February 27, 2012

Salesforce.com Kills Mission Bay Campus, Open To Offers For Land

Salesforce Mission Bay Campus Olive Building Rendering

Poised to receive Planning's approval to move forward with the first four buildings at the center of their proposed 14-acre campus in South Mission Bay this week, Salesforce.com has just killed any near-term plans for the massive development.

According to the Business Times, Salesforce "needs space faster than it can build it and thus will focus its efforts on expanding into existing buildings in downtown San Francisco."

"We just took a look at our long term and really our short term needs. The reality is we are going to need the square-footage before we can build it," said Bruce Francis, Salesforce vice president of corporate strategy. "We came to the conclusion this is the way to go."
While there are no immediate plans to sell the Mission Bay land that Salesforce bought in late 2010 for $278 million, Francis expressed openness to offers.

No, it's no February Fools. And yes, the salesforce story does sound a bit iffy. One more strike and it's officially a development turkey for San Francisco today.

First Four Salesforce.com Campus Buildings Poised For Approval [SocketSite]
Salesforce suspends plans for huge San Francisco campus [Business Times]
Salesforce.com Acquires 14 Mission Bay Acres To Build 2 Million Feet [SocketSite]
Piers 30-32 Dropped From AC34 Development Plan, Lawsuit Filed [SocketSite]

First Published: February 27, 2012 6:00 PM

Comments from "Plugged In" Readers

lol, so they're staying at one market or whatever.

Posted by: EH at February 27, 2012 6:04 PM

It's too early for April Fools, right?

Posted by: Dubocian at February 27, 2012 6:06 PM

Obviously, if they had long term plans to stay in SF, they would have leased or even subleased interim space, before building their own, so there appears to be more to this story than they are going to publicly announce. Expect lots of spin tomorrow, all false.

Their stated reason makes no sense at all and is clearly hiding something. I suppose we'll find out soon enough.

If I had to bet, they are positioning for an offer from a company like SAP who would relocate most of the administrative and technical jobs outside the area and doesn't want to be saddled with a very taste-specific building to sell off in the next downturn.

In any event, someone else will buy it and put something there: for example, they could build a lot of apartments at that location. Short term setback for the area, and not much of one. No biggie.

Posted by: tipster at February 27, 2012 6:34 PM

I literally had this exact "X" graphic in my head when I saw the post sans image. Well done!

Posted by: eddy at February 27, 2012 6:51 PM

NO, you may not like the proposed campus architecture but that has NOTHING to do with their decision to hold off on the development.

Posted by: futurist at February 27, 2012 7:08 PM

WOW. This is huge. One of the big arguments for Dogpatch/Potrero residential is the Salesforce campus relocation...

Posted by: Po Hill Jeff at February 27, 2012 7:14 PM

Wow. Shocking. I was just telling someone last week that their decision to buy that property was more strategic than just building a campus. For example, having an asset like that on the books would definitely drive up the valuation of the company, which would demand a higher price target in the event of an acquisition.

Posted by: mikel at February 27, 2012 7:30 PM

For once I think tipster is understating the setback. Agree with PHJ, this is a BIG loss.

The land will eventually be developed but Salesforce had the money to do it now and completely change the dynamics and demograhics of Mission Bay.

How many units were in contract at Madrone?

Posted by: Michael at February 27, 2012 7:33 PM

Obviously, if they had long term plans to stay in SF, they would have leased or even subleased interim space, before building their own, so there appears to be more to this story than they are going to publicly announce.

Well, they did just sign an 18 year lease on 400,000 sf of additional space downtown...less than two months ago...

Posted by: anon at February 27, 2012 8:50 PM

It sounds weird already when their announce that they have signed a long term lease on Fremont Street. How much space do they really need?

I'm not sure if it is really a big loss. It will get developed eventually. Meanwhile it is a great space for Cirque du Soleil.

