Back in 2014, when LinkedIn pre-leased the entire 450,000-square-foot building at 222 Second Street that’s slated to open its doors later this year with room for up to 2,500 employees, its stock was trading around $175 per share.
“For tech companies right now the 2 constraints are (1) hiring top people and (2) having enough [real estate] for their forecast-ed growth.
It may be a statement of the obvious but with the tech stock market where it is right now, projections of revenue growth and staff growth are very high and linked together. i.e. you cannot tell your growth story to the equity market if you cannot control enough [real estate] in job centers.
If you are in the SF office business, you have to buy into this equation, because that is what there is in SF — there is no diversified tenant mix for hi rises like there is in NYC or London. It is a concentrated investment and you are essentially a supplier to a narrow swatch of social-networking industry.
The big question is – or will be – when the stock market in tech falters – what happens to hiring, growth projections and all the excess space that is being defensively leased right now.
There is, conservatively, 5 MIL sq ft of office space under lease / LOI etc that will not be “occupied” on initial tenant occupancy in SF downtown / soma. call it shadow vacancy even if it is not on sublet market.
Is it different from last time because twitter and square and airbnb and uber are long term different from b2b or webvan or scient or yahoo or jdsu etc.? Time will tell.
Right now the answer is the one you want it to be, and clearly 95% of investors in [commercial real estate] want it to be “different this time.” But I would really, really hedge an all tech portfolio.”
Last week, LinkedIn shares plummeted over 40 percent. And with a recovery day now closed, LinkedIn is currently trading at $110 per share, roughly 35 percent below the price when the company inked its growth-story lease.
And a back of the envelope calculation would suggest that up to two-thirds of the company’s 9,000 employees, a third of which have been added since 2014, are effectively out of the money, or even underwater, on any options or purchased shares.
On a positive note, when LinkedIn inked its 222 Second Street lease, the average office rent in San Francisco was around $57 a square foot, roughly 20 percent lower than today. But that’s still an annual lease payment of at least $25 million a year for the building, or a significant amount of previously committed tech space which could suddenly become available.