Netflix Signs Lease to Expand In Los Gatos

By Sharon Simonson

Los Gatos-based Netflix Inc. has signed a 10-year lease for a 137,500-square-foot building at a proposed four-building campus close to its existing headquarters in the ritzy Silicon Valley hamlet.

Los Gatos The Registry real estateThe deal is contingent on developer Sand Hill Property Co. securing entitlement rights for the project, which is proposed for a nearly 22-acre site on Los Gatos’ northern edge now occupied by 250,000 square feet in 10 aging office and research and development buildings.

Sand Hill is seeking to construct four buildings with 550,000 square feet of offices on the Winchester Boulevard and state Highway 85 corner. Besides agreeing to lease the first of the four buildings, Netflix has secured options to lease the remaining three buildings.

Based on a ratio of one worker for every 250 square feet, the campus should house on the order of 2,200 workers. Sand Hill also proposes a parking garage.

Sand Hill’s financial partner in the Albright Office Park project is The Carlyle Group, a Washington, D.C., global alternative asset manager, including real estate, with more than $157 billion in assets under management.

“We are pleased to have signed a lease that gives Netflix the opportunity to continue to expand our headquarters here in Los Gatos. Albright Way is the natural site in Los Gatos for Netflix because it is adjacent to our current site and would allow us to stay in the community that we have been a part of for over 10 years,” Netflix Chief Financial Officer David Wells said in a prepared statement from Sand Hill.

“This lease allows us to continue to grow into Class A buildings with enough space to meet our requirements. We are optimistic that the town’s residents will continue to support our presence in the community and that the Town Council will value the merits of the redevelopment of Albright Way.”

Customers of the Internet subscription service are able to stream television shows and movies instantly over their TVs, computers and mobile devices. The company launched its streaming service in 2007 and is slowly seeing the draw down of its traditional DVD-by-mail offering. The company began international operations in September 2010 and has expanded to Canada, Latin America, the U.K., Ireland, Norway, Denmark, Sweden and Finland in the two years since. The company warned in its most recent quarterly financial filings that it expected its international operations to be loss makers into 2013.

The existing Netflix headquarters operation occupies two 80,000-square-foot buildings in Los Gatos at 100 Winchester Circle. The company leases both from entities affiliated with The Sobrato Organization, signing the first seven-year lease in 2004. In total, the company occupies 260,000 square feet in Los Gatos, 57,000 square feet in San Jose and another 23,000 square feet in Santa Clara—all of it leased, according to its most recent annual financial report. In the first quarter of 2010, it extended its leases with Sobrato for another five years beyond their original expiration, according to public records.

The company’s quarterly revenues were higher in the most recent quarter, reaching more than $900 million compared to $821.8 million in the same period the year before. But its net income was down by nearly 90 percent in the third quarter to $7.7 million from more than $62 million a year ago.

An environmental impact report on the proposed Netflix campus is due to be published early next year. An approval from the Town Council could come as soon as the spring.

The Netflix campus is one of three that Sand Hill and its principal Peter Pau are pursuing in Los Gatos. The company is building a 30,000 square-foot commercial project at 16005 Los Gatos Blvd. in conjunction with homebuilder D.R. Horton, which is putting up 11 townhomes and 14 single-family homes. Demolition is ongoing, and construction is supposed to start next year.

Sand Hill also has entitlements for a 40,000-square-foot medical office building at 15400 Los Gatos Blvd. The company is close to signing a lease for the entire building, said Reed Moulds, managing director for Sand Hill.

Los Gatos is one of Silicon Valley’s most desirable communities. It has a thriving retail and hospitality-oriented downtown. At not quite $70,000, its per capita annual income is more than twice that of California at large. Coldwell Banker Real Estate LLC on Nov. 28 said the average list price of Los Gatos homes of $1.44 million ranks the town the sixth most-expensive housing market in the country.

“We are excited for the opportunity to bring all three of our Los Gatos projects to life in 2013,” San Hill’s Moulds said in announcing the Netflix lease. “Los Gatos is a special place: a self-contained community yet a critical part of the Silicon Valley landscape. The vibrancy our projects will bring will only increase its allure.”

Photo courtesy of The Vine Times

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