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General Dynamics leases Santa Clara campus, shifting 400 jobs
BY SHARON SIMONSON
email@example.com Elaine Costello, the city’s community
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