Packed too tightly in its Los Altos headquarters, growing cloud-storage and collaboration company Box Inc. has struck a deal for a big new headquarters in downtown Redwood City — giving the city’s emerging central business district its biggest tech anchor yet.
Box just signed a longterm lease for the entire 334,000 square feet at Crossing/900, an office project that’s under construction at 900 Middlefield Road. It’s one of the most significant real estate deals so far this year in Silicon Valley, observers said, and could spur more development activity down the road.
The lease — which became final on Monday — highlights the tremendous headcount growth of Box, which has raised $559 million since it was founded in 2005 and currently occupies about 100,000 square feet of space. But it also comes at an interesting time for the company, whose IPO plans have been on hold for months.
It also represents a major score for developers Kilroy Realty Corp. and joint-venture partners Hunter/Storm LLC, which started the project last fall without a tenant in tow.
“We’re thrilled to be embarking on this project to relocate our global headquarters to Crossing/900 in Redwood City,” said Pete McGoff, senior vice president and general counsel for Box, in a statement to the Silicon Valley Business Journal. “This new headquarters will provide us with a strong foundation on which to continue our aggressive growth strategy and recruit world-class talent.”
Box will take over the two-building complex in phases, occupying the first 226,000 square foot building in the third quarter of 2015 and the second 108,000 square foot building in early 2017, executives said. We earlier noted that deal for the entire project was in the works.
Financial terms were not disclosed, but the lease carries a length of 12 years. Ben Stern and Matt Winters from Newmark Cornish & Carey represented Box and Mike Moran and Ben Paul of Cassidy Turley represented the landlord.
The new headquarters is a far cry from Box’s humble beginnings. The idea for the company started while co-founder Aaron Levie was still in college at USC. In 2005, he and co-founder Dylan Smith, a friend who was attending Duke University, founded the company to help consumers store files online.
Today Box is focused on the enterprise market, helping companies manage content, share files and collaborate online from anywhere. Though it’s still not yet profitable, Box now has 27 million registered users — including 99 percent of the Fortune 500 — and posted revenue of $45.3 million in the first quarter, according to a securities filing, up 93.6 percent year over year.
In Silicon Valley, Box has traded up offices four times since its founding, most recently leasing its headquarters in 2011 at 4440 El Camino Real. But it has been growing by leaps and bounds and has needed to find a bigger home for some time, said Newmark Cornish & Carey’s Stern, who along with Winters has long represented the company.
Box grew from 689 staffers in January 2013 to 1,016 as of April 2014, according to a securities filing. It also has offices in London, Tokyo, Austin and Kilroy’s project at 100 Mission in San Francisco.
Box has been preparing for a public offering for some time, but it delayed the IPO amid a decline in the share prices of publicly traded cloud-computing companies. The IPO delay came after Box raised $150 million in July in a round led by private equity firm TPG and hedge fund Coatue Management LLC, showing investors are still bullish on the company.
Redwood City draw
Crossing/900 is the first Class A office development built in Redwood City’s downtown in years and it attracted interest from tech and professional services. Law firms Orrick, Fenwick & West and Weil, Gotshal & Manges all seriously considered the space, according to industry observers. So did tech companies such as Turn Inc., EMC and Sony Mobile.
The fact that a tech company took down the entire project will likely solidify the area’s reputation as a hub for tech tenants and add fuel to developers’ plans there to add new office space. Already, developers have papered the city planning office with new proposals for office projects, and the city now risks hitting its limit on new developments in the district.
Colliers International’s August Peninsula research report pegged downtown Redwood City’s vacancy at just 2.34 percent. Asking rents were $4.14 per square foot per month, Colliers said.
Stern, who grew up in the area, said the city’s downtown wasn’t even on tech companies’ shopping lists as recently as a couple of years ago. But a city planning initiative in recent years paved the way for thousands of new residential units, hundreds of which are now hitting the market. Startups have set up shop amid hip new cafes and restaurants. And — perhaps most important — is downtown Redwood City’s proximity to a Caltrain “baby bullet” stop, making it easy to attract talent from San Francisco while staying close to the South Bay talent pool. It’s becoming a real alternative to traditional core tech markets like Palo Alto and Mountain View, where significant space is rarer than hen’s teeth and pricing has gone through the roof.
“All of a sudden you put those factors together, and Redwood City looks attractive,” Stern said. “As you look at these companies that are in hyper growth mode, that are trying to recruit and retain the top engineers, having access to amenities, and access to Caltrain is tremendous. There’s no other headquarters location hands down that compares with this, at least for Box and what they needed. It’s the best-located headquarters in the Valley.”
Pulling the trigger
That’s validation for Hunter/Storm LLC. The Cupertino-based developer headed by partners Deke Hunter, Ed Storm and Curtis Leigh acquired two parcels next to a city-owned parking lot during the recession. In 2012, the city sought developers to take on the parking lot site and Hunter/Storm found a partner in Kilroy, the Los Angeles based real estate investment trust that was making an ambitious push into Silicon Valley. Together with the two neighboring parcels, the joint venture was able to propose a larger and more cohesive project and won the rights to buy the city lot and develop the property.
Rather than wait for a tenant, Hunter/Storm and Kilroy decided to start construction right away.
“It really speaks to our partnership’s wherewithal to start this when we did,” said Mike Sanford, senior vice president for Kilroy in Northern California. “There are a lot of other projects out there that could have started spec and didn’t, and I think we’re being rewarded for taking that risk.”
“At the same time, Redwood City was going through this renaissance,” he added. “The vibe in downtown is like SOMA. You walk around and the vision that the mayor and city council that put the precise plan together is being realized.”
Designed by San Francisco architects Korth Sunseri Hagey, the development will be certified LEED Gold and include creature comforts like an elevated outdoor terrace. Vance Brown is the
general contractor. There remains about 5,000 square feet of restaurant space to lease on the ground floor of the project.
With this deal, Kilroy — which owns 93 percent of Crossing/900 — has 100 percent of its office developments leased in Silicon Valley. That includes major projects in Sunnyvale (leased by LinkedIn Corp.), Mountain View (two projects leased by Synopsys and Audience) and Menlo Park (where a multi-tenant office project is now full).
With the Box deal done, expect more projects that have been holding off to go vertical on the Peninsula. That could include a portion of the commercial component at Bay Meadows, Wilson Meany‘s long-planned mixed use development in San Mateo, which is also on a Caltrain stop.
Mark Mark J. Murray, a principal with Lane Partners, which is proposing a 180,000 square foot project downtown, told me earlier this month that a deal at Crossing/900 would represent “a proven test case which makes financing easier for folks.”
Nathan Donato-Weinstein covers commercial real estate and transportation for the Silicon Valley Business Journal.