Joint Venture Bringing Warehouse Complex to Gilroy

Local industrial developer McCarthy Ranch and capital partner Rockpoint are about to break ground on a warehouse project in Gilroy at the Bay Area’s southern tip. It’s a project without signed pre-leases.

The joint venture plans to start constructing the two-building, 383,000-square-foot complex on Nov. 7, McCarthy’s Joe Goggiano said in an interview. It’s breaking ground less than a week after paying about $25 million, or nearly $1.2 million an acre, to acquire the rectangular project site at 901 and 1001 Venture Way, 6500 Camino Arroyo and 6503 Cameron Boulevard, according to public records.

The unorthodox sale paired limited liability companies managed by Los Gatos-based McCarthy to the McCarthy/Rockpoint venture, meaning the developer is retaining an equity stake in the 21-acre property through the deal. The venture took out a $51 million loan from Comerica Bank to finance the acquisition, according to a copy of a deed of trust provided by Stewart Title Guaranty.

McCarthy is responsible for developing the warehouse complex, which Gilroy city planners had already approved before the sale closed. Rockpoint, a Boston-based real estate private equity firm, is helping to fund the two adjacent structures, the larger of which contains 198,000 square feet. Goggiano declined to disclose a construction timeline or construction cost estimate.

CBRE’s Rebecca Perlmutter Finkel represented both sides in the sale. The brokerage’s Chip Sutherland and Colliers’ Jeff Barnes are the project’s leasing brokers, according to Goggiano.

The project provides some breathing room to Silicon Valley’s industrial market, which had a 3 percent vacancy rate at the end of last quarter, according to Cushman & Wakefield data. The Morgan Hill/Gilroy submarket, totaling about 8.7 million square feet, has an 8 percent vacancy rate, higher than eight others in the region, Cushman data show.

Average monthly asking rents for warehouse space in Morgan Hill and Gilroy were $0.67 a square foot in the third quarter, about 30 percent less than Sunnyvale, the next-most-affordable submarket.

Cheaper warehouse space comes with the trade-off of being farther away from San Jose and other population centers. McCarthy and Rockpoint are betting that one or more industrial tenants that can’t find room north of Gilroy will take space in its project in the city of 58,000 residents.

Rockpoint is also betting on south San Jose to benefit from the continuous demand for industrial properties on the city’s north side. It partnered with developer Oppidan Investments earlier this year on a 122,000-square-foot industrial project in the area. Oppidan said in April that it’s comfortable building the project without any signed pre-leases if the city approves it.