Getting Fabulously Wealthy in Silicon Valley: No Coding Required

Not far from the sprawling Googleplex in Mountain View, California, lies another, less assuming address of Big Tech.

This is Google Building 900—and the internet giant just dropped almost $139 million for it.

The property deal, sealed in April, was just one more in the long, lucrative partnership of John Arrillaga and Richard Peery, the Bill Hewlett and Dave Packard of Silicon Valley real estate.

Unlike Hewlett and Packard—or Bezos or Zuckerberg, for that matter—Arrillaga and Peery are little known outside the Bay Area. But from the start, they’ve been building Silicon Valley, brick by building by office park, as two of the region’s premier developers.

More than half a century after the pair began buying up cherry and apricot orchards in what was then Santa Clara farm country, Arrillaga and Peery today represent a rare breed of billionaires in the area: they’ve gotten fabulously rich outside of tech.

The two men, who declined to comment, are worth a combined $6 billion, according to the Bloomberg Billionaires Index. At least two of their contemporaries, John A. Sobrato and Carl Berg, have become billionaires, too.

In a region known for fortunes made and lost, the men’s wealth is among the most durable. The tech industry’s massive growth in the last decade has only made their buildings more in demand, sending office values soaring and bolstering Silicon Valley’s real estate riches.

“They are just as innovative and creative as Steve Jobs and other giants of the technology world,” said Drew Arvay, a managing director at Cushman & Wakefield in San Jose, who has done business with all four of the billionaires over his 40-year career. “They continue to lead the market with some of the most influential tenants and developments.”

The men, who are all in their 80s, started out developing tilt-up buildings that could be constructed quickly, forming the sprawling backdrop to much of Silicon Valley today. As their holdings—and bank balances—grew, they embarked on bigger projects, developing bespoke campuses like Apple Inc.’s One Infinite Loop, built by the Sobrato Organization in the early 1990s and the device company’s headquarters until 2017.

“No doubt I was in the right place at the right time,” Sobrato said by email. In the 1960s, “building costs were under $10 a square foot and monthly shell rents were 10 cents or less per month. Today we have the same land selling for over $100 a square foot, building costs of $300 or more per square foot.”

Indeed, Silicon Valley is now one of the hottest real estate markets in the country. The area is home to three of the world’s six most valuable companies—Apple, Google parent Alphabet Inc. and Facebook Inc.—along with many others with voracious appetites for expansion.

“The only thing that can keep these companies from growing is not having places to put employees,” Arvay said.

Asking office rents in Silicon Valley have jumped 35% in the past 10 years, while vacancy rates have fallen from 18% to less than 10%, according to data compiled by Cushman & Wakefield. Values of office buildings have more than tripled since 2010.

Residential real estate has also surged, bolstering landlords such as Sobrato who own multifamily buildings, while contributing to growing inequality, homelessness and tension within local communities. Apartment rents rose 40% in the five years to 2017, according to Trulia, which put the median monthly cost in Santa Clara County at $3,800 in May.

But after nearly a decade of soaring prices, the prospect of a downturn looms. Uber Technologies Inc.’s lackluster initial public offering provided a timely reminder that the seemingly unending money flowing into tech has its limits. Meanwhile, some big companies have taken to developing campuses themselves, while a fresh crop of builders such as Related Cos. have swooped in with their own modernized tech wonderlands.

Peery, Arrillaga, Sobrato and Berg stand out for their longevity in riding out Silicon Valley’s booms and busts.

“Throughout numerous cycles—including the oil embargo in the ’70s, the S&L crisis of the late ’80s and early ’90s, then the dot-com bust in 2001 and the Great Recession in the late aughts—the Valley’s real estate market has mirrored the region’s resiliency,” said Julie Leiker, market director for Silicon Valley at Cushman & Wakefield.

The billionaires’ fortunes have benefited from an ability to time the market. Arrillaga and Peery sold a 5.3 million-square-foot portfolio, reportedly about half their holdings at the time, for more than $1 billion in 2006, ahead of the financial crisis. Their double act is still going strong. In addition to the Mountain View deal with Google—which also involved two other properties—they are building an office complex in San Jose where the search company has agreed to lease 729,000 square feet.

Both Sobrato and his son John Michael Sobrato, who led Sobrato Organization from 1997 to 2013, have stepped away from day-to-day operations. But the family still owns the entire company, which is increasingly investing in residential units. It now has more than 6,500 apartments on the West Coast, in addition to 7.5 million square feet of Silicon Valley office space, according to its website. The family’s wealth has almost doubled in the past five years to about $8 billion, according to the Bloomberg index.

Berg, who declined to comment, sold his Mission West Properties for $1.3 billion in 2012. He’s since largely gotten out of the business, saying in a 2014 interview with Bloomberg that he was “tired of real estate” and now focuses on venture investing.

Philanthropy has become a key part of the billionaires’ endeavors. Sobrato, together with his wife Susan and son John Michael, became the first two-generation family to sign Warren Buffett’s Giving Pledge to leave their estates to charitable efforts. The family has largely focused on the Bay Area region, giving $550 million to philanthropic causes since 1996, according to the billionaire.

“Our current efforts are focused on how our projects can be both profitable and address some of the critical issues facing our region,” Sobrato said. “Our large-scale developments are nearly all mixed-use with both residential and office space. Combining the two reduces traffic, increases sustainability and helps offset the housing affordability issues created by job growth.”

The Peery Foundation supports local schools, while Arrillaga’s most visible gifts have been to Stanford University, his alma mater. His family’s name appears on many buildings across the campus, including a recreation center, gym and dining room.

While Silicon Valley brokers are bracing for a downturn, the next one could be milder than in the past since technology is now embedded in the global economy, said Phil Mahoney, executive vice chairman of brokerage Newmark Knight Frank, who has worked in the region for 35 years. That means more than half a century after they first started, these property moguls are still well-placed.

“They’re doing just fine,” Mahoney said. “They’re all billionaires.”