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                                                                                                                                   MAY 6, 2005                                                                our Web site.
                                                                                                                                   VOL. 22, NO. 53


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General Dynamics leases Santa Clara campus, shifting 400 jobs
                      BY SHARON SIMONSON
                       ssimonson@bizjournals.com   Elaine Costello, the city’s community
                                                   development director.
  Defense contracting giant General Dy-              The deal signals a partial victory
namics Corp. has signed an 11-year lease           for the Santa Clara property’s owners,
to occupy a former Nortel Networks                 South Bay Development Co. of Camp-
Ltd. campus, taking another huge chunk             bell and Pacific Coast Capital Partners
of vacant commercial property off the              of San Francisco. The two bought the
market in Santa Clara and producing                16-acre Nortel site for less than $25 mil-
what looks like a palatable outcome for            lion in August 2002. It was one of the
the property’s owners, who have played             first high-profile, bottom-of-the-market
a high-stakes game with the site for the           commercial real estate transactions the
last three years.                                  region saw after the technology bust in
  At the same time, the news means an              2001. They have held it empty for almost
employment and industrial base loss for            three years, an outcome that they had
the city of Mountain View, where Gener-            anticipated, says Mark Regoli, a South
al Dynamics (NYSE: GD) occupied about              Bay partner.
300,000 square feet, according to its 2004           The lease, for 359,000 square feet, is
                               ,
annual report. The company which has               among the largest signed for compa-
grown rapidly since 2001 with the ramp-            rable properties in the valley since 2000,
up in federal defense spending, has been           according to CB Richard Ellis research.
in Mountain View for at least the past               No one with South Bay or PCCP would
decade, according to Mountain View                 release details of the lease, though mar-
city officials.                                    ketplace rumor puts it at an effective                                                                                                                                           DENNIS G. HENDRICKS
                                                                                                    IT’S A DEAL: Mark Rigoli, South Bay Development Co. partner, shows off the former Nortel campus in Santa Clara. His firm has signed an 11-year
  About 400 workers will move to Santa             rent of less than $1 a square foot for the       lease that will bring General Dynamics to the property.
Clara from Mountain View, says Rob                 term. General Dynamics is financing
Doolittle, General Dynamic’s public af-            its own improvements to the site, Mr.
fairs director, and that number could              Regoli says. The partners have not de-              Mountain View’s Ms. Costello says                                      leased a year or two ago. That’s really
grow. The relocation is to take place over         cided whether to hold the property or to          the city has carved out industrial re-                                   a sign that some of this vacant space
the next year, though the lease is already         sell, he adds.                                    gions where it will not consider any land                                                                        A
                                                                                                                                                                              that’s out there that’s definitely not ‘ ’
in effect.                                           Still, part of the deal includes South          use changes at all and regions where                                     space is starting to fill. Good for South
  The operations are part of the compa-            Bay’s and PCCP’s acquisition of the               it will consider them on a case-by-case                                  Bay because I think the market has been
ny’s information technology division,              General Dynamics Mountain View site.              basis. City policy for a third industrial                                tougher than everyone thought and I’m
its largest, producing 35 percent of its           The two view the site as an opportunity                    ,
                                                                                                     category where the General Dynamics                                      not sure they expected it would take so
2004 revenue, or $6.8 billion. The divi-           for conversion to residential land-use,           property falls, remains undecided.                                       long to lease up,” he says.
sion is expected to expand further, Mr.            something that many industrial prop-                “It’s not as clear cut” for these proper-                                The deal also represents a substantial
Doolittle says, and it is reasonable to ex-        erty owners have sought as industrial             ties, she says.                                                          win for Santa Clara landlords. Santa
pect that employment will grow in Santa            properties have lost value and residen-             The General Dynamics property in                                       Clara has been one of the hardest-hit
Clara as well.                                     tial has gained. Cities have not embraced         Mountain View is adjacent to residen-                                    markets in the commercial real estate
  “The Information Systems and Tech-                                          ,
                                                   the trend wholeheartedly however, allow           tial on two sides — construction is ongo-                                recession that has struck the region in
nology group is answering a growing                                                                  ing on one parcel — and is close to light                                the last four years, suffering office va-
need in the Defense Department for
technology that takes advantage of net-
worked communications, and as the U.S.
                                                   Mountain View site is                             rail, factors that argue in favor of its
                                                                                                     conversion to residential.
                                                                                                       A city council and staff study ses-
                                                                                                                                                                              cancy rates over 30 percent and double-
                                                                                                                                                                              digit vacancy rates in its R&D stock.
                                                                                                                                                                              With the General Dynamics lease, the
government finds new ways to use net-
worked communications to accomplish
                                                   target for residential                            sion to try to hammer out an approach
                                                                                                     should be held later this month or next,
                                                                                                                                                                              city has now seen three major leases
                                                                                                                                                                              totaling nearly 850,000 square feet signed
its business, we believe our business
is well-positioned to respond to those             conversion                                        Ms. Costello says.
                                                                                                       The lease sends a positive signal about
                                                                                                                                                                              in the last six months.
                                                                                                                                                                                Meanwhile, Mountain View is head-
growing needs,” he says.                                                                             Silicon Valley’s struggling commercial                                   quarters to the hugely successful Google
  General Dynamics, headquartered in               a smattering of conversions but denying           real estate market overall, says Chris-                                  Inc. (NASDAQ: GOOG), which has been
Falls Church, Va., employs 70,000 people           most others.                                      topher Peatross, managing director for                                   leasing more property in the past 18
worldwide. The firm reaps nearly 70                                                ,
                                                     The Mountain View property which                Northern California for CarrAmerica                                      months. That and other deals have given
percent of its $19.2 billion in annual             includes an older industrial building,            Realty Corp. of Washington (NYSE:                                        Mountain View one of the healthiest
revenue from the federal government                measures about 10 acres.                          CRE).                                                                    office markets in the region, though its
and performs work that is often highly               “We would have much rather had a                  Carr is a major regional property own-                                 R&D sector is as wobbly as the rest of
sensitive and top-secret.                          pure lease, but in this market you have           er with nearly 5 million square feet of                                  the area.
  General Dynamics had complained                  to be flexible to get something done,”            commercial property in the South Bay
to Mountain View officials about en-               says Aaron Giovara, partner at Pacific            and 6.5 million square feet in the Bay                                   SHARON SIMONSON covers real estate for the Business
croachment from surrounding housing                Coast. He would not say how much mon-             Area.                                                                    Journal. Reach her at (408) 299-1853.
developments, which company officials                ,      ,
                                                   ey if any changed hands as part of the              “I think it’s significant because that’s a
believed made their site less secure, says         land trade.                                       space that I don’t think could have been

                                                                          Reprinted with permission from The Business Journal