Posted by: Wai Yip Tung at February 27, 2012 8:51 PM

I was just talking with someone about this yesterday. I barely understand what Salesforce.com does. I just didn't understand how it could build such a massive campus...it just seemed executive ego-driven. I still don't know what it does, although it seemed out of place in Mission bay which was suppose to be bio tech and healthcare.

Posted by: grrr at February 27, 2012 9:05 PM

oh, and Wi Yip tang 9and other comments as I sense from their assumptions): that's not where Cirque de Soleil goes. Where they put up their tent is where the new arena should (MUST) be built, closer to AT&T Park. The land that salesforce.com owns is farther south, near the new UCSF hospital being built.

Posted by: grrr at February 27, 2012 9:10 PM

I'm sure the commercial landlords in the area are popping the corks from magnums of Cristal.

Posted by: Brahma (incensed renter) at February 27, 2012 9:46 PM

Shit.

Posted by: Michael F at February 28, 2012 12:45 AM

So they decided that leasing is more efficient than building? Well, at least they are practicing the mantra they preach.

Posted by: sfcommie at February 28, 2012 1:43 AM


They might also have gotten wise to the old tech wive's tale that seemingly unstoppable companies reach their zenith right about the time they build their showcase headquarters, sliding ever downwards after that.

Posted by: around1905 at February 28, 2012 7:02 AM

It's very difficult in this city, with Prop. M, for any developer to be able to build 2 million square feet. Given the amount of cash Salesforce has, and that they already have the land and were about to get Planning approval, it might have made sense to go ahead and build.

Posted by: Dan at February 28, 2012 7:42 AM

You do have to scratch your head and wonder what both this board and Larry Ellison know that the rest of us don't.

Is Greece about to default, the rest of Europe declining along with China, and the economic picture is looking too depressing for either one of those guys to commit? Are customers cancelling orders? I'm seeing a bit of a decline, some businesses teetering again, but nothing like the end of 2007.

When I see rich guys running for the exits, I usually head in that direction myself, even if I'm not sure why. All I know is that something just changed.

Posted by: tipster at February 28, 2012 8:36 AM

^Maybe they're all moving to Seattle? Amazon just bought three parcels last week in downtown Seattle with plans to build 3 million sf.

Posted by: anon at February 28, 2012 8:42 AM

Between this and the AC, a lot of bad news for SF.

Posted by: anon at February 28, 2012 9:21 AM

I am sure that this project as well as the America's Cup Pier work were both canceled because of Prop M and the EIR requirements. If government puts too many impediments in place, people just stop doing things.

It was the goal of the creators of the EIR and Prop M of course to assure that nothing gets done. So, government paralysis as desired and planned for by the people of San Francisco.M

Posted by: Mark at February 28, 2012 9:21 AM

Owing a commercial building in SF is expensive and unpredictable with the City constantly eyeing owners as a potential cash cow to make up any budget shortfalls. Leasing offers much more flexibility to scale up or down in a short amount of time.

Instead of speculating, I can't wait to hear the real story from someone on the inside. (anonymously of course.)

Posted by: Live Smart at February 28, 2012 11:46 AM

Wow, does anyone posting here know much about sfdc?
Young founder ceo, huge user conf last year, stock is flying and he loves to be a ceo. No way they sell to sap.

Posted by: dipster at February 28, 2012 11:48 AM

Dogpatch and Potrero Hill were hugely hip and trendy before this Internet serious business existed. This is a positive thing for property developers and managers because it underscores the new reality: Modern companies don't do buildings except to rent them as they need them. The paradigm went all phoenix again. Whoever can offer the kinds of space that the market demands can charge what the market will bear.

Posted by: Mole Man at February 28, 2012 11:49 AM

Wow, does dipster know anything about the obligations of a corporate officers to their shareholders? If the board receives a buy out offer that is too good to refuse they must act in the interest of their shareholders regardless of the CEO's interest in holding that top position.

