Extreme: Movin' Out

Extreme Networks Inc. (Nasdaq: EXTR) could be on the hunt for a new headquarters soon, as it's putting its Silicon Valley home up for sale.

Unlike a lot of businesses, Extreme owns the land it's on. But the company's 10-Q form filed with the Securities and Exchange Commission (SEC) last week says Extreme has put the property up for sale, noting it "may ultimately be suitable for residential development."

The 10-Q makes it clear the company wouldn't have the option to sell the land and still occupy the facility, as Bookham Inc. (Nasdaq: BKHM; London: BHM) is doing with a U.K. fab. (See Bookham Sells Facility.) "In the event that we were to conclude a sale of the property, we would be required to relocate to alternative facilities in the Santa Clara area," the filing reads.

(Note the careful wording implying Extreme won't be leaving the Valley.)

One theory says the deal is already in escrow, awaiting entitlements from the city of Santa Clara, Calif.

"Rumor has it that the buyer is going to pay $70 million for the project, which is $100 per square foot on the land, and that they had very strong interest from a number of players," says Greg Davies Sr., chairman of Commercial Property Services (CPS). "I would guess all of the major public [real estate] companies bid."

An Extreme spokesman confirms the property is for sale but wouldn't comment further.

The property consists of 16 acres just off Lawrence Expressway north of El Camino Real, quite close to clusters of Silicon Valley businesses. It's also near a train station, handy for commuters to Palo Alto or San Francisco.

It's presumed that Extreme's buildings will be bulldozed to make way for residences. According to the Santa Clara city planner's office, the Extreme site was rezoned in 2002 to become "transit-oriented mixed use" -- meaning multitenant residences, possibly in conjunction with some offices or commercial development. "What the city's looking for are 26 to 45 dwelling units per acre," says a member of the city's support staff.

"We're seeing a lot of residential conversions in the Valley," says Joe Elliott, a broker and vice president with commercial real estate firm Colliers International in San Jose. Municipalities are hoping "to lighten traffic and try to address the issue of affordable housing," he says. The latter has become a difficult issue for Silicon Valley as housing prices have forced folks like teachers and police officers to live hours away.

It's not clear whether Extreme is being forced out. It's possible the company had chosen to relocate and lacked a better option for the space. Despite the rising economy, office and industrial space in Silicon Valley is still available in abundance, so leasing out the facilities could be a losing proposition.

"There's surplus R&D product all over the valley," Davies says. "How do they sell the property for the highest possible valuation? Convert it to residential."

Davies notes that the city of Sunnyvale, just west of Extreme's location, is pursuing similar kinds of projects, slapping "overlay" residential zones on top of otherwise industrial property to allow the building of homes.

— Craig Matsumoto, Senior Editor, Light Reading