In October 2020, The U.S. Cities Office strategy acquired Optical Court, a two-building, 100% leased, life science investment, located in San Jose, CA. The two buildings are fully leased to two tenants, one of which has AA credit, and both of whom have invested significantly into the assets (over $22 million of tenant dollars invested).
The Property is located in San Jose, in close proximity to both San Francisco's thriving and established life science market and Silicon Valley’s technology and innovation centers. The San Jose MSA is highly regarded within the Nuveen Real Estate Research framework and is a ‘tomorrow's world’ city.
The asset is adjacent to two medical facilities – including the Kaiser Permanente San Jose Medical Center – and benefits from proximity to a transit oriented community. Continued growth is expected in the San Jose life science market due to supply shortage in the San Francisco Peninsula and East Bay, as well as the attractive cost of living.
Built in 2002, the asset is currently 100% leased to Roche (S&P: AA) and San Jose Biocube, an established life science incubator with an average WALT of 8.3 years. The Asset is well-differentiated from other properties in the market because of Roche’s market-plus-one CLIA Certified lab improvements and Biocube’s extensive lab fittings which allows it to accommodate diverse research focuses.
Both tenant and previous owner have invested significant capital into the assets. Improvements include biology and some chemical lab uses, cell culture, virus and bacteria rooms and cold storage rooms. The cell culture room is a wet lab space with fume hoods, emergency showers, HazMat storage cabinets and multiple freezing stations. These capital investments and in-place lab certifications, make it likely that both tenants will remain in the assets and grow their business on site.
Life science inventory remains highly concentrated in select U.S. markets and San Jose should continue to benefit from macro demand drivers around healthcare and technology. Roche’s current rent is below market and an expected renewal will add to the investment's income and total return. The investment was purchased at an attractive basis and relative value to other greater San Francisco life science submarkets. The building requires little near term capital improvements.