(Not that I know anything at all about any Salesforce rumors though)

Posted by: The Milkshake of Despair at February 28, 2012 12:01 PM

"offer that is too good to refuse"..and therein lies the gray area. CEO's view of 'too good to refuse' could be something else...

This is big news. Dying to know why the decision, but expect we won't really know for some time. Agree it could be due to potential/future purchase; and/or maybe CEO wants to focus on other charity ventures; maybe they decided it's just easier to get great space downtown that is easier on their employees (BART/Caltrain/Muni)..

I think folks should come up with new rumors, reward goes to best rumor.

I heard the CEO wants the campus to be in the Presidio instead.

Posted by: DanRH at February 28, 2012 12:32 PM

Don't know anything specific about salesforce, but If you look at how google and Facebook structured their stock offerings into share classes that have different voting privileges, you'll find that there are all kinds of ways to ensure that the current management continues on their incumbent positions regardless of what is in the best short-term financial interests of shareholders.

Posted by: Brahma (incensed renter) at February 28, 2012 1:35 PM

"I heard the CEO wants the campus to be in the Presidio instead."

Well played.

Posted by: Joshua at February 28, 2012 2:20 PM

I'm in tech and I want to chime in that Salesforce is just going huge and that leads to two thoughts: no to a sale, no to an imminent global downturn.

The CEO is a real SF dude. I don't think he's selling the company and I don't think he's leaving the city.

Posted by: dissent at February 28, 2012 2:26 PM

Well, I always thought the grand vision for Mission Bay was to become a biotech / life sciences hub, so it was strange to have Salesforce in the mix.

Considering the proximity to the new hospital, I'm actually relieved Salesforce backed out. SF should continue fostering this area for biotech/pharma. The boomers aren't getting any younger, and health care will continue to be an economic driver for the Bay Area. Not so sure about Salesforce.com, however...

Posted by: Drew at February 28, 2012 2:30 PM

11% of outstanding CRM stock is selling short. Expenses are 52% of sales...that has to moderate and soon.

Posted by: Sell at February 28, 2012 2:52 PM

Hey Mark, don't blame CEQA for the cancellation of the Salesforce Campus. CEQA for this project was finalized way back in 1998 as part of the Mission Bay Plan EIR.

Posted by: mike at February 28, 2012 3:21 PM

The new Children's Hospital across the street in MB is named after Benioff-- they are very involved in SF. Don't think they are going anywhere, but there is much more flexibility in renting.

Perhaps with the declining vacancy rate in SF, there are builders eager to take a chance on building at least part of the complex-- perhaps with more restrained colors.

Posted by: Dan at February 28, 2012 3:38 PM

I dont think for a minute that sfdc will be going anywhere but I think it is funny timing after I saw this article a few days back:

http://online.wsj.com/article/SB10001424052970204778604577243491086697310.html

Sfcommie has it right btw.

Posted by: TechDefender at February 28, 2012 6:22 PM

"I'm sure the commercial landlords in the area are popping the corks from magnums of Cristal."

Exactly! Space is already getting tight and this is likely to drive it into very capacity constrained territory before long. Maybe just what is needed to get one of the spec towers that was canned during the recession out of the ground sooner rather than later.
Hey how about that one on Mission west of 1st (that they dug the foundation for before filling in with gravel)? Salesforce could grab a few hundred thousand sq. ft. there and just keep on moving down Mission -- from One Market, to 123 Mission, to 50 Fremont, to . . . .

Posted by: GoodBuyBadTimes at February 28, 2012 9:34 PM

From Reuters, Salesforce's canceled HQ project puzzles investors:

Bruce Francis, chief messaging officer for Salesforce.com, said the decision to instead lease space downtown was based solely on logistics.
"We are growing now faster than we were growing at the time when we originally made the decision to build the campus. We are going to need space faster than we could build it. That's why we decided to suspend development of the campus," he said. "We decided that the best long term solution is to sign long term leases in the downtown area."

