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A Tale of Two Buildings: Gamemaker Zynga's $228M Purchase Underscores Growth Spurt of Social Networking Cos.

Unlike's Abandoned Plan To Develop Its HQ, Social Gaming Firm Will Buy Its Existing Building In S.F.
March 7, 2012
One week after Web-based software maker cancelled its plans to build a massive office complex in San Francisco leaving investors and city officials puzzled, another highly successful Internet company, Zynga Inc., struck a deal to purchase its corporate headquarters in San Francisco from an affiliate of TMG Partners for $228 million.

The developer of popular online games such as Farmville, CityVille and Words With Friends, Zynga put down a $25 million deposit into escrow on the 670,000-square-foot building at 650 Townsend St., which the seller could keep if the deal does not close, according to a document filed by the company with the U.S. Securities and Exchange Commission. The purchase price doesn’t include additional costs such as transfer taxes and brokerage fees.

The reinforced concrete building, also known as 699 8th Street and bounded by 8th, Brannan and Townsend streets, is located in the city’s Showplace Square submarket, also known as the city’s design district -- which is in the South of Market Area (SOMA). It was constructed in 1990 and converted to multi-tenant use in a 1998 renovation.

Zynga’s office lease with the TMG affiliate, 650 Townsend Associates LLC, originally signed in September 2010, will either terminate or be assigned to a Zynga affiliate. Zynga expects to close the transaction in the second quarter of 2012.

The social gaming company, which produces games played by more than 200 million active users, launched an IPO in December and has a reported market capitalization of almost $10.7 billion. Zynga leases about 65% of the building, with the remaining space held by other tenants or vacant. The building was 88.7% occupied, according to CoStar information.

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Established companies like Google Inc., Amazon Inc., Twitter and Facebook, as well as fast-growing firms such as Dropbox, Inc. and have leased or acquired tens of millions of square feet of office, flex and industrial space to accommodate rapid growth spurred by the popularity of Internet gaming, search, video, e-commerce and social media. recently pulled the plug on plans to develop a 2 million-square-foot corporate headquarters on 14 acres in San Francisco's Mission Bay area on land it bought from Alexandria Real Estate Equities Inc. in late 2010. The company, which said it was growing faster than it could bring developed space on line, opted to lease space instead.

Zynga leased about 556,000 square feet of office space for its corporate headquarters in San Francisco under agreements that expire between 2012 and 2018, housing its executive, development, engineering, marketing, human resources, finance and other administrative activities, according to Zynga's 10-K report issued Feb. 28.

The company leases other office space totaling 456,000 square feet across the country and around the world, including Carlsbad, Los Angeles and Mountain View, CA; Timonium, MD, Cambridge, MA, New York City; Syracuse, NY; Portland, Allan, Austin and McKinney, TX, and Seattle. It leases office and data center space in California and Virginia and offices for its foreign operations in Toronto, Beijing, Bielefeld-Sennestadt and Frankfurt, Germany; Bangalore, India; Dublin, Ireland; Tokyo, Luxembourg, and Farnham, United Kingdom.

It was not known whether Zynga plans to consolidate its other operations into the San Francisco building it's acquiring.

In a related development, Zynga investor Institutional Venture Partners, which also invests in Twitter Inc. and LivingSocial, is planning to raise $750 million to $1 billion for its next fund, Bloomberg News reported Wednesday. IVP's last fund-raising in August 2010 brought in $750 million, the largest in its history, Bloomberg reported.
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