Google seals massive Sunnyvale, Redwood City deals

Google Inc. has cemented a pair of massive real estate deals in Sunnyvale and Redwood City that boost the company's Silicon Valley footprint by 2.8 million square feet – about the size of the Empire State Building and enough room for more than 10,000 workers.

Even by Google standards, the latest transactions are blockbusters: In one deal, Google has agreed to lease all of Jay Paul Co.'s Moffett Place, a 1.9 million square foot office campus currently under construction in Sunnyvale. It's a contender for the largest office lease ever signed in Silicon Valley and perhaps the state of California.

In a separate but no less notable deal, Mountain View-based Google completed the purchase of six buildings from Blackstone Group and Starwood Capital totaling about 934,000 square feet at Redwood City's Pacific Shores office park. It's Google's first entry into that city and a potential game changer for that commercial real estate market.

"Google is obviously a very strong company and they are in hyper growth mode," said Amber Schiada, director of research for real estate services firm JLL.

Google confirmed the closing of both deals — both of which I previously reported were in the works — but declined to comment further. Blackstone didn't return inquiries. Jay Paul's longtime broker Phil Mahoney of Newmark Cornish & Carey, said Moffett Place is off the market.

Google's expansion on the Peninsula has been the biggest real estate story since the 2008 Great Recession as the world's biggest Web-search advertising company has bought and leased building after building, radiating out from its Mountain View headquarters. Its real estate growth dwarfs even that of Cisco Systems Inc.'s expansion during the 1990s.

Terms of the latest deals were not disclosed, but sources estimated the Redwood City sale at around $625 per square foot, or $583.75 million. That would make it perhaps Google's single largest real estate acquisition by footprint and dollar amount ever in Silicon Valley. In an Oct. 23 filing with the Securities and Exchange Commission, Google said it completed a purchase of land and office buildings for $585 million this month.

"I welcome them to our city and I look forward to working with them," said Redwood City Mayor Jeffrey Gee in an interview this afternoon. "For a long time I would go around and say, 'Redwood City is one of the best kept secrets in the Bay Area. With Google and everything going on, we're not a secret anymore.'"
Aside from sheer size, the deals are notable for several reasons. First, they showcase Google's incredibly ambitious growth plans as the company enters new business sectors such as wearable computing, self-driving cars and robotics — all of which could be huge space users on their own.

Google has not even moved into much of the space it has leased or bought over the last several years. Yet the company continues to bank more elbow room for future expansion, suggesting it is thinking far down the line in terms of its space needs. Google counted 55,030 employees globally as of Sept. 30, according to its most recent quarterly report, up 18 percent — or 8,600 Googlers — from a year ago.

The transactions also alter the marketplace dynamics in two cities by taking available space off the table. Schiada noted that Moffett Place was the largest speculatively built project under construction in Silicon Valley. In Redwood City's Pacific Shores, which is more than 90 percent leased, I'm told Google will honor all current tenants' leases for now, but will evaluate moving into spaces as they become available in the years ahead.

"A big question is what does this leave for tenants," Schiada said, speaking specifically about the Moffett Place deal. "It also increases rates, because the supply becomes more limited."
Still, that could actually be a good thing for tenants down the line by pushing developers to build more product, she added.

"This deal essentially eliminates a significant portion of new development, which could prompt more developers to move forward," she said.

Office space vacancy in Silicon Valley decreased to 14.1 percent in the third quarter, down from 15.4 percent a year earlier, JLL research showed. That's down from a recession-era peak of 26.4 percent in 2009. Researchers concur that Google is playing a substantive role in soaking up supply.
Jim Beeger, a veteran broker with Colliers International, said in the short term, the Sunnyvale deal could also push tenants back into the market.

The transaction could "cause tenants of all sizes to realize they should have more of a sense of urgency in their search for a new site," he said. "Moffett Place will be difficult to replicate, and those who lingered no longer have this option."

Sethena Leiker, senior analyst for Cushman & Wakefield's Silicon Valley office, agreed.
"There's not a lot of spec development coming," she said. "If you want to take any new space, you're going to have to take something that's proposed."

One result, Beeger said, could be a "trickle-down effect" of growing tenants moving to other areas of Santa Clara County that have available sites.

Score for Sunnyvale
Google's lease at Moffett Place is a huge win for San Francisco-based Jay Paul Co., if one that's not entirely unexpected. Jay Paul already leased 949,000 square feet to Google in Sunnyvale at a nearby campus called Technology Corners, making Google a natural prospect for the new development.
And while Google has not yet started moving into Technology Corners, the company has also been growing elsewhere in Sunnyvale this year, snapping up the old Juniper Networks headquarters (424,000 square feet) and former head office of Palm Computing Inc. (285,000 square feet). And it's rumored that a fund, CBRE Global Investors, that's buying up land all around Sunnyvale's Moffett Park business district is actually acting on behalf of Google.

Yet landing Google wasn't guaranteed when Jay Paul started building Moffett Place earlier this year on spec. Other major tech tenants were also making offers on the property, according to sources. The rent Google is paying isn't known, but Jay Paul was asking $3.75 per square foot on a triple-net basis, or not including utilities, taxes and fees.

Moffett Place is located on 55 acres near the intersection of Highway 237 and N. Mathilda Ave. Currently, the first phase is under construction with three buildings totaling about 900,000 square feet. Google is still a couple of years away from moving in there. In addition to the office buildings, the DES Architects + Engineers-designed project includes an amenities building with outdoor pool and a living roof — which Jay Paul calls the "high garden" — on top of a parking garage.

Redwood City action
In Redwood City, Google picks a up a major chunk one of Silicon Valley's marquee office campuses. The 10-building, 1.7-million-square-foot project was built by Jay Paul Co. in the early 2000s and gained notice for its sleek design and swanky amenities including pools, a rock-climbing wall, day spa and baseball diamonds. The company is taking Blackstone and Starwood's buildings at 1200, 1300, 1600, 1700, 1800 and 1900 Seaport Blvd.

Starwood bought the campus in 2006 for about $833 million, and immediately sold two buildings to Shorenstein, the San Francisco-based landlord. Blackstone came into the picture after acquiring the junior debt on the property a couple of years ago. Informatica also acquired two buildings out of the 10 in 2012 for $525 per square foot. Google's acquisition this week is only for the six Blackstone/Starwood buildings.
As I reported earlier this month, a new owner could build even more office space at Pacific Shores. New zoning approved about a year ago could allow total build-out of up to 3 million square feet.
Google — which like many expanding tech companies is focused on reducing its car and shuttle trips as traffic worsens during the current boom — may have been attracted to the project partly for its water transit possibilities beyond freeways.

Pacific Shores is a half mile from the Port of Redwood City, where a Google pilot project earlier this year tested running ferries from San Francisco and Alameda to the port.

Mayor Gee said the city would be happy to work with Google on such a plan, should the search company decide to go in that direction.

"One of the things that's always a challenge with new forms of transportation is, is there enough there there," he said. "With Google, that potentially brings the there there."

The changes Google is bringing to Silicon Valley's commercial real estate scene, its transportation system and its market for technology talent are a local reflection of the company's global dominance in Web search advertising, which subsidizes all its other business and tech forays.

Google is sitting on a horde of $61.2 billion in cash, cash equivalents and marketable securities as of Sept. 30, according to an Oct. 23 filing with the Securities Exchange Commission. While the company's earnings for the most recent quarter disappointed, sending the shares down when they were reported Oct. 16, the stock has bumped higher since then.

Today the shares fell $4.93, just less than one percent, to $539.05 at 8:23 a.m. West Coast. That gives the company a market capitalization of $365.5 billion.