Google Buying Manhattan’s St. John’s Terminal Building for $2.1B
What the purchase says about the Manhattan office market now
In a move that surprised absolutely no one in the know, Google announced via a blog post from CFO Ruth Porat on Sept. 21 that it had bought the St. John’s Terminal project for $2.1 billion. Still, the move underscored in red a lot of what’s driving the Manhattan office market now.
Why not a surprise? A few reasons.
One was that Google has been leasing the 1.3 million-square-foot building at 550 Washington Street in Hudson Square since 2019. It has spent or is planning to spend hundreds of millions of dollars fitting it out to make it part of Google’s East Coast hub in Manhattan.
What’s more, according to a source with knowledge of Google’s real estate decision-making, it did not need to finance the St. John’s Terminal buy, of which CBRE brokered both sides. Google is also foregoing tax breaks for which it’s eligible for undertaking a renovation in Hudson Square, according to The City news site. It had the money on hand, in other words, and it could spend it.
That’s something that Google likes to do when it comes to property. The tech godzilla is known for preferring to own rather than rent. And the lease it signed with Oxford Properties and the Canada Pension Plan Investment Board included an option to purchase.
“Google is very deliberate about their real estate decisions, and I think they were extremely committed to the building,” Dean Shapiro, Oxford’s head of U.S. development, told Commercial Observer a few hours after the deal’s announcement. “They worked very closely with us; they bought into the design; it’s going to be completely on target with what they’re trying to do in terms of the workplace. So it’s not surprising to us that they chose to add this as a permanent fixture in their real estate portfolio.”
Also a reason for real estate’s collective shrug at the news of Google’s big buy — the biggest office building buy in the U.S., in fact, since The 601W Companies bought 410 10th Avenue from SL Green Realty Corp. for $952.5 million in December — is that the company has been hoovering up space in the vicinity of St. John’s Terminal for years.
It all started in 2010 with the $1.8 billion purchase of 111 Eighth Avenue, a nearly 3 million-square-foot building. Other gargantuan purchases in West Chelsea, the Meatpacking District and Hudson Square include the $2.4 billion buy in 2018 of Chelsea Market at 75 Ninth Avenue and the approximately $600 million acquisition of the Milk Building at 450 West 15th Street a year later.
The moves, especially the 111 Eighth buy, signaled Google’s intention to build New York into its East Coast hub. The St. John’s Terminal deal solidifies those plans. It and Google’s other Hudson Square properties at 315 and 345 Hudson Square will serve as the headquarters of the company’s Global Business Organization, which includes Google’s sales and partnership teams. The company plans to grow its New York employee count to 14,000, about double what it was just three years ago. Nos. 315 and 345 are already fitted out.
“Google has been fortunate to call New York City home for more than 20 years, during which time we have grown to 12,000 employees,” the company said in its announcement of the St. John’s Terminal deal. “New York’s vitality, creativity and world-class talent are what keep us rooted here.”
Also likely keeping the company here: a leasing and sales market that increasingly favors, and relies on, technology companies.
The likes of Amazon, Facebook and Google have signed some of the biggest deals of the past 24 months. Facebook’s 730,000-square-foot lease at Vornado Realty Trust’s under-development Farley Post Office project remains the city’s biggest office lease since the pandemic started.
Amazon, though it a couple of years ago abandoned plans to open its second headquarters in Long Island City, Queens, has taken huge chunks of the five boroughs. This includes the entire former Lord & Taylor building at 424 Fifth Avenue, where it plans to have 2,000 employees work, and numerous warehouse sites for deliveries. It also includes anchoring that 410 10th Avenue that sold for $952.5 billion in December.
The moves reflect a perhaps generational shift in who does what in Manhattan. The number of office-using finance jobs in the borough declined 12 percent from 1990 through summer 2020, and the number of jobs in law dropped 6 percent, according to data from brokerage JLL. So there’s fewer bankers and lawyers in need of office space.
Meanwhile, during the same 30-year period, up and away went the number of office-using jobs in the technology industry by 112 percent. Much of the demand among these burgeoning tech firms, too, is for top-shelf Class A. Hence conversions of older space like that which Google is undertaking in Hudson Square as well as Facebook at the Farley Post Office and Amazon at the Lord & Taylor site.
The recent leasing and sales, too, are all the more notable because some of these tech firms have committed to hybrid work models that will see a lot fewer employees coming into the office regularly post-pandemic. Google, in fact, has said that about one-fifth of its staff will permanently work remotely, with the rest coming in a few days a week. Google reiterated its shift toward hybrid in its St. John’s Terminal announcement. (The acquisition is expected to close in the first quarter of 2022, and the revamped terminal to open in mid-2023. The Wall Street Journal first reported the St. John’s Terminal deal.)
“As Google moves toward a more flexible hybrid approach to work, coming together in person to collaborate and build community will remain an important part of our future,” the announcement said. “It is why we continue investing in our offices around the world.”
Hybrid or not, the commercial real estate industry in New York will count Google’s buy as a win. The industry has struggled, including during the pandemic, with lackluster investment sales, a spike in sublease space that has driven office asking rents to historic lows, and that wobbling in the jobs count for traditional office drivers like finance and law. If tech wants to fill the void, great.
“The announcement by Google today reinforces what we’ve known all along: that New York is a great home for the tech industry,” Rudin Management CEO and Co-Chairman Bill Rudin said in a statement Sept. 21. “Google has been a great partner to this city, and their continual investment and growth here is a strong demonstration of their commitment to New York and of the strength of our economic future.”
Tom Acitelli can be reached at firstname.lastname@example.org.