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August 09, 2017

San Jose office building flips to Chinese buyer amid rising prices

The Mercury News

George Avalos

A big San Jose office complex, leased by fast-expanding tech company Cavium, has been bought by a Chinese company just a few months after its previous sale, property records show.

Han's Holdings paid $48.5 million on Aug. 3 for a 118,000-square-foot office complex at 2300 Orchard Parkway in San Jose, according to documents filed with the Santa Clara County Recorder's Office.

Han's Holdings is affiliated with Han's Laser in San Jose, a unit of China-based Han's Laser Technology Industry Group, which makes laser equipment.

Han's Holdings' acquisition came just months after BSREP II 2300 Orchard, a unit of New York City-based Brookfield Property Group, had bought the building in April.

The Brookfield unit paid $47.5 million at the time, which means the property's value has risen roughly 2 percent in one-third of a year.

"Chinese investors are very active in the Bay Area," said Chris Shaffer, a senior managing director with Newmark Cornish & Carey, a commercial realty brokerage. "For a while, it was tough for them to get money out of China. Now they have access to plenty of it."

San Jose-based Cavium, which makes semiconductors used in networking equipment, said it expects to move into the offices at 2300 Orchard Parkway by October, according to regulatory filings with the Securities and Exchange Commission. Its lease term is 10 years.

Cavium's revenue has grown, but so have its losses.

Over the 12 months that ended in June, Cavium lost $197.6 million on revenue of $865.9 million.

Its revenue in 2016 was 46.2 percent higher than in the prior year.

Cavium lost $147.2 million in 2016, compared with a loss of $17.1 million in 2015.

All told, Cavium has signed leases for three office buildings close to one another in north San Jose, regulatory filings show. The 2300 Orchard Parkway offices that Cavium rented in January are around the corner from two other Cavium-rented buildings on North First Street. One is the Cavium headquarters at 2315 N. 1st St. and the other is an office at 2345 N. 1st St. The two North First Street buildings, including the headquarters, total 224,000 square feet.

Cavium intends to retain all three of the buildings, said Jeff Hoffman, a Cornish & Carey senior managing director. Hoffman teamed up with fellow Cornish & Carey agent Tracey Solari to arrange the trio of Cavium leases.

Representatives with Han's Laser were contacted in person for a comment about the deal, but didn't respond.

A Cavium representative was contacted Tuesday, but did not immediately provide comments.

Cavium's workforce is rapidly growing. Annual SEC filings for the company showed it had 1,831 employees worldwide during 2016, up sharply from the 1,005 it reported for 2015.

In 2016, Cavium had 1,331 research and development employees, nearly double the 774 R&D staff it had in 2015.

This isn't the first time in recent memory that a big north San Jose building was flipped quickly from one buyer to another.

In May, a group operating under the name LL 2851 Junction LLC paid $82 million for a 156,000-square-foot, four-story building at 2851 Junction Ave. in San Jose. Just six months earlier, in November 2016, the building was bought for $76 million.

What's more, Cupertino-based Apple is planning a big campus in north San Jose, which could further stoke investor interest.

"Office product is still doing well in Silicon Valley, and people are looking for unique scenarios to place money," said Chad Leiker, a first vice president with Kidder Mathews, a commercial realty brokerage.

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