Downtown data center site grabbed by developer

SAN JOSE >> A choice downtown San Jose site has been grabbed by a big-time developer in a deal that could usher in a dramatic transformation of the existing data center, retail and office complex.

Hines, a developer with a global reach, has launched a foray into downtown San Jose with its purchase of a large building on South First Sreet that was once the site of the Pavilion shopping mall.

Texas-based Hines, acting through affiliate Paseo Owner, paid slightly less than $59.6 million for the complex, according to documents filed Wednesday with the Santa Clara County Recorder’s Office. Hines acquired the site, which fronts South First Street, Paseo de San Antonio and South Second Street, through an allcash deal, the county documents show.

Digital Realty, a data center owner and operator, sold the property, according to the public records.

CBRE, a commercial real estate firm, arranged the property purchase through a brokerage team headed up by CBRE executive vice president Joe Moriarty.

The building totals 179,800 square feet. The data center contains 121,200 square feet, the retail is 41,900 square feet and the office spaces total 9,700 square feet.

The site is often referred to as the Pavilion, a name whose origins reach back to its opening in 1989 as a mall populated with tony merchants, which city officials hoped would coalesce into a Rodeo Drive for downtown San Jose.

Instead, the Pavilion became the center of a retail disaster. Within a decade, its merchants had largely emptied out. It became clear that downtown San Jose couldn’t sustain a shopping mall.

By the late 1990s, most of the site was reborn as a data server farm, although some merchants continue to operate on the ground floor.

“This is very good news to have a developer like Hines get involved with this site,” said Mark Ritchie, president of Ritchie Commercial, a real estate firm. “This would be a huge improvement for this neighborhood.”

It wasn’t immediately clear how Hines might proceed with the 2.5-acre site.

Still, commercial property experts agree that some sort of redevelopment and transformation is almost certainly in the works.

“The Pavilion is an extraordinary development site,” said Bob Staedler, principal executive with Silicon Valley Synergy, a landuse consultancy. “Activating the Paseo will create a more vibrant downtown.”

Some property experts believe an office tower could sprout on the site. That scenario would produce a demolition of the building and its replacement with a modern office highrise.

“Hines could scrape the site,” Ritchie said. “You could put at least a 20-story office tower there.”

Nick Goddard, a senior vice president with Colliers, a commercial real estate firm, believes Hines will retain the building and not bulldoze the structure.

“It could become a great creative office space,” Goddard said. “The building has good bones. Creative offices could work there. The building has high windows and lots of glass.”

Hines is no stranger to ambitious projects in urban cores.

In San Francisco, Hines has bought a city block that contains the PG&E administrative headquarters complex. Hines intends to launch a wideranging renovation and redevelopment of the property. The revamp would add a housing tower and redevelop an existing office tower.