The parent company of social media app Snapchat is rescuing a Silicon Valley office property from its longstanding vacancy with a full-building deal that also serves as the latest indicator of the region's rebounding market.
Snap Inc. will take over the entirety of the roughly 156,050-square-foot building at 221 N. Mathilda Ave. in Sunnyvale, California, according to people with knowledge of the agreement, taking all of the space initially intended to house the corporate headquarters of genetic testing startup 23andMe. The lease agreement with landlord Spear Street Capital was finalized last week and is set to take effect later this year.
The deal is a significant win for the San Francisco-based investment firm after buying back the property it originally developed in 2019. Spear Street paid just shy of $88 million earlier this month to repurchase the building, a dramatic drop compared to the $183 million price tag the firm landed when it sold the project to Stockbridge Capital Partners as it was in the final stages of construction.
At the time of the previous sale, 23andMe had already preleased the entirety of the development. However, similar to other companies with real estate plans in the works, the pandemic's outbreak in 2020 derailed many of them by initially driving staff to work at home and reducing demand for offices. The biotech company ultimately decided to dump the building on the sublet market and relocate its headquarters to South San Francisco.
The Grove 221 building has been sitting mostly empty ever since, and while it landed a small sublet deal with cloud-computing startup CoreWeave last September, 23andMe's bankruptcy filing in March included a request to terminate the Sunnyvale lease altogether. CoreWeave has since filed a lawsuit to recoup its security deposit.
The legal drama ultimately triggered Stockbridge's decision to list the property. It sat on the market for just a few weeks until Spear Street scooped it up.
Now, just a few weeks after closing, the second-time-around owner has scored a deal with one of the largest social media companies to fill it.
Emphasis on office
Snap's decision to expand to Sunnyvale is another burst of momentum for the Silicon Valley market as it regains its pre-pandemic dominance as the world's most concentrated tech hub.
Over the past few months, companies such as Apple, LinkedIn, Walmart and Amazon have committed to larger blocks of space for longer periods as they appear willing to return to their pre-pandemic days of real estate expansions.
LinkedIn, for example, recently closed a $75 million deal to purchase a 120,000-square-foot property in Sunnyvale. Walmart last month inked one of the San Francisco Bay Area's largest post-pandemic office deals. And Amazon has rapidly ramped up its partnership with coworking operator WeWork to add roughly 141,000 square feet to its Silicon Valley footprint.
It isn't yet clear whether the Sunnyvale building will result in any adjustments to Santa Monica-based Snap's existing San Francisco Bay Area footprint. Neither Snap nor Spear Street responded to CoStar News' requests for comment.
In late 2023, Snap signed a roughly 37,500-square-foot lease at Levi's Plaza, right off San Francisco's waterfront, about a year after it had closed a previous office in the city as a way to curb expenses.
In the aftermath of that lease termination decision, however, Snapchat's parent evolved to become one of the tech industry's most ardent enforcers of in-office attendance. It was one of the earliest to begin phasing out its predominantly remote work policy in favor of a mandate that has since required employees to report to an office at least four days a week, a shift executives expected to help the company as it navigates increased competition, mounting economic uncertainty and declining advertising revenue.
"I believe that spending more time together in person will help us to achieve our full potential," Snap CEO Evan Spiegel wrote to employees at the time. "What each of us may sacrifice in terms of our individual convenience, I believe we will reap in terms of our collective success."
The company followed up on that mandate with a long-term deal early last year to expand its Southern California headquarters, stretching from about 334,000 square feet at the BXP-owned Santa Monica Business Park to more than 465,000 square feet.
Snap has acknowledged its return-to-office plan is a potential hurdle, as it "may face difficulty in hiring and retaining our workforce as a result of the shift to have greater in-office attendance," according to recent disclosure filings with the Securities and Exchange Commission.
The tech company's real estate footprint is scattered across the Los Angeles and now San Francisco areas, as well as Seattle, New York City, London, Paris and Austin, Texas. The leases for those spaces have expiration dates extending as far out as 2042, according to information filed with the SEC, and the company paid just shy of $26 million through the first three months of the year on its office portfolio.