It’s not every day you come across nearly 25 acres of industrial property for sale in the heart of Silicon Valley, secure over $60 million in cash from private equity, and close within roughly sixty days.
And it’s just as rare to fully re-entitle the property for residential use through a process requiring an EIR and general plan amendment, and then sell it for over three times the purchase price just two years later.
But that’s just what Max Frank and Watt Communities did.
Frank, Division President for Watt Communities, sat down to talk with us about The Vale project. Initially sourced through local broker Cameron Fowler, the project was purchased from Spansion Inc., a semiconductor company based in Sunnyvale, California, arguably one of the strongest housing markets in the country.
“People ask me how it felt to be part of such a landmark deal,” said Frank. “I tell them it was like giving birth to a dinosaur.”
Given the remarkable hurdles the deal presented, even that metaphor may have been an understatement. The tight option window spanned over the winter holidays, which presented additional hurdles. The 24.5-acre site was one of the Superfund program’s first locations, meaning that there were environmental factors to consider at every turn. The site was ripe for re-entitlement from commercial-industrial to residential, however it required a full environmental impact report plus a general plan amendment. Additionally, the members of the city council of Sunnyvale were wary of developers at the time, having had poor relationships with previous companies that made no efforts in engaging the community or its leaders.
Yet what turned so many local and mainstream buyers away from the project ended up opening doors in almost karmic ways, starting with Frank’s decision to enlist the help of ATALYST in raising capital for the initial purchase. Recognizing the seller’s strong desire to sell without entitlements, the short time remaining on the option, and the challenges a Superfund site could raise, ATALYST worked with Frank and the team at Watt to develop a sound and well-researched proposal. From there, ATALYST knew which parties to approach, ones who could acknowledge the project’s issues while understanding its full and mitigated potential.
“Atalyst opened up the number of possibilities, and provided value beyond the capital introductions and negotiations,” Frank added. “They not only asked the right questions, but they also found investors who also asked the right questions. And we ended up finding a perfect fit.”
The entitlement process was the most challenging aspect, especially as the Sunnyvale City Council was so disappointed in its most recent dealings with developers. Undaunted, the team persevered; instead of focusing on building the residential development, they focused building trust within the council and neighboring communities.
“If we hadn’t invested the time with the city, the deal would have gone nowhere,” he added. The firm made a commitment to transparency, held weekly meetings with the city manager, and hosted town hall gatherings to get community feedback. When the time came, the general plan amendment met with very little opposition.
As it rolled through its various phases, even as additional challenges were raised, the project ended up delivering at nearly every turn. Spansion, the original seller, ended up using the proceeds from the sale to further solidify its hold in the semi-conductor industry. Watt Companies maintained its legacy as a trusted contributor to lasting community and industry relationships by finding a buyer in LandSea that has every intention of continuing the commitment. The City of Sunnyvale will benefit from 450 new homes, including 56 affordable housing units, as well as decreased traffic, lowered local commute times, and reduced demand on natural resources.
And the success of the effort speaks for itself.
“Everyone felt like this deal was so far out of the box,” said Frank. “At the end of the project, however, it became clear to everyone involved that this was the right thing to do with the site, and it’s a project we’re all proud of.”
ATALYST Financial Group provides investment banking and mortgage banking services. A full description of the services can be found on our website www.atalyst.com. All securities and securities related business is offered through Growth Capital Services, Inc., member FINRA, SIPC, Office of Supervisory Jurisdiction located at 582 Market Street, Suite 300, San Francisco, CA 94104. Senior members of Atalyst are registered representatives of Growth Capital Services. Nevada mortgage lending activity is conducted through Atalyst Commercial Mortgage, LLC d/b/a Atalyst Financial Group, which is regulated by the Nevada Division of Mortgage Lending under Lic#3559 and is located at 6671 Las Vegas Blvd So. Suite 210, Las Vegas NV 89119. Office number (702) 529 0200. California mortgage lending activity conducted through CalBRE license #01980073.