Irvine Co. Buys Silicon Valley Office Complex

Taking its biggest step yet off the Orange County ranch that has made it one of the nation’s major real estate development firms, Irvine Co. said Friday that it has acquired a 27-building industrial and office complex in the Silicon Valley.

Terms were not disclosed, but industry sources say the buildings, with nearly 850,000 square feet of space in Sunnyvale’s Peery Park high-technology research and development center, probably sold for about $85 million.

The purchase follows the company’s acquisition earlier this spring of three business and research complexes in northern San Diego County for about $30 million in cash. The San Diego properties include 10 buildings with almost 480,000 square feet of office and industrial space.

The acquisitions are part of Irvine Co. owner Donald Bren’s master plan to turn the giant land company, which owns and develops Orange County’s Irvine Ranch, into a statewide real estate investment concern.

That doesn’t mean, however, that Bren is giving up on Orange County. Indeed, Irvine Co. presently owns more than 15 million square feet of commercial, industrial, retail and office space in the county and has 1.5 million square feet of new buildings under construction in its 3,600-acre Spectrum business park in Irvine.

After more than four decades of steady development, the ranch--once covering 125,000 acres--still has 55,000 acres of raw land in the county.

The Sunnyvale and San Diego purchases boost the company’s total commercial property portfolio to nearly 17 million square feet.

Irvine Co.’s expansion outside of Orange County “is a very wise move, and an orthodox one,” said real estate industry consultant Sanford R. Goodkin. Bren has said he might bundle some of Irvine Co.’s commercial properties into a publicly traded real estate investment trust, mirroring what the company has done with its apartment properties. Goodkin says investors might be wary of a real estate portfolio that was entirely within one market.

Though Irvine Co. executives say any public offering is still far in the future, diversifying the portfolio now enables Bren to take advantage of the state’s soft commercial property market, analysts said.

The Sunnyvale package consists of a two-story office building, a warehouse and 23 research and development buildings--typically outfitted for small-scale, light- manufacturing activities. The buildings are fully leased to 39 tenants, including high-tech industry heavyweights Silicon Graphics Inc. and Amdahl Corp.

“This purchase reflects our tremendous confidence in California’s economic future, particularly in entrepreneurial hot spots like Silicon Valley, Irvine and northern San Diego,” said Richard G. Sim, president of Irvine Co.’s Investment Properties Group.

“But our principal focus is and will continue to be Orange County,” he said. “This is our franchise.”

Under Bren’s stewardship, the historic company, which traces its roots to several Mexican land grant ranchos that predated California’s statehood, is speeding up its transformation. The ranch began as an agricultural empire and slowly changed into a land development company. “The final step is to create a large real estate investment company,” Bren said in an interview earlier this year.

The Silicon Valley complex is an example of the kinds of properties the company is seeking--properties that can be bought for less than it would cost to build them, are likely to appreciate in coming years and will bring in sufficient monthly income to pay for themselves.

“We are looking for places that mirror Irvine,” said Sim. “We want to be in places involved in technology, adjacent to major universities and in California.”

Irvine Co. bought the properties from Aetna Life Insurance, which has owned them since 1977--just after the sprawling 450-acre Peery Park R&D; center was completed.

Sim said the company continues to look for good deals in Silicon Valley but that it has no plans to go outside California right now because that would stretch his division too thin. “It’s a question of control,” he said.

The privately held company’s commercial and office properties in Orange County are valued by industry insiders at a minimum of $2 billion. They include the posh Fashion Island shopping center and the surrounding Newport Center office complex in Newport Beach.