Just seven years ago, Zynga was riding high. The San Francisco-based gaming company was associated at the time with games such as Farmville, and it was transforming how people used their mobile phones and interacted through social media, then its main gaming platform. It was then, in March of 2012, that the company made an offer to purchase its 670,000 square foot headquarters building, located at 650 Townsend St. and 699 8th St., for $228 million, or $340 per square foot, from landlord TMG Partners.
A lot has happened in the last seven years, and the company experienced its own set of peaks and valleys during that time. At one point, its heaheadquarters building was perhaps its most valuable possession. Today, the company has nearly $580 million in cash, and it recorded revenues of $249 million in the fourth quarter of 2018. Now, the company wants to explore a sale of its headquarters building, which is something the company does from time to time.
According to a public filing with the SEC, the company announced this week that it is assessing a number of actions to increase its cash reserves to further fund growth through acquisitions. These actions include a potential sale-leaseback of the San Francisco building. The company made a nearly identical announcement in February of 2016, which was first reported by The Registry, and it caused a stir in the market.
At that time, the financial picture for the company was a little different than it is today. In early 2016, the company was projecting to have a decline in its bookings for the early part of the year. It stated in its earnings letter that it expected first quarter bookings to be in the range of $150 million to $160 million (they were $267 million in the fourth quarter of 2018). This was similar to 2015 when the company had a sequential decline driven by the seasonality of its advertising, which primarily impacted Words With Friends, and a continued decline in its larger web games.
Financial struggles were perhaps the main motivator to offload the asset at that time. Today, the drivers seem to be focused on growth.
In 2012, when Zynga purchased the property, it occupied around 65 percent of the building. Today, that number is much smaller. The Registry could not verify independently the exact square feet Zynga holds in the property, but in August of 2017 the company inked what was the largest lease of the year at the time. It signed AirBnB to a nine-year, 287,000 square-foot lease in the property for $167.7 million. Just that sublease alone would have brought Zynga’s remainder in the building to just below 150,000 square feet.
In January of 2018, Swift Navigation, the San Francisco-based technology firm building centimeter-accurate GPS technology to power a world of autonomous vehicles, announced that it had moved its headquarters to 650 Townsend Street. It took 15,000 square feet at the building.
The actual pricing of the potential sale is hard to judge, since it will depend on how much space the seller decides to keep in the property, who the other tenants in the building are, when rents roll and what rental rates are carried by the building’s leases. Recent transactions in San Francisco for Class A office properties also have a wide range of per square foot sales prices.
For example, New York City-based Clarion Partners acquired the 427,393 square foot 215 Fremont Street office building in San Francisco for $335 million, or about $784 per square foot, this month. At the same time, PCCP announced that it had acquired a four-story, 138,393-square-foot, Class A office building located at 350 Rhode Island Street in San Francisco for $120 million, or $867 per square foot. At the end of January, Palo Alto-based Sand Hill Property Company acquired the 250,000 square foot iconic I. Magnin building in San Francisco’s Union Square for $250 million, or $1,000 per square foot, while in December Invesco Real Estate and TMG Partners purchased the 117,939 square foot 600 Battery Street office building in San Francisco for $115 million, or just over $975 per square foot.
At $750 per square foot, Zynga could get just over $500 million for the property. At $1,000 per square foot, that figure could reach $670 million.