PackardOracle Yahoo

eBayAdobe Systems

IntuitNetflix

Electronic ArtsTesla Motors

TwitterZynga

LinkedInKleiner Perkins

These companies continuously define technological innova-tion. However, it must be noted that although technology-related companies remain a large driver of employment in the area, Silicon Valley’s employment base is diverse with government, healthcare, aerospace, and higher education sectors amongst the top employers in the region.

42 | marKeT analysIs

Comparable lease TransactionsTenant / Property / address sf rate/sf/yr Term (yrs.) start lease Type owner/basis

10TomTom 100 Century Center Court San Jose, CA

1,760 $24.60 3 Yrs 4/2013 FSGSleepy Hollow

Investment N/A

11Gala-Net 2107 N 1st Street San Jose, CA

3,358 $25.92 3 Yrs 3/2013 FSG Invesco N/A

12Fastback 2460 N 1st Street San Jose, CA

14,733 $24.00 N/A 3/2013 FSG TA Associates N/A

13OnNet 2870 Zanker Road San Jose, CA

6,631 $23.40 N/A 3/2013 FSGStockbridge

Capital $140/SF

14Nimble Storage 2841 Junction Avenue San Jose, CA


Capital $140/SF

15Logosol Inc 2833 Junction Avenue San Jose, CA


Capital $140/SF

Comparable sale PropertiesProperty / address Total sf

CoePrice

Price/sf Cap rate buyer seller Comments

6Corporate Technology Park 200-450 Holger Way San Jose, CA

Mar-13 $239,000,000 $391/SF 6.96%

KBS Realty Adviors

Equity Office

8 Building Class B Office Park 2-3 Stories, Built in 1999

100% Leased at Sale

7North Pointe Business Park 178 E Tasman Drive San Jose, CA

Oct-12$33,319,000

$287/SF (allocated)

7.00% (portfolio)

LBA Realty RREEF

Part of 6 Building Portfolio Sale 2 Stories, Built in 2002 63% Leased at Sale

8Montague Park 2840 Junction Avenue San Jose, CA

Aug-12$29,552,000

$371/SF (allocated)

6.8% (portfolio)

Spear Street Capital LaSalle

Investment

Part of 5 Building Portfolio Sale 2 Stories, Built in 1990 100% Leased at Sale

9Silicon Valley Center 2540-2590 N 1st Street San Jose, CA

Jun-12 $120,000,000 $273/SF 6.10%

The Irvine Company

LBA Realty

6 Building Class B Office Park 4-5 Stories, Built in 1986

91% Leased at Sale

Competitive PropertiesProperty / address sf built rate/sf/

yr vacancy owner/basis Comments

1Orchard Technology Park 3025 Orchard Parkway San Jose, CA

61,296 1983 N/A 0.0% Blackstone $93/SF

2 Story Class B Office Project Renovated in 2007

Bought in 2004 at 0% Occupancy

2Valley Technology Centre 2740 Zanker Road San Jose, CA

135,140 1998 N/A 0.0% Equity Office N/A

2 Building Class B Office Project 2 Stories

3Central Park Plaza 2870 Zanker Road San Jose, CA

322,381 1985 $23.40 29.0%Stockbridge

Capital $140/SF


4Montague Park 2840 Junction Avenue San Jose, CA

79,748 1990 $27.00 0.0%Spear Street

Capital $371/SF

Part of 5 Building Office/R&D Park 2 Stories

5

Valley Technology Center - Phase II 2595-2895 Junction Avenue San Jose, CA

110,590 2000 N/A 0.0% Blackstone N/A


subject PropertyProperty Total nra (sf) year built rate/sf/yr occupancy Comments

ComParables | 4544 | ComParables

subject PropertyProperty Total nra

(sf) year built rate/sf/yr occupancy Comments

Valley Business Center 2665 North First Street San Jose, CA

122,619 1984 Renovated 2007 $24.00/SF 100% 3 Stories

402 Parking Spaces (3.3/1,000 SF)

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driVing direCtions From sAn Jose internAtionAl AirPort:

Head southeast on Terminal Drive

Continue onto Airport Boulevard

Continue Straight to stay on Airport Boulevard

Slight left to stay on Airport Boulevard

Slight right onto Airport Parkway

Continue onto East Brokaw Road

Turn left onto North First Street

Turn left onto Bonaventura Drive

Property entrance is 69 feet on right.

ProPertY Address:

2665 North First Street San Jose, CA 95134

distance: 4.0 miles drive Time: 10 minutes

46 | maPs & drIvIng dIreCTIons

north first street

W Trimble rd

san Jose Int'l airport

621 Capitol Mall, Suite 2100 • Sacramento, California 95814(916)446-8274 • www.palmercapital.com

Confidential Financing Memorandum San Jose, … - 2665 North 1st St.pdf · Confidential Financing...

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Transcript of Confidential Financing Memorandum San Jose, … - 2665 North 1st St.pdf · Confidential Financing...