Yahoo looking to sublease almost 300K sf of its San Jose office campus

As an office campus in San Jose looks set to sell for a record-breaking amount, its sole tenant, Yahoo, is looking for a company or companies to sublease almost 300,000 square feet of its space there.

The technology and media company has put the top four floors of an eight-story Class A office building at 1199 Coleman Avenue on the market for sublease, according to an online property listing from CBRE. The floors collectively offer 296,615 square feet, making it the single largest contiguous block of sublease space in San Jose’s office market, said Lena Tutko, research director for Colliers, who covers the Silicon Valley and San Francisco markets.

Yahoo is aiming to sublease the top four floors of this 603,363-square-foot Class A office building in San Jose, seen here (Credit: Jeff Peters, Vantage Point Photography)

Yahoo put the chunk of Coleman Avenue space up for sublease around mid-September, Tutko said. The following week, The Real Deal reported that AGC Equity Partners had agreed to buy the eight-story Class A office structure, a nearby amenity building and a nearby welcome pavilion, all of which are leased long term to Yahoo, for a combined $775 million. That price represents a high-water mark both for a single office campus sale in San Jose and on a price per square foot basis for an office trade of at least $100 million in the city.

The deal reportedly can’t close until the construction of the office building, amenity building and welcome pavilion — which collectively total 667,934 square feet — is finished, which is expected to happen around the first week of December. The seller is a partnership of Hunter Properties and Sansome Partners; Hunter Properties affiliate Hunter Storm is overseeing the Yahoo-leased campus’ development, which is part of the larger Coleman Highline project, while Sansome is acting as a capital partner in the venture.

A representative for Yahoo didn’t respond to requests for comment. Curtis Leigh, principal and partner at Hunter Storm, said in an email that Yahoo’s San Jose campus will be completed during the fourth quarter of this year per the developer’s lease agreement with Verizon Communications, which is the financial guarantor of Yahoo’s lease on the property. He added that Hunter Storm is not involved with the company’s sublease.

A representative for CBRE declined to answer questions about the sublease listing, citing confidentiality. Vice Chairman Jeff Houston, senior vice presidents Mike Benevento and Mike Charters, and commercial real estate advisor Geoff Gonzalez, all of CBRE, are marketing the top four floors of offices at 1199 Coleman Avenue for sublease.

Those four floors will be available for sublease starting Dec. 1, which is when Yahoo’s lease on its Coleman Highline complex is slated to begin, according to a copy of the property’s offering memorandum created by Eastdil Secured; Eastdil is advising Hunter Properties and Sansome in the complex’s sale. The company’s lease term runs until May 31, 2037, and it will pay $4.10 a square foot a month on a triple-net basis at the start, the memorandum said. Its lease stipulates 3 percent annual bumps, six months of free rent, and a $100-per-square-foot tenant improvement allowance, according to the document.

Yahoo does not have the option to terminate its rental agreement early, and as part of AGC’s pending acquisition of its San Jose campus, the company will no longer have the option to acquire the property at the end of its lease term, according to the memorandum and a report by the Silicon Valley Business Journal. Yahoo announced in 2019 — when it was named Verizon Media — that it would lease to purchase the campus, which would serve as its new innovation hub in Silicon Valley upon completion.

In May, Verizon announced it was selling a majority stake in Yahoo to Apollo Global Management, a New York-based private equity firm, essentially marking the wireless company’s exit from the media business. The $5 billion deal closed earlier this month, with Verizon retaining a 10% stake in a group of companies under the Yahoo umbrella brand that includes the Yahoo Mail, Yahoo Sports, and Yahoo Finance properties, as well as TechCrunch and AOL. The Yahoo brand has nearly 900 million monthly active users globally and about 10,000 employees as of late August, according to Apollo data and CNBC.

Apollo hasn’t publicly outlined its plans for Yahoo. However, CNBC reported last month that they include preparing some business units for sales or mergers. Several special purpose acquisition vehicles, or SPACs, have already held early-stage talks with the firm to express interest in parts of Yahoo’s brand, according to CNBC.

Representatives for both Verizon and Apollo did not respond to requests for comment.