Steve Jobs said last week that Apple Computer had to beat long odds to find the site of its second campus in Cupertino — and the company’s chief executive wasn’t kidding. Apple also paid big bucks.
Jobs was most likely speaking plainly when he told the Cupertino City Council that Apple ended up spending more than it would have liked to acquire the land. The assessed value of the 50 acres Apple is buying tops $160 million, according to property records. Apple would not comment on the purchase process.
But the purchase price is just the beginning. By the time Apple flattens the site’s old-style structures and builds new offices for as many as 3,500 employees — a process the company expects to take about four years — Apple could easily have spent $500 million, two real estate experts predict. That would make the company’s second campus one of the costliest Silicon Valley commercial ventures in recent memory.
Business space in Apple’s hometown is among the most sought-after in the Bay Area. Just 7.7 percent of Cupertino’s offices are vacant, making it one of the toughest places in the region for businesses to expand, according to NAIBT Commercial, which tracks vacancy rates. The average office vacancy rate in Silicon Valley as a whole is 12.6 percent, NAIBT found.
The maker of iPod music players and Macintosh computers probably could have purchased lower-priced land elsewhere in the Bay Area. Cupertino is an expensive address, be it for commercial or residential properties. But the city where Apple has deep roots held more allure.
No easy task
“Fifty-acre parcels are generally not that available in Silicon Valley,” said Matthew Anderson, partner with Foresight Analytics, a real estate marketing analysis and forecasting company in Oakland. “You can’t buy 50 acres, you have to piece it together. So if you’re Apple and you’re going to go through the trouble of putting it together, you might as well pick an area you want to stay in, as opposed to one further away where you might save money but it will be just as difficult to assemble.”
Apple now has employees working in about 30 buildings strung across Cupertino, including on Bubb Road and De Anza Boulevard, Cupertino city officials said. Consolidating on one large campus will save the company money and headaches in maintenance and security costs, according to real estate experts.
Convenience also is a factor.
“In a campus setting, it’s more of a secluded feel, as opposed to a high-rise,” Anderson said. “Plus, there’s room for other facilities and amenities, such as more parking or a soccer field. When groups are working together, they don’t have to get on a bus and drive to another building, they can just walk.”
Anderson added that having another large campus is also a security advantage for tight-lipped Apple, which zealously guards information about new products and shields its development efforts from public view.
“From a security standpoint, it is easier to secure their intellectual property and their new ideas in a campus setting than one where all their people are spread out,” Anderson said.
Assembling 50 acres of land in Silicon Valley requires more than just a big pocketbook — it takes discretion, too. If sellers find out a multibillion-dollar company is hunting for land, they’re likely to boost the asking price.
So, as with its new products, Apple was equally secretive about its plans for its second campus.
Apple worked with development firm Hines Interests to secure land that will become the technology firm’s new campus. The property is roughly bounded by Interstate 280, Pruneridge Avenue, North Wolfe Road and Tantau Avenue.
Last week, Hines purchased an eight-acre slice of land bounded by Pruneridge Avenue and I-280 from Palo Alto real estate developer SummerHill Homes.
SummerHill had just purchased the property on Pruneridge in February for an undisclosed sum from Sobrato Interests and announced plans to construct 130 townhomes and apartments and a one-acre park on the site.
The property had been rezoned to permit housing. That probably means Apple “paid a little more, especially with the entitlements and housing being as hot as it is now,” said Cupertino City Manager David Knapp.
SummerHill officials were told only at the closing that Hines was working on behalf of Apple, which would cobble together that land with properties it purchased from others to get the space needed to build its second campus. The closing occurred hours after Apple CEO Jobs made a surprise appearance before the Cupertino City Council to inform officials about his company’s expansion plans.
“We typically are in the business of building homes, so that is not that common an occurrence for us. But ultimately that is what the seller informed us,” said Katia Kamangar, senior development manager with SummerHill.
Most attempts to piece together contiguous land owned by different owners — a practice known as “assemblage” — are conducted quietly, often with property owners in the dark about who the buyer is, said Philip Mahoney, executive vice president and partner with Cornish & Carey, a Santa Clara commercial real estate brokerage.
“I’ve worked on many assemblages, and the only way they happen is if they are quiet. There’s no upside to those not involved knowing before they need to,” including city officials, said Mahoney, who said his company was not involved in the Apple transaction.
Often companies like Apple “do not want their competitors to know what they are doing because anything perceived as growth can be perceived as a strength or a weakness and others can react to that. There is no upside in being overt in a search such as this,” Mahoney said.
When buying different parcels of land with separate owners, “the complexity of the deal grows by the number of owners involved,” Mahoney said. There may be numerous existing tenants with existing leases to be sorted out, for example, or different zoning for each property. Hewlett-Packard, which sold three buildings to Apple, said its part of the deal is expected to close next month.
Buying the land is just the first step for Apple. The company is preparing development plans to present to city officials for approval, and may have to have the property rezoned.