Three well-known and historic downtown San Jose commercial properties — including the former J.C. Penney building situated at one of the district's best corners — are under new ownership.
The deal, valued in total at about $33.5 million, is certainly not the largest sale in recent years in the compact business district. But it is notable because it signals the arrival of a new investor downtown and raises intriguing possibilities about future plans.
Longtime downtown property owner Saratoga Capital sold the assets this week to Westbrook Partners, according to public records. They include the Saratoga Capital building at 52-78 E. Santa Clara St., built in 1880; the stately, 1928-built 325 S. First St., home to the Blue Chip lounge; and One North First St., which at one time was home to Penney's. The latter switched to office but in recent years has struggled to find tenants; it was most recently targeted for a controversial residential conversion.
Westbrook is working with Lift Partners, a San Francisco-based value-add real estate investor and operator. Chris Freise, a partner at Lift Partners, declined to comment.
Saratoga Capital has been one of downtown's major property owners for decades. The firm, headed by Kirk E. Kozlowski, in 2014 sold the DeAnza Hotel to Lowe Enterprises. It continues to own several mixed-use apartment projects downtown. Kozlowski didn't immediately return an email or phone call for comment.
The deal signifies something new: the interest of major institutional capital in a property sector other than high-end, high-rise office downtown, said Mark Ritchie, a veteran downtown commercial broker who was not involved in the transaction.
That's a good sign for the downtown market, he said, noting that Westbrook is a major player with assets all over the world.
"It shows the large funds are taking on more smaller, older, urban rehab projects — something other than Class A," Ritchie said. "It's a positive.”
Investors including KBS, DivcoWest, Invesco, Principal Real Estate Investors have pumped money into downtown high-rise office in the past couple of years, betting that rents would rise as other submarkets fill up. Meanwhile, several new apartment projects are under way or started leasing in the last year, adding more life to the district. WeWork recently opened a snazzy new co-working space. But some spots downtown remain laggards.
Of the properties that just sold, the biggest opportunity is arguably One North First Street. The 82,000-square-foot building was constructed in 1946 and was leased by Penney's for decades until the department store closed the location in the early 1970s.
Renovations over the years left it with a dark-glass facade that has not aged well; despite a corner that is, as real estate brokers would say, "main and main," the ground floor is currently a blank wall. Westbrook representatives didn't immediately return a phone call.
"I don’t want to speak for the new owners, but near-term, I think that’s a renovation and keeping it in the same box and getting it rented," Ritchie said. "Mid-term, it becomes part of the whole block when the VTA is finished with BART in a dozen or 15 years."
(The building sits at the corner of a block that is largely owned by VTA and will be used for construction staging when work gets under way on BART's extension to Santa Clara; VTA says it will redevelop the property it owns after that work is finished.)
Deeds filed with Santa Clara County this week show that Westbrook paid $16 million for One North First Street, $9.75 million for 52-78 E. Santa Clara St., and $7.8 million for 325 S. First St.
The Saratoga Capital building at 52-78 E. Santa Clara St. is 31,469 square feet and a gem in San Jose's historic building portfolio. It includes ground-floor retail and second-story office; the former Voodoo Lounge building at 14 S. Second St. was included in the sale.
In downtown's SoFA district, the 29,436-square-foot 325 S. First St. is "a very classic creative-style space," Ritchie said. "In some ways, it's the dominant commercial building in SoFA. It’s the gatekeeper to SoFA in terms of office tenants."
Nathan Donato-Weinstein covers commercial real estate and transportation for the Silicon Valley Business Journal.