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Santa's Village Borland News

New owner says location on ‘wrong side of the hill’

Sentinel staff writer

SCOTTS VALLEY — With the new owner of the posh Inprise headquarters buying the property for less than half the cost to build it, the Scotts Valley city coffers will be affected.

But how much cash the city might lose or whether converting the building from a single corporate office to a home for several smaller companies will benefit the city in the long run remains to be seen.

Inprise, formerly known as Borland, has been Scotts Valley’s largest taxpayer since Borland CEO Philippe Kahn opened the headquarters in 1993. The campus cost close to $120 million.

The new owner, ScanlanKemperBard, an Oregon-based real estate company, agreed to buy it for $47 million.

Although the price looks like a steal, Bob Scanlan of ScanlanKemperBard insisted the value dropped because of the anticipated change in use.

"With all due respect to the quality and so forth of the property, people coming from various places to lease office space are not interested," Scanlan said. "It’s on the wrong side of the hill."

He compared the Scotts Valley situation to the residential estate built by Microsoft magnate Bill Gates.

"It cost $400 million, but the assessor valued it at $110 million," Scanlan said. "If Bill decided to move, it would probably sell for $25 million. That’s all anyone would pay."

The property sold by Inprise consists of two parcels on Santa’s Village Road assessed at $85 million. That includes the building at $50 million; land, $12 million; personal property, $19 million; and about $600,000 worth of equipment. A second parcel, which is vacant, has been valued at $2.9 million.

Hobey Birmingham, chief administrative officer of Inprise, said the sale was a package deal, including "everything but the stuff in the space we use."

Inprise had already written down the value of the property from $81 million to $47 million, and although the company hadn’t asked the county to reduce the assessment, Birmingham said "that would be the logical next step for us to take."

Birmingham said the Portland, Oregon, company was one of several firms interested in the Inprise campus. Inprise opted to work with Scanlan, although his company wasn’t the top bidder, because of the company’s strength and Scanlan’s familiarity with California real estate.

"He’s not an outsider," Birmingham said, citing Scanlan’s work with Coldwell Banker in San Francisco.

Another factor was the plans Scanlan has for the building.

"The intent is to make the facility available, and become a part of the community," Birmingham said.

County Assessor Bob Petersen said he expects ScanlanKemperBard will have a smaller tax bill, but wasn’t sure how much smaller.

"Are we going to accept $47 million?" Petersen asked Tuesday. "Frankly, we haven’t had an opportunity to look at it."

He said he would first have to look at the lease-purchase agreement Inprise signed.

When Kahn opened the building, it was full, catering to 1,200 employees with a gym, Olympic-size pool, tennis courts, indoor theater, company store and cafeteria overlooking a duck pond. Today, more than half the space is empty.

"He did create a wonderful workplace," Birmingham said of Kahn.

Inprise, like most high-tech companies that go through up-and-down cycles, would rather invest in its business than real estate, Birmingham said. Operating expenses for the headquarters were high, considering Inprise only needed space for about 400 employees.

To recover costs, Birmingham said, Inprise would need to lease space for $9.50 per square foot, which isn’t realistic in Santa Cruz County, where the most pricey downtown office space goes for $1.65 per square foot. Even Hewlett-Packard, a very successful high-tech company, always builds with an "exit strategy," Birmingham added.

Inprise will lease 142,000 square feet — about 40 percent of the 365,000 square feet available — giving the Portland firm the security of an anchor tenant.

A second tenant, JSB, is expanding to 35,000 square feet, and will take 10,000 square feet, but there’s plenty of room left.

Scanlon said "quite a bit of money" will have to be spent to retrofit the building to meet code requirements for new tenants.

"You can’t throw a lot of companies in there and use the same fire exits," he said.

The financial impact on the city isn’t yet clear.

Jack Dilles, the city’s finance officer, said property values in the city rose 14 percent last year — the largest increase in four years — which may cushion the loss of taxes paid on the Inprise property.

His preliminary calculations projected the assessment would fall by $21 million. That would cut the new owner’s tax bill by $210,000, and the city’s tax revenue by $70,000. But all of that would be covered by a $101,000 increase in property values.

However, those numbers assume that personal property would not change hands, and that isn’t the case.

Vice Mayor Sheryl Ainsworth was reluctant to predict how the sale might affect city coffers. But she said the change could prove beneficial if more high-tech companies move in to what has been a more than half-empty building.

"The job market is so competitive, you have to offer perks," she said. "The money’s nice, but a place with tennis courts and a workout facility could be really attractive to an employer competing for the best minds."

Business editor Jennifer Pittman contributed to this article.



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