Prime downtown San Jose tower sale to shatter records

Publication: San Jose Spotlight
BY Janice Bitters

One of downtown San Jose’s most prominent office towers, known as 50 West, or the KQED building, is set to sell to developer Jay Paul Co. in a deal that industry insiders say will break records and set a new high-water mark for commercial space in the city’s urban core.

“It certainly as recognizable a Class A building as exists from that era,” Phil Mahoney, executive vice chairman for Newmark Knight Frank, who has represented Jay Paul in transactions for decades, said in an interview Tuesday. “It will add to the Jay Paul ecosystem of downtown really in an accretive way.”

Mahoney declined to reveal the price the 18-story building at 50 West San Fernando is expected to command when it officially trades hands, likely in the next 30 days. But industry insiders with knowledge of the deal say the transaction has gone “nonrefundable,” meaning Jay Paul has already placed some money on the deal. Today the building is about 75 percent occupied, filled with prominent tenants like Accenture, Silicon Valley Capital Club and broadcasting company KQED, which has its call letters displayed at the top of the building.

The rumored price, confirmed by several sources with knowledge of the negotiations, sits around $235 million, or $640 per square foot for the 367,000-square-foot tower. That’s far above the current $544.31 price per square foot record in San Jose’s downtown when it comes to office building sales.

San Francisco-based DivcoWest and Boston-based Rockpoint Group purchased the building in December 2015 for $165.5 million, or about $493 per square foot. A representative for DivcoWest declined to comment on the pending sale Tuesday.

But the estimated price for the building doesn’t come as a shock to most industry onlookers. The KQED tower has long been considered the premier office building in the city, according to Mark Ritchie, president of San Jose-based real estate brokerage Ritchie Commercial.

At the same time, investor interest in the city has grown significantly, said Rick Jensen, communications director for the San Jose Downtown Association.

“Downtown San Jose is closer to realizing its potential more than ever, and others are realizing the potential is here now and that it’s time to invest,” he said. “Some of the bigger players are coming down here and Jay Paul is one of them.”

Indeed San Francisco-based Jay Paul Co. is considered a top player in the market, though the group entered the downtown San Jose real estate scene less than a year ago, when it unexpectedly swooped in last July to buy the city block-sized CityView Plaza across the street from 50 West for $283.5 million.

Immediately, rumors swirled around what Jay Paul Co. — the developer behind many of the offices and campuses that the biggest tech titans in the world lease today — would do with the aging property.

In April, Jay Paul Co. unveiled a plan to build 3.4 million square feet of office space in place of the existing 600,000-square-foot mixed-use CityView campus along San Jose’s prominent Market Street. Tenants in the campus have already started moving out of the existing buildings.

“That’s something that I don’t know you can find almost anywhere, where you have 600,000 square feet of leases you are trying to get terminated,” Ritchie added. “The size of the building they’re trying to drop in there — that tells you how large the forces are that are trying to come here.”

Jay Paul last year also bought the former Lincoln Law building at 1 North First St. for $46 million, signaling a broader interest in the growing downtown San Jose market where tech giants like Google and Adobe are making plans to grow significantly and real estate investors from around the world have picked up steam in scouting deals.

News that Jay Paul now plans to purchase 50 West may be a sign its interest in downtown San Jose real estate hasn’t yet been satiated. Industry insiders say the company has shown interest in several other properties near CityView Plaza and in other parts of the urban core.

So far Jay Paul Co. has spent nearly $330 million on real estate in the area, but once its newest purchase of the 50 West building closes, that number is set to shoot up to about $574 million.

“What he is doing is as bold as it gets,” Ritchie said of Jay Paul, owner and namesake of Jay Paul Co. “The money that he is committing [to downtown San Jose] is just a towering amount.”