The 2018 Deal of Year – Lane Partners Leases HQ @first Campus to Micron

SEPTEMBER 20, 2018

When Lane Partners bought the former Brocade Communications Systems campus in North San Jose and re-leased the entire 600,400-square-foot property in less than six months, it became one of the biggest success stories in Silicon Valley real estate over the past year.

While the deal was one of the most seamless transactions that company principal Mark Murray says he has been a part of, it could have easily turned out a complete flop. The $225.5 million sale of the three-building campus — which officially traded hands Nov. 30 — hinged on a long-anticipated acquisition by chipmaker Broadcom Limited, a corporate takeover that took nearly a year of regulatory review and an agreement to move Broadcom’s headquarters from Singapore to the United States.

Broadcom officially bought Brocade Nov. 17 for $5.9 billion. But Menlo Park-based Lane Partners’ had been in contract for the nearly 10-acre campus with Broadcom since earlier that summer, and had waived contingencies on the real estate deal, literally banking on the company acquisition.

Micron/HQ@First sale to Lane Partners

110-130 Holger Way, San Jose

Property owner: Menlo Park-based Lane Partners and Newport Beach-based PIMCO

“We were essentially making a deal with a group that didn’t own the real estate yet,” Murray said. “Our entire acquisition was contingent upon Broadcom successfully acquiring Brocade, which for a number of months … was totally up in the air.”

The campus marks a departure from the average real estate acquisition that Lane Partners dives into. The company often picks up older, smaller properties with opportunities to add value through renovation and landscaping.

But the former Brocade campus, completed in 2010, already screams corporate headquarters. In all, the deal worked out to $375.58 per square foot of office and indoor amenity space, or nearly $23.2 million per acre, but needed minimal work.

The property is outfitted with a full cafeteria and both indoor and outdoor seating, a large fitness center, a game room and an executive business center where Brocade’s C-suite employees once officed. Each meeting room is punctuated with video and sound systems. The buildings are certified LEED Gold.

As a bonus, the four-story building at 110 Holger Way also has infrastructure in place for a data center, but the building can also be used as office space.

“In today’s construction environment, these improvements would cost a minimum of $200 per square foot to replicate,” Murray told the Business Journal in an interview around the time of the acquisition.

Lane Partners decided to redo all of the landscaping on the property and construct a new outdoor amenity area between the seven-story buildings at 120 Holger Way and 130 Holger Way. Improvements to the campus rang in around the $2 million mark — not an insignificant amount of money, but a relative drop in the bucket compared to the value of the property, Murray said.

Calm before leasing storm

Once the Brocade acquisition was finalized, Murray and the team at Lane Partners breathed a sign of relief — but only for a moment.

Brocade employees — the relatively few that were left after a slew of layoffs earlier in the year — would stay at the campus until May 31. After that, Lane’s shiny, massive campus would be empty in North San Jose, an area of the city that has an office vacancy rate of about 16.6 percent as of June of this year.

The site, bound by Holger Way and Headquarters Drive, sits in a growing part of North San Jose, adjacent to the @First retail development and two hotels. Both the Hyatt House San Jose and a Courtyard by Marriott sit within spitting distance of the campus.

“I was just extremely excited about the deal and … I think the day you close is when you start worrying,” Murray said. “You kind of go from the exuberance of being in control of a huge project to realizing you have 600,000 square feet to lease.”

The real estate investment and development firm picked Jeff Arrillaga, executive managing director with Newmark Cornish & Carey, to market the site.

Not six months later, semiconductor company Micron Technology had signed on to lease the entire property. Cushman & Wakefield Executive Managing Director and Managing Principal Dave Hiebert and Senior Director Brian Ahearn represented Micron in the deal.

“We had significant interest from prospective users from the time we were in contract on the project, including groups who wanted the entire campus,” Murray told the Business Journal. “Micron, to their credit, moved more quickly than other potential tenants to control the property.”

The Boise, Idaho-based semiconductor company is slated to start the move this fall into the former Brocade Communications Systems-owned campus at 110-130 Holger Way, as companies throughout Silicon Valley working on everything from artificial intelligence to autonomous vehicles increase their demand for the technology Micron specializes in.

Though Micron’s headquarters remain in Idaho, it’s a move that would represent a more than three-fold expansion for the company in Silicon Valley.

Chipmakers often require vast amounts of computing power to develop and simulate new chip designs, and Micron was drawn to the 100,000 square feet of data center space in the four-story building at 110 Holger Way, which will be used to power internal operations.

It’s worth noting, however, that Micron plans to sublease one of those buildings, at 120 Holger Way, until it’s ready to grow into the space, according to David Oro, a spokesperson for the company.

The Holger Way campus is “more central,” Oro told the Business Journal. “It gives us access to people from the East Bay, South Bay and the Peninsula, and it is an opportunity for attracting talent and more workforce.”

Micron today employs just over 500 people in Silicon Valley and has dozens of job openings in the area. All three buildings in North San Jose would allow the company to grow to more than 1,000 employees eventually.

The two deals — first the campus sale, and then the massive lease — mark for Lane Partners not only the largest lease the company has signed to date, but also the “smoothest transaction we’ve ever done,” Murray said.

And while no major hiccups derailed the two transactions that made the former Brocade headquarters that turned into a massive Micron campus this year’s Structures Deal of the Year, Murray admits now that much of the year leading up to the deals’ conclusion “was just hoping beyond hope.”

By the numbers

600,400: Square feet

3: Buildings (two seven-story and one four-story)

9.72 acres: Size of campus

$225.5 million: Sale price ($375.58 per square foot / $23.2 million per acre)

Leasing, representing Lane Partners: Newmark Knight Frank’s Jeff Arrillaga, executive managing director

Leasing, representing Micron: Cushman & Wakefield’s Dave Hiebert, executive managing director and managing principal; Brian Ahearn, senior director

Sale: Newmark Knight Frank’s Steven Golubchik, vice chairman and co-head of Commercial Capital Markets in Northern California; Edmund Najera, executive managing director; David Hosler, senior analyst; and Phil Mahoney, executive vice chairman