Blackstone's $275M Silicon Valley Buy A Potential 'Vote Of Confidence'

Blackstone has agreed to pay $275M, or $770 per SF, for two buildings leased to streaming company Roku in Hunter Storm's Coleman Highline office development, Bloomberg reports. 

The deal is a sign of life in an office sector stagnated by the coronavirus pandemic, recession and remote work, representing a significant buy-in to the San Jose and Silicon Valley markets by one of the world's biggest commercial real estate investors. 

"I think it's an interesting move, especially given the backdrop both for the country, with regard to the big question surrounding the office industry, but also perhaps more specifically regarding Silicon Valley and the Bay Area," Morningstar Real Estate Equity Analyst Yousuf Hafuda said.

"To me, it looks like a vote of confidence, but more specifically a vote of confidence in high-quality office products, new builds with creditworthy tenants. I think, despite all the noise going on, there is still a space for those types of properties."

Since the pandemic brought an economic slowdown in March, there has been an abrupt slowdown in deals for all types of office properties this year, including those in Silicon Valley. There are added layers of uncertainty in the Bay Area given its high costs, as well as the tech sector's apparent openness to remote work, Hafuda said.

In a survey released this month by tenant representation company Savills, more than half of tech companies reported plans to offload some of their office footprints in the coming months. 

Properties like Coleman Highline are poised to potentially be more resilient, Hafuda and other experts said. The 1.75M SF mixed-use project, which is still under development by Hunter Storm, is a 20-minute walk from a Santa Clara Caltrain station and next to the San Jose Earthquakes professional soccer stadium. 

In addition, Roku, which has 730K SF of total office space at the complex, has more than nine years left on its lease, Bloomberg reports.

Compared to past sales, $770 per SF is higher than most and naturally so given the asset, according to Colliers International Executive Vice President Dave Sandlin, a San Jose-based office broker. 

"The seller is a reluctant seller, although they did put it on the market so they knew it would likely obtain a pretty high price because of the quality of the project," he said.

Hunter Properties, the parent company of Hunter Storm, did not respond to a request for comment, while Blackstone declined to comment. 

Blackstone is making the deal through its nontraded real estate investment trust, BREIT, which it offers as an income investment, Bloomberg reports.

Joint Venture Silicon Valley President and CEO Russell Hancock said the deal is another example of investors and corporations following the lead of Google, which plans on building a downtown mixed-use campus with over 7M SF of office. From 2017 to 2019, San Jose saw a record $3B in property deals.

"It's all in line with the trend Google started in San Jose, to locate employees in urban settings adjacent to transit, instead of remote campuses encased in a bubble," Hancock said. 

Blackstone's acquisition comes amid Roku's looking for opportunities in the growth of online content creation, as well as its stock growth. Blackstone also acquired a 49% interest in a $1.6B movie studio joint venture with Hudson Pacific Properties over the summer.

"The project is well-located, Class-A and with good tenancy, so it was well-received by the market. One of the big boys bought it," Sandlin said. "The buyers are looking long term, and I think this is an asset you can do that with."