German Fund Pays $225 Million for LinkedIn Campus: Sources

Union Investment is spending roughly $225 million to acquire a LinkedIn-leased campus in Sunnyvale, The Real Deal has learned, underlining the premium overseas investors are willing to pay to purchase new, single-tenant office properties in Silicon Valley.

The German investment fund is paying roughly $1,150 a square foot to acquire the four-story office building and adjacent parking garage at 684 West Maude Avenue, according to two people familiar with the deal. Metzler Real Estate, a Seattle-based real estate investment firm, advised Union in the acquisition, which is expected to close today, the two people said.

The seller is a joint venture of Harvest Properties and Invesco Real Estate, which purchased the West Maude site and three adjacent office and research buildings in 2019 for about $165 million. The venture sold two of those properties to LinkedIn last year for nearly $123 million and the other to tech company Apple last month for about $47 million, according to title service records.

Those sales, combined with Union’s acquisition of 684 West Maude Avenue, mean that Harvest and Invesco have netted about $230 million more than they paid to buy the four-property portfolio just three years ago. Granted, the 4-acre site Union is buying is much more valuable now than in 2019, when Harvest and Invesco broke ground on a nearly 195,000-square-foot office and six-story parking garage next door after demolishing a 34,000-square-foot office and research building. Construction wrapped up last year, according to the new campus’ offering memorandum by Eastdil Secured, whose San Jose and San Francisco offices advised the Harvest-Invesco venture in the 684 West Maude Avenue deal.

LinkedIn signed a 15-year lease on the office and garage toward the end of last year, title service records show. Its rental agreement is fully guaranteed by LinkedIn parent Microsoft and includes options to extend term up to 14 years, according to Eastdil’s offering memo. The professional networking service will pay $4.60 a square foot a month in rent at the start of its term, with 3 percent annual bumps; that rental rate is 16 percent below market, according to the memo. It received a nearly $23 million tenant improvement allowance and doesn’t need to start paying rent until May, the document states.

A Union representative declined to comment. Neither Metzler, the sellers nor Eastdil immediately responded to requests for comment. While Metzler Real Estate’s offices are in Seattle and Atlanta, it, like Union, has a German connection: It’s the North American unit of Bankhaus Metzler, the country’s oldest private bank, according to past reporting by the Houston Business Journal. The firm advised Union on its $445 million acquisition of a 33-story office tower in San Francisco in 2012 and the $440 million purchase of a 36-floor office in Houston three years later.

That Union is paying more than $1,000 a square foot to acquire a newly built campus in Silicon Valley — on the higher end for that asset class in the region — indicates the premium real estate investors are willing to pay to own one of the office market’s safest investments: a property long-term leased to a single tenant backed by a company with good credit. In this case, the lease is backed by Microsoft, which has the world’s best investment-grade credit rating, according to Eastdil’s memo.

While other Valley-based tech companies have recently put campuses up for sublease or plan to shrink their office footprints, LinkedIn hasn’t hinted that it will do the same. The company was designing the build-out of its West Maude office while Eastdil was marketing it for sale, indicating that it intends to occupy the building amid the enduring adoption of remote or hybrid work arrangements.

And if anything, the company’s aforementioned purchase of two commercial buildings next door to the property — which can be redeveloped into 324,000 square feet of new office and research space once building permits are obtained — indicates that it plans to eventually occupy those sites too, whether it be the existing structures or a new campus if it pursues redevelopment.