Suspending the high-profile project surprised members of the financial community. Some expressed skepticism with the company's reasoning for pulling the plug after spending $278 million to buy the 14-acre plot of land, hiring architects and landscapers and releasing designs for the project.

…"It just doesn't sound true," said Kim Forrest, a senior analyst with the Fort Pitt Capital Group investment firm. "What you would probably do is increase the size of the buildings if that were the fundamental reason."
Emphasis mine.
I don't know if increasing the size of the buildings was really an option, but of course if it was an option, building the new buildings still takes a long time when compared to moving into an existing office building. Which it seems to me brings closer to the real underlying issue here.

On a long enough time horizon, contra Bruce Francis' assertions, the best long term solution would have been to build the project, so in the future, salesforce wouldn't be paying out significant lease payments (which could and probably will rise) to commercial landlords. Obviously, I haven't looked at what they negotiated for their escalation clause(s). But just on its face, saying that you need the capacity now because of the speed at which you're growing, and that therefore you're going to lease, sounds like a short-term or at best medium term solution, not a long term one.

You're essentially saying that being able to move people into offices quickly is more important than having control over your overhead in the future, and/or that the value of the expected future rent payments is less than the value of the cost of the construction project.

And that's fine, companies make tactical changes to standing plans all the time. Maybe they belatedly worked out the cost of the construction project and realized that it didn't make sense on an npv/irr basis.

But it makes little sense to try and sell the decision the way Bruce Francis is attempting.

Posted by: Brahma (incensed renter) at February 29, 2012 10:27 AM

Here's my big problem with SF.com's new stance: if what you are saying is true, then admit it that you / management severely messed up in the first place in getting this land and spending god knows how much planning on this.

MGMT needs to be punished.

It's not like they didn't know about space available in downtown SF awhile back! "Hey, woah! Anyone notice that there are a lot of buildings right next door to us!?"

Seriously, I really do think SF.com executives bonus' should be severely dinged. You've shown poor planning, you've disrupted the employee's expectations, you've spent north of $300M. Worse, you've gotten out of your core business and now you're partially in the real estate business. That's mgmt failure.

Posted by: DanRH at February 29, 2012 10:41 AM

my guess is that this would not have been built by the time the company went bankrupt.

Posted by: wrath at February 29, 2012 11:47 AM

From The San Francisco Business Times, Salesforce pull out: who wins and loses:

But in the long run core downtown property owners could benefit from the decision.…Meeting long-term growth could be more of a struggle. Large blocks of downtown space are few and far between. Currently, 425 Market St., 60 Spear St., and 760 Market St. have about 100,000 square foot blocks.…“There are very limited blocks of space in the central business district over 100,000,” said Jones Lang LaSalle Research Director Colin Yasukochi. “Most of the large lease rollovers occurred in the previous few years or (tenants) have already committed to renewal or relocation.”

Knowing that Salesforce is shifting its growth to the downtown core will bolster the confidence of landlords.

“Any time you have a large source of demand that will be entering the market place that has the tendency to increase prices or rents,” said Yasukochi.
Remains to be seen whether or not this increase in demand will result in more commercial buildings/office space being built, as GoodBuyBadTimes, suggests above. All other things are not going to be held constant.

But if Colin Yasukochi is correct here, then signing leases wasn't a smart move for salesforce in the long-term if growth in salesforce's personnel keeps up. It was only a smart move in the short term, in that salesforce could bring in new hires quickly, rather than waiting for a new building or buildings to be completed. Bruce Francis could have just said "hey, we're going to cut our short-term expected expenditures and cancel this project in favor of leasing, because we're focused on short-term results."

Or maybe they expect personnel growth to level off and stay that way after they've absorbed the space they have now and have options on.

Posted by: Brahma (incensed renter) at February 29, 2012 11:52 AM

"Or maybe they expect personnel growth to level off and stay that way after they've absorbed the space they have now and have options on."

