Net-leased R&D buildings for sale

Real Estate Alert, April 28, 2004

An investment firm is seeking $4.3.5 million for three R&D buildings in Silicon Valley that are net-leased to semiconductor firm LSI Logic.

The buildings, which encompass 378,000 square feet, are located in Milpitas, Calif., near San lose. The owner, Limar Realty of San Mateo, Calif., is promising the buyer a 7% initial annual yield at the asking price of $115/sf. The building's current income would produce only a 4.5% yield, but Limar will make up the difference--either in a lump sum, or on a monthly payment schedule--until a scheduled rent increase in 2006 lifts the return to 7%.

Potential buyers will be able to bid on the whole portfolio or individual buildings, each of which is within a few blocks of one another in the sprawling Oak Creek Business Park, off Interstate 880.

The buildings being offered are located at 1501 McCarthy Boulevard, 765 Sycamore Drive and 1621 Barber Lane, which is LSI's headquarters. They will produce $2 million of annual net operating income through next year, when LSI's rent jumps to $8.04/sf from $5.16/sf. The rent jumps again at yearend 2006 to $8.28/sf, and rises 3% annually until the leases expire, from 2010 to 2014. LSI's credit rating is double-B-minus.

The buildings were constructed separately from 1981 to 1983. Limar acquired them in separate deals in the early 1990s. It bought 1621 Barber Lane in foreclosure for just $1 million. Limar, founded in 1992 by Ted Kruttschnitt, has carved out a niche buying underperforming R&D and light-industrial properties in California.

Cornish & Carey/Oncor International has the listing. For more information, call Sam Wright at 408-987-4139.