Google Inc. plans to buy about half of Redwood City’s mammoth Pacific Shores Center office campus in a stunning deal that could reshuffle the Peninsula real estate scene.
Even by the standards of Google’s relentless real-estate acquisition spree, this is a big one. The world’s biggest search-engine company is buying six office buildings totaling nearly a million square feet, according to several industry sources who were not willing to talk about the deal publicly. The project is owned by the Blackstone Group and Starwood Capital and managed by Equity Office.
The purchase — which could close later this month — would be Mountain View-based Google’s most dramatic real estate move this year. It opens up another front in the search giant’s rapid Peninsula expansion after big deals in Palo Alto and Sunnyvale. And it provides a potential seaborne solution to increasingly gridlocked highways: Pacific Shores is spitting distance from the Port of Redwood City, where Google has been experimenting with commuter ferries as a way to reduce the demands on its extensive bus network.
Google declined to comment. Blackstone didn’t respond to a request for comment. I’m told the sale is close to being finalized, though it’s still possible the deal could still fall through. Google’s deposit isn’t yet non-refundable, a customary marker for a deal headed toward the finish line, a person familiar with the transaction said.
“If any deal is done by anyone, we’d welcome them to Redwood City,” Mayor Jeffrey Gee told me in a phone call on Friday, adding that he’d wait to comment on Google’s potential arrival until a deal is complete.
Brokers said the impact of the acquisition, if completed, would ripple through the commercial real estate market. Assuming Google intends to occupy the space, tenants currently in the buildings — which are more than 90 percent leased — would have to find new space as their leases end. And Google tends to grow wherever it puts down roots.
“It adds fuel to the fire for more spec buildings to start coming out of the ground, because there’s going to be that much more pressure on space demand,” said Tim Grant, a veteran Bay Area office broker with Avison Young in Foster City.
The deal would mark another sign of tech companies taking a shine to the north Peninsula, coming just weeks after Box Inc. agreed to lease a major office project in downtown Redwood City.
“This is one more thing,” Grant said. “We’ve always been thought of as, ‘Maybe, but I’d rather be in San Francisco or (southern) Silicon Valley.’ Suddenly, the middle maybe isn’t a bad place to be.”
Google is expected to buy Blackstone and Starwood’s buildings at 1200, 1300, 1600, 1700, 1800 and 1900 Seaport Blvd., which total 934,000 square feet and are home to tenants such as Zazzle Inc. and Rocket Fuel. Google is not buying 2000 and 2100 Seaport Blvd., the owner-occupied headquarters of Informatica Corp. Nor is Google buying 1400 and 1500 Seaport Blvd., which includes DreamWorks. Those buildings are owned by Shorenstein, which has been in contract for a while to sell them to San Francisco-based investor DivcoWest, according to sources and public records.
The price Google will pay was not immediately clear, but an observer estimated it at “substantially more” than the $525 per square foot that Informatica paid for the two buildings it bought in 2012.
One of the Valley’s marquee campuses, Pacific Shores was built by Jay Paul Co. in the early 2000s and broke new ground for its sleek design and swanky amenities including pools, a rock-climbing wall, day spa and baseball diamonds. It was one of the first major developments that showed multiple tech companies would share the same campus, and rose taller than the one- and two-story buildings that were the standard for tech. Starwood bought the campus in 2006 for about $833 million, and immediately sold Shorenstein its two buildings. Blackstone came into the picture after acquiring the junior debt on the property a couple of years ago.
A new owner could build even more office space there, city officials said. The entire campus contains about 1.7 million square feet of office space, and new zoning approved about a year ago could allow total build-out of up to 3 million square feet.
“All things considered, there’s still quite a bit of room to put more structures out there,” said Sailesh Mehra, associate city planner for the city. “You could essentially double that entire office park, if you can you could park it.”
Google — which like many expanding tech companies is focused on reducing its car and shuttle trips as traffic worsens during the current boom — may be eyeing transit options 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. The Water Emergency Transportation Authority, which administers the San Francisco Bay Ferry routes, has studied regular public ferry service to Redwood City, with a potential public terminal practically next door to Pacific Shores.
“I know they really liked the ferry and the concept. Their challenge was getting people off a boat and putting them on a bus to Mountain View, and that was taking 25 minutes,” said Kevin Connolly, director of planning and development for WETA. “This might be one way to address it.”
San Mateo County has about $22 million left in a sales-tax funded pot for ferry services in the county. A Redwood City terminal would cost about $15 million. But the county doesn’t have ongoing operational funding, Connolly said.
A major built-in user such as Google could help make service pencil out, he said.
“If they’re serious about doing it, we could do something, and there are lots of options,” Connolly said. “We could be very creative about working this out.”
If the deal is completed, it would probably take several years for Google to truly put its stamp on Redwood City. Tenants are in the buildings long term, and Google’s continued expansion elsewhere in Silicon Valley — it just leased another 424,000 square feet in Sunnyvale— means it’s probably not under immediate pressure to occupy the campus.
The current and future Google growth “(is) going to impact the face of the Valley,” Mark Bodie, a senior vice president with JLL who represents landlords, said on a market update call with media earlier this week,. “It’s really going to change the dynamics of what’s available for lease.”