One of Silicon Valley's real estate giants signaled he's ready to sell his massive portfolio - home to such high-tech tenants as Apple, Microsoft and Fujitsu - to an unnamed private equity fund for $1.8 billion.

Real estate mogul Carl Berg, chairman and CEO of Mission West Properties, confirmed Monday he has chosen a buyer from among a dozen bidders for his 7.7 million-square-foot portfolio, which has a 32 percent vacancy rate. If the deal for 107 buildings closes, it would be the largest real estate transaction to date in Silicon Valley, eclipsing last year's record $1.1 billion sale by Peery/Arrillaga. As owner of 74 percent of Mission West, Berg stands to receive $1.3 billion from the sale.

"This looks like the best opportunity to sell - a lot of people think it's the best opportunity to buy," said Berg, who began building one-story tilt-ups across Silicon Valley in 1969. "Only time will tell who is right."

Berg's sale of Mission West signals a passing of the old guard, the so-called "godfathers" of Silicon Valley real estate: Richard Peery, John Arrillaga, John A. Sobrato and Berg.

"Any time a deal of that magnitude is done, it's huge for the market," said Mark Schmidt, executive vice president of the brokerage firm CB Richard Ellis. "It's the continuing saga of the stalwart Silicon Valley developer selling out to institutional players coming from outside the market."

The transaction is scheduled to close
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in September or October. "I always say I don't have a deal until the money is in my pocket," Berg said.

Berg won't identify the buyer until it completes its due diligence on the portfolio, probably by July 30. But industry sources believe it's either Starwood Capital Group of Greenwich, Conn., or Morgan Stanley of New York.

On Monday, a spokesman for Starwood Capital said the company could not comment; Morgan Stanley could not be reached.

The deal occurs as Silicon Valley real estate remains the darling among investors across the country. In 2006, the valley's investment market shattered records after $5.6 billion worth of commercial real estate traded hands. That's $700 million more than in 2005, when $4.9 billion was sold, and more than twice as much as 2004, according to Real Capital Analytics.

Only halfway through 2007, the trend shows no sign of reversing.

"There's more liquidity in this market and there are more people interested in Silicon Valley than I've seen in 25 years," said John Michael Sobrato, whose company, Sobrato Development, owns 8.5 million square feet of commercial real estate and 8,000 apartment units in the valley.

"It's less related to job creation than it is to capital coming from all sorts of sources such as pension funds, the endowments and opportunity funds that investment banks and Wall Street are putting together."

Berg joins Peery/Arrillaga, who last year sold 5.3 million square feet of real estate across the valley to Deutsche Bank's RREEF for $1.1 billion, at the time a valley record. Earlier this year, Chicago-based Equity Office Properties, formerly owned by Sam Zell, was acquired by Blackstone Group for $39 billion, but EOP real estate was spread across the country, including Silicon Valley.

Berg said when he finalized negotiations with the buyer Thursday, the stock had closed at $13.40 a share. The buyer had offered $13.55.

On Friday, when rumors of the pending deal surfaced, Mission West's stock price closed at $13.69 a share. Monday, the stock dropped to $13.49 on the American Stock Exchange.

"I don't know if $1.8 billion is a lot," said Norman C. Hulberg, president of Hulberg & Associates, a San Jose appraisal company.

"I don't have any sense if that's a big price or a low price. The only thing I can say is, I can't imagine Carl Berg unloading at fire-sale prices. There are enough people interested in buying."

Phil Mahoney, a broker with Cornish & Carey Commercial, said, "It's a great time to sell."

Mahoney called the current market "a perfect storm" with historically low interest rates, rising employment and strong market fundamentals.

But if the sale goes through, Berg agreed it will mean the end of an era in which he would take stock in a company in exchange for rent.

"This is a different market. You're going to see . . . not as much a relationship-based industry as it has been," he said. "It's going to be more doing things by the book, instead of the entrepreneurial decisions that all of us have made for the last 40 years in the valley that is."


Source: mercurynews.com/business/ci_6393514
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