Booking Across the Highway

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East side of 101 is poised for a vibrant renaissance as Facebook moves into Menlo Park

THIS ARTICLE WAS PUBLISHED IN THE ‘Q’ – THE REGISTRY’S PRINT PUBLICATION – IN JULY 2012

By Sharon Simonson

[dropcap]A[/dropcap]t the end of the first quarter, Apple Inc. controlled close to seven million square feet of Cupertino office space, more than 80 percent of the West Valley town’s workplace stock. In the previous year, it had leased 1.15 million square feet in neighboring Sunnyvale and was negotiating for a million square feet more, according to Cassidy Turley Commercial Real Estate Services.

[pullquote_right] “Everyone says they want to be on the train and to walk to amenities, but Facebook is the most social company in the world, and they couldn’t be farther from a train station and amenities.” Ben Paul, partner, Cassidy Turley Commercial Real Estate Services[/pullquote_right]Up the way in Mountain View, Google has been on much the same trajectory. Having acquired large swaths of the Shoreline neighborhood where the company is headquartered, Google is building 1.7 million square feet (and possibly more) nearby, even as it pushes into neighboring Sunnyvale, leasing 700,000 square feet at Technology Corners at Moffett Park last year and 156,000 square feet at the Sunnyvale Town Center this spring.

Not surprisingly, Mountain View is the epicenter of an apartment construction boom, with close to 2,000 units under development or proposed. San Mateo’s Prometheus Real Estate Group Inc., the largest private owner of multifamily properties in the Bay Area, has five Mountain View projects on its own. Indeed, there is broad agreement that Google’s growth, while a bother for other tenants, has increased area property values en masse.

Now comes Facebook Inc., with an approved development agreement with the city of Menlo Park that contemplates the employment of 9,400 people at Willow Road and Bayfront Expressway in the next several years. Not only is Facebook remaking a dated, more-than-one-million square-foot campus, introducing modern, open floor plans and generous employee amenities, it is building another 440,000 square feet on a neighboring parcel connected by a tunnel beneath the expressway. Already, approximately 2,200 Facebook workers are on the job in Menlo Park, according to the city. Ongoing construction is occurring at the existing campus. Next year, the company expects to demolish existing buildings on its second campus site, where occupancy is slated for later 2014.

The inevitable question arises: Might Facebook do for the lackluster east side of U.S. 101 in Menlo Park and East Palo Alto something akin to what Google and Apple are doing for their hometowns?

Even before Facebook, the stretch of U.S. 101 from East Palo Alto to Menlo Park had begun a renaissance. A decade ago, lawyers and other professionals began locating at the Marsh Road freeway exchange, which conferred credibility that the Menlo Park area had lacked, said David Bohannon II of San Mateo-based Bohannon Development Co., a long-time Menlo Park landlord.

At about the same time, East Palo Alto’s University Circle opened, with its glittering, cantilevered Four Seasons Hotel and uptown office towers, both visible from 101. “That was really groundbreaking,” said Kevin Cunningham, a senior vice president with Cornish & Carey Commercial Newmark Knight Frank in Palo Alto. “University Circle was a test case for high-end office product on 101, and it has done well.”

Since then, The Sobrato Organization, a long-time Silicon Valley office landlord with large South Bay holdings, also has bought into the east-of-101 change. The company is marketing for occupancy in 18 months 508,000 square feet of Class A offices at 2100 University Ave. in East Palo Alto. It has a second site in Menlo Park, where it is offering 237,000 square feet of offices as well—and both sites are east of 101.

In 2010, before Facebook-in-Menlo-Park was even a whiff in the air, the city also did something that Bohannon said it has never done before: It approved a nearly one million square-foot office campus with three, eight-story office buildings and a sevenstory hotel—facing 101. The proposed redevelopment at Marsh Road, dubbed Menlo Gateway, is east of the freeway.

“Facebook has the potential to put Menlo Park on the map in a way it has not been previously,” Bohannon said. “If Facebook has anywhere close to the effect that Google has had, it will transform the area.”

Facebook already has changed the economics for Menlo Gateway’s proposed hotel and high-end gym, according to documents filed with the city in November. Demand generated by an estimated 23,000 annual visitors to the Facebook campus, plus 9,300 job candidates a year, is enough to absorb about 25 percent of the hotel’s room-night capacity, wrote Joanne Brion, a principal at Brion & Associates, a Santa Rosa urban planning and economics consultant. “Additional demand will come from other businesses and vendors that locate near Facebook over the next few years to better serve the company,” Brion wrote. “Facebook employees [also] are exactly the type of members” that the Gateway development’s proposed gym hopes to attract.

