Turns out plunking down $2 billion wasn’t enough to give Google (GOOGL) control of its own destiny in the Manhattan office leasing market.
The Internet search and software giant, which paid a whopping $2 billion to buy the Chelsea office building 111 Eighth Avenue at the start of 2011, is searching for 100,000 square feet of office space sources familiar with the company say.
Google is conducting the search because of difficulties expanding at its Manhattan headquarters – including clearing tenants like Nike – these people say and needs temporary room to grow.
Sources gave different details of the situation, but several people with direct knowledge of Google’s occupancy at 111 Eighth Avenue said Google has had trouble extricating tenants at the nearly three million-square-foot property.
Nike, for instance, occupies about 100,000 square feet at the building. But though the company’s leases expires in 2015, just booting it out at that time is not possible because of renewal options it has in its lease that stretch through 2025 and allow it to receive discounts on rent.
A source familiar with Nike said that Google has tried to buy the company out but that it has refused. Nike, this person said, has been wary to accept offers because of the difficulty replacing its office at 111 Eighth Avenue with commensurate space in the area.
Midtown South, where 111 Eighth Avenue is located, has become the city’s most popular leasing market, ironically because of the attention it has received from tech companies who Google ushered to the neighborhood by planting its own stake there. 111 Eighth Avenue had become a coveted location in particular in recent years because of its robust technology infrastructure.
When Google bought 111 Eighth Avenue in 2011, it was widely seen as a way for the company to secure its tenancy in the city and take control of its own facility, installing systems and amenities tailor-made for its operations and clearing space as it saw fit. The building was a giant canvas for one of the world’s largest and most successful companies.
Google of course has been able to expand in the building too. The company is said to be in talks to buy out the advertising firm Deustch Inc., which is trying to find other offices in Midtown South in which to relocate.
Some sources have suggested Google hasn’t had more success expanding because it has played hardball with tenants, withholding rich offers that would likely have persuaded more occupants to leave.
“They really haven’t been willing to cut tenants a compelling deal to leave,” said one landlord in the area who has had contact with tenants in the building who are weighing their options to go elsewhere.
Google is looking to take the 100,000 square feet of space outside the property on a short term basis, probably for less than five years sources say. The space would give the company breathing room to wait out more lease expirations at 111 Eighth Avenue.
Other large tenants at the property include Bank of New York and Barnes & Noble.