What does Google have that most companies don’t? We all know they have more stored e-mail files, more voice recordings, and more 3-D images of locations worldwide, but now they are poised to add to this collection an entire square block of high-quality office space with cutting edge infrastructure in New York City’s meatpacking district. Google has signed a contract to purchase building located at 111 8th Ave. which consists of over 2.9 million square feet and spans the full distance between 15th and 16th streets. Google currently occupies over 500,000 square feet of the office and most analysts anticipate they will continue to absorb more and more space in the building as other tenant’s leases expire. This campus will undoubtedly rival the “GooglePlex” of Mountain View, CA where the company has their global headquarters as well as amenities including several swimming pools, a piano, replicas of dinosaur skeletons, and sand volleyball courts.
What does Google know that most companies don’t? Google has $11 billion in cash according to their third quarter financial statements and they need to ensure a reasonable return on that. They are confident that the longterm durability of property, the sovereignty they gain over their office environment, and the reporting and accounting changes which are afoot have combined to make the purchase of their headquarters an effective way to deploy their capital, increase their ability to attract and keep the most talented employees, and act in the best interest of their shareholders. The purchase price of $1.8 billion values the property at approximately $600/ft which is higher than most buildings command, but considering the advanced infrastructure and the unique position where Google already has a significant presence this will quite likely be an effective maneuver. From the investment perspective, the purchase will provide a higher investment yield (approximated at 5% based on the current stats of the property) than most bonds. At this point, only time will tell if the purchase is the best move for Google, but it is clear that many companies feel the time to take proactive steps to ensure their continued growth is now.
Summary:
What does Google have: a lot; soon to be more.
Commercial Real Estate Insights 