On the surface, it’s hard to grasp why Facebook located where it did. The Menlo Park campus is not in the midst of or near a bustling city or urban center. It is not close to public transit. It feels far from the ultrahip Palo Alto downtown where the company once grew.

From Bayfront Expressway, the entry to unimpressive. A large sign with the blue Facebook fist and thumb faces the expressway and designates the entrance. Down a short street, a corner of the campus is visible through otherwise dense foliage: a brightly colored, but somewhat dated midrise office building. It feels incongruous with the culture of a burgeoning technology company populated by young 21st century American workers. Sun Microsystems Inc., which owned the property, signed its development agreement with the city of Menlo Park in May 1992. Facebook, with a median workforce age of 26, has younger workers by and large than either Google or Apple, whose median ages are 31 and 33, respectively, according to research by Jones Lang LaSalle.

But nothing prohibits passage on a ring road surrounding the existing campus, and a few loops around unveil some of the potential logic behind the selection. It is big: 57 acres. (The proposed East Campus, across the street, is another 22.) It is surrounded by—and full of—trees, far more than the proximate property outside the campus. The size and the landscaping, coupled with the isolation, give integrity to the site. Ubiquitous construction equipment and fencing imbue vitality. Outside the campus, a mysterious landscape of salt marshes, sloughs and ocean tides presents a dramatic and very different aesthetic from most other Bay Area locations. From this vantage, the campus and its surroundings become a singular canvas on which a company could imprint its culture—and culture is very important to Facebook.

“[Culture] really makes your job what it is,” Everett Katigbak, a communication designer at Facebook who has helped plan the company’s Menlo Park campus, said at a January event on the modern corporate campus sponsored by the San Francisco Urban Planning + Research Association.

Katigbak is a musician, a 2006 graduate of the Pasadena Art Center College of Design and a former exhibition designer for the J. Paul Getty Museum, according to his LinkedIn profile. John Igoe, the director of design and construction in Northern California for Google, was also on the panel. Igoe holds an undergraduate civil engineering degree, attained in 1963, and a construction management degree earned at Stanford University seven years later. Google is now nearly 14-years-old. Facebook is eight.

“We focus on fostering collaboration,” Katigbak said. In the beginning, that translated to putting a lot of people in a relatively confined space, creating physical proximity. “As you move from a startup to a larger company, for us it was all about accessibility to people.” In the company’s earlier days in Palo Alto, it occupied 10 different offices at one point, he said. The separation “started to create silos with different cultures.”

That experience led the company to select a large campus, but its perspective on that space is in no way traditional. Open space between and among the campus’ eight buildings, which Sun conceived as park-like and contemplative, has been repurposed: “We are treating the courtyard as a street and the buildings as store fronts with different cultures—similar but different. We all work on laptops and often don’t sit at assigned desks. The courtyard is a place where you bump into people and have conversations that are the product of proximity,” Katigbak said. “It’s an urban environment on a corporate campus.” Of the not-quite 1.5 million square feet at the new Facebook campus, more than 250,000 square feet will be dedicated to “office/café” space, according to city records. Another, nearly 30,000 will be allocated to “amenities and services.”

Novo Construction has bought into the vision. The company acquired a 32,000-squarefoot building in east Menlo Park at 1460 O’Brien Drive, less than a mile from the Facebook campus. Arne Ericson, a co-founder and principal at Novo, says the location allows his firm to capitalize on good access to San Mateo and Santa Clara counties as well as the East Bay, without Palo Alto prices. “It is a good operational play and a good real estate play,” he said. “A few years from now, this east Menlo Park area is going to be a totally different, vibrant place,” he predicts.

Novo’s broker, Ben Paul, a partner at Cassidy Turley in its Burlingame office, said investor inquiries about the area around Facebook increased after the company announced its plans, but “there hasn’t been any heavy investment activity over there.” Facebook itself also seems unlikely to need additional square footage for some time. Still, he noted at the beginning of June that six buildings east of 101 with an aggregate area in excess of 120,000 square feet were under contract for sale. Only one was to an owner-user; the rest were investors.

“I think Facebook will create demand in the future,” Paul said, but he does not believe that demand will come from Facebook itself. Rather, one might call it the Facebook glow. “Everyone says they want to be on the train and to walk to amenities, but Facebook is the most social company in the world, and they couldn’t be farther from a train station,” Paul said.

“It is very validating for a large corporate user to go out there where it can create its corporate culture,” he said. “It is really just unbelievable.”

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