SAN JOSE — A Santa Clara County housing agency has sold an office building on a prime site north of San Jose — at a loss to what it paid just two years ago.
At one time, the Santa Clara County Housing Authority intended to establish its headquarters in the office building, located at 3553 N. First St. in San Jose at a key location next to light rail tracks .
But the Housing Authority’s foray into office ownership has turned into a financial setback, according to Santa Clara County property records that were filed Sept. 28.
In 2020, the Housing Authority paid $37.35 million for the office building, according to a staff memo released at the time of the agency’s purchase.
On September 28, the Housing Authority sold the building for $24.5 million, documents filed with the Santa Clara County Recorder’s Office.
This represents a 34.4% decline in the value of the building over the approximately 21 months that the real estate agency owned the building.
Alvarez & Marsal Capital Real Estate, acting through an affiliate, purchased the office building in what appears to be an all-cash transaction, according to county property records. State and county business records link the Alvarez & Marsal company directly to the purchasing subsidiary.
The real estate investment firm is looking for ways to jump-start office buildings by finding new missions for traditional office buildings like the North San Jose property it just acquired.
“Our current focus is to meet the demand for ‘creative’ office space in key western U.S. markets through adaptive reuse and repositioning of existing assets,” said A&M Capital Real Estate, which is based in the city of El Segundo, Los Angeles County. in an article on its website.
It was only after the purchase was finalized in December 2020 and the Housing Authority took ownership of the building that the county agency realized it had gotten its plan wrong to move the corporate headquarters to the north San Jose property.
“Following analysis and feedback from staff and stakeholders showed that the location of North First Street was not in line with the agency’s future vision,” according to a presentation prepared for a Sept. 21 meeting of the Housing Authority.
The two-story building totals 86,100 square feet and occupies a six-acre parcel at the corner of North First Street and Rio Robles. The Tasman light rail station is about two blocks away.
The Housing Authority determined that the cost of refurbishing the building to turn the property into the agency’s future headquarters could exceed what the government entity paid for the property.
“Estimates of incremental construction requirements and tenant improvement costs to improve office space ranged from $23 million to $40 million,” the county agency’s report said.
The upper end of the range of upgrade estimates exceeded the value of the building as measured by recent purchase price.
A Housing Authority analysis determined that the agency actually needed 60,000 square feet of office space – not 86,100 square feet – to meet its future space needs.
The county agency currently maintains its headquarters at 505 W. Julian St. in downtown San Jose. It is a two-story office building that totals 35,000 square feet.
“Several years ago, it was determined that the Santa Clara County Housing Authority had outgrown 505 W. Julian,” said a memo from housing agency staff that was prepared for a February meeting. 2022 from the government entity.
The Housing Authority considered six buildings for the new headquarters before finally choosing the North First Street property. But it wasn’t until he bought the building that he looked more carefully at the pros and cons of the building.
A staff analysis determined that the negatives far outweighed the positives when comparing the North First Street location to other sites in places such as downtown San Jose and neighborhoods adjacent.
“Analysis showed that 3553 N. First St. is the least accessible by customers and staff,” the county agency’s report said. “Setting up in North San Jose would increase travel time for our workforce and require our customers to travel greater distances to visit us.”
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