I would agree with the first clause of this sentence.

Posted by: wrath at February 29, 2012 1:16 PM

SFDC has had a huge growth curve since the early 2000's. They have the best-in-class product in an area of great importance to corporations: forecast tracking and customer information management.

Their primary competition, Oracle, SAP, Microsoft, etc., have struggled to gain market share. That said, their 'moats' to competitive threat are thin.

Currently, they're too large in terms of revenue, valuation, etc., to be acquired by any of the tech behemoths. Additionally, their culture is extremely aggressive (they're a combination of Oracle + Siebel cultures blended together in a noxious blend). I don't anticipate them selling at this point.

My bet is this decision is the result of an ongoing negotiation with the landlords of the downtown properties they occupy and are exploring expansion with. They did the cost / benefit analysis and found it was less expensive and had less impact on commuting team members to stay put.

Posted by: GOLSF at February 29, 2012 3:46 PM

The proverbial razor thinness figures on top of anyone's mind who has had the pleasure of looking at their margins.

That, the 90 plus forward P/E and one picture of the CEO, all indicate that the 10-K must surely feature a line item called "g(r)o(w)ing concern".

Posted by: wrath at February 29, 2012 4:59 PM

Anyone in contract at Madrone pulled out?

Posted by: Ivan at March 1, 2012 8:53 AM

I do not regret this change. It never seemed quite right having a "campus" office park development in SF, even with the pledges to make it much more connected to the city than a typical suburban office park. It also seemed crazy to move such a large office user from the hub of transit to a less accessible location. (not on the scale of moving Chevron to San Remote, but of the same vein). And, as many said, and I agree, by taking so much of the remaining development space, this development put a stake through further biotech/research/medical expansion. Although biotech certainly has its ups and downs, I'm still convinced that proximity to UCSF is a good thing that should be exploited to the fullest.

I think we'll eventually see this as a win/win for everyone.

Posted by: curmudgeon at March 1, 2012 9:42 AM

(1) The shrill conservative theories that government regulation, such as EIR and Prop M, killed the Salesforce campus are totally baseless. This project had none of those hurdles. The project was literally three days away from a lovefest at the Planning Commission to give the green light and all major hurdles had been surpassed long ago. There was zero cost, including opportunity cost, of going through with the entitlements, even if Salesforce had no intention of building. Everyone, including insiders, are scratching their heads.

(2)This is a big boost to the near term fortunes of the Financial District, particularly in supporting major office growth in the traditional core, particularly around the new Transit Center. Particularly, it bodes well for the 1,100'-tall
"Transit Tower" that Hines wants to build. Not only does Salesforce's stay and expansion in downtown mean a tightening market there, but, it seems like no coincidence that the Salesforce secured a half-million square foot long-term lease with an option to buy across the street from the Transit Tower site. I think Hines just got a spring in their step.

Posted by: intheknow at March 1, 2012 9:46 AM

Benioff is the Top Hat. Nice card to keep and play later. Build a hotel, or two, or three if you're a baller billionaire. Or, rather, a children's hospital if you have a soul.

How fun it is as a millennial to see the classic board game come to life but with a philanthropic/NewSchoolTech twist. I'm a huge Apprentice fan (as huge as a liberal can admit to being, anyway) and just realized we have what NYC may never have- soul. Trump's greed-schtick doesn't work out here and isn't appreciated and if you think Benioff is an Ellison (yak!) or a Trump you may be wrong.

This ain't your Trump-era kill-or-be killed, egomaniacal do-it-cuz-we're-fat game of Monopoly, it's a new edition and I am so proud of what the Benioffs have done for this town.

Their foundation needs but a hair of image consulting and I'd even reach into my pocket to help fund the rest of the Children's Hospital (and i'm homeless, flat broke, etc.)

Doesn't that say something?

Posted by: YupsterUnicorn at October 15, 2013 1:56 AM

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