Lone Star Funds, TMG Partners and Grove Acquire 2.2 Million SF Silicon Valley R&D Portfolio

Lone Star Funds has completed the acquisition of what it describes as the largest institutional aggregation of Class A, predominantly single-story R&D real estate assets in Silicon Valley, the firm announced Sept. 1. TMG Partners and Grove are joint venture partners in the investment and will operate the portfolio.

The portfolio totals approximately 2.2 million square feet across six campuses, 50 buildings and 140 acres in Silicon Valley's Golden Triangle — a corridor generally encompassing Sunnyvale, Santa Clara, North San Jose and Milpitas — providing access to the broader San Francisco Bay Area.

Portfolio Profile and Specialized Infrastructure

The assets are purpose-built R&D facilities configured for tenants in artificial intelligence, advanced manufacturing, medical devices and semiconductors. Specialized infrastructure across the portfolio includes advanced power systems, HVAC, laboratories, clean rooms and loading facilities tailored to the requirements of technology and life sciences occupiers.

The acquisition was completed through an affiliate of Lone Star Real Estate Fund VII, L.P., a $2.7 billion opportunistic real estate fund. The seller was Washington Holdings, a Seattle-based entity, in a transaction structured as an asset purchase. The R&D component — six campuses, 50 buildings, approximately 2.2 million square feet — represents the core of a broader Silicon Valley portfolio that Washington Holdings had assembled, which also included hotel and retail assets. The portfolio was approximately 90% occupied at the time of sale.

Lone Star plans to invest further in the existing capabilities across the portfolio through value-additive upgrades while actively managing the assets to serve new and prospective tenants. The firm cited the portfolio's scale as providing diversification and flexibility to meet the needs of an evolving tenant base.

Buyer Commentary and Bay Area Conviction

Jérôme Foulon, Global Head of Commercial Real Estate at Lone Star, pointed to California's manufacturing base as a key driver of the firm's interest in the portfolio.

"California is the largest manufacturing state in the U.S., employing over 1.2 million workers and contributing over $390 billion to GDP. We see significant opportunity in this portfolio given the strong tailwinds across the business landscape right now in the Silicon Valley," Foulon said. "We have a high level of conviction in the resurgence of the San Francisco Bay Area, and the purpose-built nature and mix of capabilities in this portfolio will be immediately attractive to tenants who need advanced, turnkey facilities."

The transaction marks Lone Star's second substantive investment in the broader Bay Area within the past 12 months, following the firm's acquisition of the mortgage secured by 600 California Street in San Francisco in January 2026.

Silicon Valley R&D Market Context

The deal arrives during a period of elevated but stabilizing vacancy in the Silicon Valley R&D market. Overall R&D vacancy in the submarket stood at 13.3% in the second quarter of 2026, with net absorption of negative 518,560 square feet during the quarter and an average asking rate of $2.84 per square foot per month on a triple-net basis. First-quarter data showed overall R&D vacancy at 13.0%, with approximately 21.0 million square feet vacant across the market and roughly 23.2% of that vacancy — about 4.9 million square feet — comprising sublease space, reflecting continued corporate space shedding.

Against that backdrop, demand for high-power, technically configured buildings has remained a distinct segment of activity, driven by occupiers in AI infrastructure, semiconductor fabrication and advanced manufacturing — precisely the tenant profile Lone Star and its partners are targeting with the acquired portfolio.

Joint Venture Structure and Operating Platform

TMG Partners and Grove will serve as operating partners for the portfolio, providing local platform capabilities for leasing, property management and repositioning. The joint venture structure positions the partnership to execute the value-add business plan across the six campuses, which Lone Star has indicated will involve enhancements to existing technical infrastructure rather than ground-up development.

Lone Star is a London-headquartered investment firm that advises funds investing globally in private equity, credit and real estate. Since establishing its first fund in 1995, the firm has organized 26 private equity funds with aggregate capital commitments totaling approximately $96 billion.

Sources

Lone Star Funds — Official Announcement