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Since the mid 1980s, Borelli Investment Company has managed Airport Plaza Office Center, a three-building, two-story garden office complex on Technology Drive in San Jose. Located minutes from Mineta San Jose International Airport, the complex has enjoyed high occupancy rates over the years. But by 2004, one of the three buildings was facing challenges.
CHALLENGE
Borelli Investment Company's 55,870 square foot building at 1754 Technology Drive had reached a vacancy rate of approximately 50 percent. A solution would have been to divide the larger suites into smaller office spaces, which would have been easier to lease. But to do this would have required a significant investment in tenant improvements by the owners, and with "Class B" office rents being driven down by highly competitive market conditions, it was clear that projected revenues would not meet debt expense and other costs.
SOLUTION
Drawing upon its previous success in converting an industrial building into condominiums, Borelli Investment Company devised a plan to create AirTech Office Condos-with 32 highly marketable business condominiums in a single building.
Borelli assembled a team of design professionals and worked closely with the City of San Jose to get a condominium plan approved. Once this was done, the company began a $2.5 million renovation of the partially occupied building, which required precise planning and experienced construction management.
Major property improvements included a common conference room for all tenants with the latest meeting tools and Web access, a full seismic retrofit to the latest standards, renovations to achieve ADA compliance, multi-stalled restrooms on each floor with quality finishes, a new roof, upgraded elevator, and extensive landscaping.
The 32 suites ranged from 380 square feet to 4,930 square feet. Each was renovated with new paint and carpeting; adjustable heating and air conditioning with separate metering for electric, gas and HVAC usage; coffee bar; and access to the building's fiber optic cable for high-speed Internet service. In addition, on-site building management and maintenance assured condominium owners of prompt service, when required.
RESULTS
The market responded immediately to the AirTech conversion. In addition to pride of ownership, significant tax benefits, the potential for long-term appreciation, and a low interest rate environment that made financing terms quite favorable attracted smaller enterprises. Borelli Investment Company enhanced the financing options by working with Bridge Bank to make SBA financing available-requiring only a 10 percent down payment.
With a very limited supply of smaller office condominiums on the market, two-thirds of AirTech's units were sold within the first six months. The successful conversion revived a building that needed an innovative plan to regain its appeal, and ensured an attractive return for the property's owners.
