Silicon Valley REIT Mulls $1.8B Deal

Mission West Properties (MSW), a real estate investment trust that operates more than 100 research and development properties in Silicon Valley, is in talks to be acquired by a private equity fund for about $1.8 billion. The company's largest tenants include Microsoft Corp. (MSFT), Apple (AAPL) and NEC Electronics America. Mission West manages 107 properties totaling about 7.7 million rentable square feet. If the deal goes through, it would be the largest commercial property sale in Silicon Valley history, as measured by square footage.

Mission West announced the negotiations in a press release Saturday, but did not name the potential acquirer. But media reports identify the bidder as Starwood Capital Group, a Connecticut-based real estate investment firm. Under terms of the deal, holders of Mission West common stock could receive $13.55 per share in cash, which is below Friday's closing price of $13.69, as well as the $14 to $15 range for the company's shares between February and June. Any acquisition would be subject to a due diligence review and regulatory and shareholder approval.

While Mission West's focus is on R&D properties, the deal could also have implications for the data center market in Silicon Valley. Retrofits of existing industrial properties are the fastest way to bring new data center space online. In recent months there have been a series of deals in Santa Clara involving projects to convert existing industrial or R&D sites into data centers to meet the strong demand, with buyers including CRG West, Behringer Harvard and Pelio & Associates. Mission West also owns several parcels of vacant land in the Valley that might be of interest for building new "greenfield" data center projects.

Mission West is based in Cupertino and controlled by billionaire investor Carl Berg and his family. Fortune magazine estimates Berg's wealth at about $1.2 billion. In April Mission West made an SEC filing seeking to sell up to 86 million shares of stock.

Bu there are indicators that the 68-year-old Berg has been considering a deal for some time. In a conference call with analysts in early 2006, Berg said the company could be taken private, saying that Sarbanes-Oxley regulations had complicated the operating environment. At the time, Berg told analysts that he did not expect to make a decision for at least a year.