DivcoWest, TMG Partners Team Up To Close $108 Million Purchase at Steep Discount

A pair of local San Francisco Bay Area developers are taking advantage of the region's discounted office pricing with a more than $108 million bet on the market's long-term recovery.

A joint venture between DivcoWest and TMG Partners finalized its all-cash purchase of 600 Clyde Ave., a 190,000-square-foot Silicon Valley office property that Alphabet's Google has been trying to sublease for more than a year. The deal, closed earlier this month, is the latest in a flurry of acquisitions made by smaller, often local investment firms scooping up office properties at fire-sale prices with plans to wait for the market to build itself back from the depths of the COVID-19 pandemic.

Silicon Valley real estate firm Renault & Handley was the seller in the deal for the Mountain View, California, building. The price tag equates to about $569 per square foot, a steep drop compared to the roughly $1,140 per square foot average reported among premium office properties that sold four years ago, according to CoStar data.

Google has been the building's sole tenant since the tech giant, headquartered just a few miles away, preleased the property more than a year before it finished construction in mid-2020.

However, the building was among a handful of office properties the tech company listed for sublease as it looked to slash its footprint across the Bay Area by offloading more than 1.5 million square feet of space it neither uses nor wants. The Clyde Avenue building, which has been marketed by Newmark for the past 15 months, is vacant and available through August 2031.

The impact of flexible work policies and cost-cutting measures among some of the region's largest occupants have combined to push Silicon Valley's availability rate past 25%, well beyond the roughly 5% reported prior to the pandemic's outbreak in 2020.

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Despite Google's offloading efforts, the deal and its discounted price proved enough for both DivcoWest and TMG to place bets on the region's anticipated recovery.

Over the past couple of years, buyers have scooped up dozens of office properties across the San Francisco Bay Area, often paying all cash. That debt-free position has largely been made possible thanks to the decline in pricing compared to pre-pandemic levels, when many buildings in the region were selling at some of the highest per-square-foot levels in the country.

Within the past couple of weeks, a joint venture between San Francisco's Flynn Properties and Ellis Partners paid nearly $40 million to acquire 631 Howard St. in San Francisco, a more than 40% discount compared to what seller Invesco paid about a decade ago.

Los Angeles-based BH Properties recently dropped $13.5 million to acquire 989 Market St., an about 121,000-square-foot building in San Francisco's Mid-Market neighborhood that last sold for nearly $61.5 million in 2014. Software company Zendesk, which had long based its headquarters at the property, is preparing to move out within the next couple of months following a deal to sublease space from Meta over at 181 Fremont St.

The patient capital will be necessary as the region recovers from the blows it endured throughout the pandemic, especially as the tech-concentrated Silicon Valley market slogs through a record amount of available space. Tenants in the Mountain View area over the past year have collectively signed on for just 223,880 square feet of office space, a roughly 24% drop compared to this time last year, according to CoStar data.