Q3 2025 Case Study: Value-Add Execution at the South Bay Portfolio

Updated: Oct 29

Get an exclusive look into BKM's impressive property transformation at this 222K SF portfolio in Fremont, CA.

At acquisition, the portfolio included Shoreline Business Center, Bayside Business Center, and Gateway Business Center.
Located just 27 miles from the Port of Oakland and 20 miles from the heart of the Silicon Valley, the 221,651 SF portfolio was acquired at a 30% discount to replacement cost.
Featuring a 59% office buildout, BKM recognized an opportunity to reduce obsolescent office-heavy suites and convert them into more flexible, logistics-friendly industrial space.

Aesthetic Appeal:

Well-located along the San Francisco Bay, offering immediate access to one of the strongest industrial and R&D corridors in Northern California.
Portfolio consists of functional multi-tenant buildings with flexible configurations that can accommodate a wide range of users.
Strategic upgrades in landscaping, paint, and signage—paired with selective interior modernization—will elevate curb appeal and position the portfolio competitively against other leading landlords in the submarket.

Financial Appeal:

Significant mark-to-market opportunity with in-place rental rates averaging $1.18 PSF, 20% below current market rates. This 50% of NRA will be marked-to-market over the hold period.
Opportunity for an alternative exit strategy to sell off the single-tenant building leased to a nationally recognized credited tenant. The building is fully leased through mid-2028 and provides stable cash flow to the next buyer.
Acquire the asset for $221 PSF at a 6.0% in-place cap rate, which represents a 30% discount to replacement cost ($315 PSF).

Numerous factors lead BKM to pursue the deal, including attractive repositioning opportunities and a strategic location.

Location: The property is strategically located off Interstate-880 in Fremont, providing excellent access to East Bay markets to the north, San Jose to the south, and Palo Alto to the west.
Suite Layout: The portfolio is comprised of clear heights ranging from 13ft to 21ft, providing the flexibility to accommodate tenants of all sizes. Generous loading areas and an office finish of approximately 59% provides excellent devisable layouts to conform to modern multi-tenant users.
Tenant Base: The property had a diversified rent roll with 13 local, regional, and nationally recognized tenants. The top five tenants accounted for roughly 60% of the total square footage, while no single tenant accounted for more than 20% of the total square footage.

The Silicon Valley has the highest asking rents in the country, at $2.48/SF as of Q2 2025.
The Bay Area is a highly supply-constrained market, limiting competition for small-bay product. East Bay and North Contra Costa have no small-bay product under construction, and the Hayward submarket (0–25K SF) has averaged just 1.1% vacancy since 2015.
Silicon Valley has the highest GDP per capita and the second largest concentration of fortune 500 companies nationwide, driving consistent demand for both investment in the region and warehouse space to support evolving logistics infrastructure.
Leasing so far in H1 2025 has hit 7.8M SF in the Bay Area, with 71% of leases transacted consisting of small-and mid-bay space. Rates are also up 7% QoQ, reflecting the increased concentration of technology users occupying space.

Total CapEx: $2.7M capital improvement initiative to elevate the South Bay Portfolio and unlock its full potential in the competitive Fremont market.
Spec Suites and TI’s: $751K for tenant improvements and $614K in speculative build-outs, which delivered modern, flexible suites to meet the needs of today’s diverse tenant base.
Building Systems: $894K allocated for roofing, HVAC, and life safety.
Cosmetic Enhancements: $454K invested for improvements such as refreshed paint, updated landscaping, modern signage, and improved parking areas.
Alternative Exit Strategy: BKM sold off the single tenant building in the portfolio in March of 2021 for $14.5M, leaving two properties in ownership for the remainder of the hold.

Realized a 19.2% Gross IRR and 2.5x equity multiple at sale in December 2024
74% appreciation in property value between purchase and exit of the asset
32% increase in NOI between 2019-2024
93% increase in in-place rents between acquisition and recapitalization, far outpacing rent growth in the region during the same timeframe
17.9% average quarterly leasing spreads throughout the hold, with peak spreads reaching 136% in Q1 2024
24% average annual mark-to-market increases on lease expirations between 2021 and 2024
Rolled 25% of the suites in the portfolio to meet market standards