Telecommunications company seeks taker for Peninsula buildings sublease

If you're a tenant with large space requirements on the Peninsula, your options have just opened up, big time.

SoftBank Corp. has formally put all of its San Carlos offices at 1 and 2 Circle Star Way on the market for sublease, real estate insiders tell me, following a U-turn in strategy after
Softbank-owned Sprint's bid to acquire T-Mobile fell apart last year.

The 200,000 square feet of space between the two buildings joins another large Peninsula sublease opening: DreamWorks'193,000-square-foot project at 1400 and 1500 Seaport Blvd. in Redwood City's Pacific Shores office park. That space became available after DreamWorksannounced in January that it was shuttering the longtime Northern California studio. JLL is handling the DreamWorks listing, while Newmark Cornish & Carey is marketing the space for SoftBank.

Sublease space has not been a major factor in the region's real estate landscape during the current economic cycle. However, the SoftBank availability is a reminder that real estate strategy can and does change. In January, I wrote that Apple Inc. was snapping up about 424,000 square feet of space in Sunnyvale from LinkedIn Corp. after the business social-networking company decided to focus more on expanding in Mountain View. And who could forget 395 Page Mill, a 225,000-square-foot building in Palo Alto that Google leased, but never occupied ( and eventually subleased to AOL)?

San Carlos officials said they were disappointed to learn SoftBank and its Sprint subsidiary would not occupy the buildings. Indeed, the Softbank deal promised finally to breathe some life into the site: San Mateo County bought the buildings in 2010 with plans to move operations staff there, but opted not to occupy them, and they remained empty.

Then SoftBank struck a deal in early 2013 to lease 1 Circle Star, and in July exercised its right of first refusal and took 2 Circle Star. The pair of deals were among the most significant that year on the Peninsula, and for months the SoftBank and Sprint logos have stared out at commuters along busy Highway 101. (The county flipped the buildings to Griffin Capital last spring, bagging a profit of more than $40 million.) Softbank and Sprint were planning to use the space to house growing staff, portfolio companies and a venture arm. It's unclear how much of the site was ever filled by Softbank and its affiliates.

"They were building a garden on the roof. It's just striking they would do this," said Al Savay, community development director forSan Carlos.

The Circle Star complex's selling points include a full on-site cafeteria, gym and showers, brand-new furniture and wiring, and 25,000-square-foot floor plates.

The move may not be a complete surprise, however. Reuters reported late last year that SoftBank would "downsize" its Silicon Valley offices and transfer most of its headcount out of the West Coast after its Sprint subsidiary withdrew plans to acquire T-Mobile. Sprint, which Softbank acquired in 2013 for $22 billion, faced regulatory hurdles in the acquisition. The move to sublease both buildings also comes after a CEO switch at Sprint, with Marcelo Claure taking over the top executive position. Reuters said Softbank was moving development engineers to Kansas, where Sprint has its headquarters.

SoftBank's media relations department didn't reply to an email sent last week seeking comment. Newark Cornish & Carey's Phil Mahoney, who is marketing the project with colleague Ben Stern, told me the buildings are already seeing strong interest from potential tenants. There are not that many large blocks of Class A space in this part of the Peninsula, especially with strong freeway visibility. Colliers' first-quarter statistics, released just last week, show that Class A vacancy in Belmont/San Carlos was a minuscule 2 percent. Nearby Redwood City is not that much looser.

Still, the combined SoftBank and DreamWorks sublease availabilities add up to about 400,000 square feet — a very large amount of space for the Peninsula. And developers are starting to build office projects on a speculative basis in San Mateo County, including Hines (a 300,000-square-foot project at 400 Concar Drive) and Wilson Meany (a 210,000-square-foot project at San Mateo's Bay Meadows), adding to the supply.

Mike Moran, a managing principal with DTZ who focuses on the Peninsula, said there is demand for large amounts of space in this submarket. It is well known that life science and tech companies are searching and have significant current requirements, though leasing in the first quarter was a bit sluggish.

"The campus user activity is strong," he said. "It's very active."

Via [ bizjournals. com ]