Funds managed by Morgan Stanley Real Estate Investing have bought a 189,481-square-foot research and development facility in Milpitas, Calif., for $84.1 million. The building is net-leased long term to the semiconductor equipment maker KLA Corp. The Nov. 11 announcement is the latest in a run of MSREI purchases built around one strategy: buildings with long leases to tenants tied to technology, infrastructure and defense spending.
The price works out to about $444 per square foot on our arithmetic. Morgan Stanley described the property as a Class A facility in Silicon Valley’s “Golden Triangle,” which it called “a key international hub for semiconductor innovation and advanced manufacturing.” The release did not name the seller, give the remaining lease term or disclose financing.
Under a net lease, the tenant typically pays the building’s taxes, insurance and most operating costs. The owner’s return therefore depends mainly on the tenant’s credit and how long the lease runs. KLA makes process-control and yield-management systems used in chip fabrication. The release described it as “a global leader” in that field.
“This acquisition reflects our continued conviction in Silicon Valley as a leading hub for semiconductor innovation and advanced manufacturing,” David Gross, a managing director at MSREI, said in the release. He pointed to “the property’s specialized infrastructure, proximity to KLA’s global headquarters and significant investment by the tenant.” Morgan Stanley did not put a figure on that tenant investment.
A thematic buyer in a selective market
MSREI presented the Milpitas deal as part of a pattern rather than a one-off. “The breadth of our recent activity demonstrates how we are translating our highest-conviction themes into investments across the platform,” said Will Milam, head of MSREI in the U.S. He named those themes as “technology and data infrastructure, advanced manufacturing and logistics, and seniors housing.”
The firm’s recent deals follow that list.
- Logistics: In August, MSREI paid $158.5 million for a new cross-dock distribution center in Kansas City, Mo., occupied by Ace Hardware. RealtyWire covered the deal at the time. On Oct. 26 the firm announced a $172.1 million purchase of a 935,000-square-foot facility in Stafford, Va. That building is net-leased to J.E. Richards, with the lease guaranteed by Quanta Services. RealtyWire reported on it here.
- Data infrastructure: In September, MSREI bought an industrial manufacturing facility occupied by Munters, a climate-control provider. The release described it as a 20-megawatt facility serving data-infrastructure growth.
- Defense: MSREI also bought a manufacturing facility occupied by BAE Systems. According to the release, that property has 65 megawatts of available power capacity, an onsite steam plant and chilled-water infrastructure.
- Seniors housing: The firm bought a two-community, 300-unit independent living, assisted living and memory care portfolio in the Orlando and Tampa areas. Earlier this year it sold the last 11 communities of its Spring Arbor Senior Living portfolio in Maryland and Virginia for $296 million. Morgan Stanley said its funds have invested in seniors housing since 2022 and hold interests in 13 communities.
The release did not give prices for the Munters, BAE Systems or Florida seniors housing deals.
Why the tenant matters more than the address
On our reading, the Milpitas purchase shows where institutional money still feels comfortable in commercial real estate. Credit is tight, and the Federal Reserve’s latest survey of bank loan officers found that banks tightened standards on every category of commercial real estate loan in the third quarter. In that market, a specialized building with a long lease to a major tenant behaves more like a bond than a bet on leasing. It is a different proposition from buying speculative office or lab space in the same region. The common thread across MSREI’s recent purchases, as the firm describes them, is specialized property tied to a tenant’s operations rather than generic space.
MSREI manages $58 billion of gross real estate assets worldwide, according to Morgan Stanley. More deal coverage is in RealtyWire’s commercial real estate section.
