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Google gets deal on latest city lease

Original post made on May 13, 2011

Google may have gotten a bargain for its 53 year lease of 9 city owned acres by paying for it all at once with $30 million, but city officials say they made the most of a down real estate market with a "win-win" deal.

Read the full story here Web Link posted Friday, May 13, 2011, 11:09 AM

Comments (7)

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Posted by Duke
a resident of Old Mountain View
on May 13, 2011 at 2:08 pm

How much is it when translated into monthly lease per square foot?

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Posted by Carl
a resident of Shoreline West
on May 14, 2011 at 10:23 am

Please correct me if I'm wrong, but I think the calculation would be:
1 acre = 43,560 sf
9.4 acres = 409,464 sf
$580,000/year divided by 404,464 sf = $1.42 per sf per year (rounded)
$1.42 divided by 12 = $0.12 (twelve cents) per foot per month

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Posted by HoleInTheHead
a resident of Old Mountain View
on May 14, 2011 at 2:01 pm

Just to compare (apples & oranges?), Google's Eric Schmidt is paying $5.54 ($18,000/3,250 sf) for his personal VC shop (Tomorrow Ventures) @ Palo Alto according to this story: [Web Link]

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Posted by Steve
a resident of Sylvan Park
on May 16, 2011 at 7:28 am

Once again our city government put its short term interests ahead of the long term needs of us schmuck citizens. Giving such a long term lease with no future adjustments sold us out. Does anyone here believe, for even one second, that there will be no inflation over the next 53 years?
Whoo-hoo! let's party! we just scored another 30 million to blow!

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Posted by Observer
a resident of Old Mountain View
on May 16, 2011 at 9:26 am

Well said. These are the type of deals you can expect when a much smarter and competitive private sector, better equipped with leaders, lawyers and accountants, go up against the public sector administration types that are just sniffing around for more quick-fix revenue streams. They are like junkies at this point. In the meantime, we the citizenry are expected to believe that Google or the city does it out of a genuine concern and compassion for us the taxpayers.

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Posted by KD
a resident of Waverly Park
on May 16, 2011 at 8:21 pm

"Berns said the council decided to propose the $30 million payment to Google after appraising the land's value and estimating future increases in lease payments and re-appraisals of the property every 10 years."

The time honored adage is negotiation is "the first person to speak, loses"

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Posted by Appraiser Dude
a resident of another community
on May 17, 2012 at 5:25 pm

From an appraiser's viewpoint: The article indicates that in 2007 (near peak in market) land value of north parcel was $40 PSF x 9.2 acres (x 43,560 SF per ac) = $16,030,080. The 2007 lease payment was negotiated at $1.2 million or about 7.5% of land value. By mid 2011 the land value had fallen to $24 PSF for the south parcel = 9.4 ac x 43,560 x $24 = $9,827,136. So at the 7.5% land lease rate the current annual market rent would be about $737,035. Well below the 2007 rental of $1.2 million for the slightly smaller north parcel. The north lease had typical escalation provisions. When good credit tenants like a Google sign unsubordinated long term ground leases, with typical escalation provisions, landlords (THE CITY) will rarely get more than 16 to 20 x net annual rents (based on aprox 5% to 6% capitalization rate). At the lower cap rate (higher value) of 5% the current market value to an investor for the south parcel would be as follows: $737,035 / 0.05 = $14,740,700. Somehow, the City got Google to agree to a lump sum payment of $30,000,000 ($73 PSF based on rounded parcel areas reported). This is tantamount to a below market (SELLER FAVORABLE) cap rate of 2.46%. This effective sale price is way above the 2007 appraised site value of $40 PSF when the market was stronger. Plus the City gets the site back at the end of the lease term. Citizens should be praising the parties responsible for this deal rather than criticizing them, and thanking Google for their generosity.

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