Facebook Is Bingeing on Bay Area Real Estate

(Bloomberg) -- Since Facebook Inc. arrived in Menlo Park, California, seven years ago, the town has been overrun by construction cranes, orange safety cones and truckloads of building materials to transform a former industrial area into a sprawling campus that can support a $500 billion tech giant.

So big are the ambitions that the company plans to redevelop whole swaths of the land it holds in the Silicon Valley city, potentially doubling its workforce there over the next decade to 35,000 people—more than Menlo Park's current population.

Even that won't be enough for its expansion plans.

“We continue to grow,” John Tenanes, the company's head of facilities, said in a conference room overlooking a salt marsh in Facebook's newest Menlo Park office, a Frank Gehry-designed building called MPK 21 that opened last week. “We're at a point where we needed more space, and this area couldn't keep up.”

For all the turmoil surrounding Facebook and investor concerns about a slowdown, the company's gone on a real estate binge that suggests that its optimism about its future knows no limits. Menlo Park is just the start. In the past year alone, the company has signed agreements that could vastly expand its footprint in the San Francisco Bay Area. It's been one of the most active leasers in the region's already hot office market, spurring brokers and analysts to do math on just how it will fill so much space.

Facebook is “either giving employees a ton of personal space, or they're looking for future hires,” said Katerina Cheok, a market analyst at CoStar Group Inc., a real estate data firm. “They don't do small, apparently.”

Aside from simply needing more space, Facebook's real estate deals are partly a response to the challenge of attracting the most in-demand workers in an area known for punishing commutes and soaring housing costs. The company is expanding its geography by pushing deeper into Silicon Valley, to Sunnyvale; taking over more than a dozen office buildings in the East Bay; and, in its biggest splash, entering San Francisco for the first time by fully leasing two brand-new towers that will have room for thousands of workers in coming years.

The confidence suggested by such moves stands in contrast to the drubbing Facebook's reputation has taken this year. On Wednesday, Chief Operating Officer Sheryl Sandberg will deliver testimony in front of Congress about whether Facebook can protect its users against manipulation by foreign governments ahead of the midterm elections. Chief Executive Officer Mark Zuckerberg testified earlier this year on a data-privacy scandal.

For investors, the bigger concern is that sales growth for the company's core profit driver—the advertising that runs in the news feed—is slowing. A revenue warning, along with another about narrowing margins, sent the company's shares plunging almost 20 percent after its last earnings report in July, for the biggest one-day loss of value in stock market history.

Like the rest of Facebook's decisions, considerations for its real estate needs came after intense data analysis. The company had to determine how much and how quickly each team would need to expand to support the growth of the business. The internal view: There's a bigger risk that the company will outgrow the space it has than in getting saddled with offices it can't fill.

In fact, when Janelle Gale, a human resources vice president, was asked about whether Facebook can fill these buildings, she laughed and said, “It's so funny, I've never had anyone ask me that question.”

“We're really comfortable with our business planning,” she said. The company has met its recruiting goals so far, she added.

And not all of Facebook's hires are just to expand its core businesses. The company is also quickly staffing up with thousands more people to deal with safety and security, after Russians used the platform to influence the 2016 presidential election.

To keep employees happy, Facebook is investing heavily to ensure they want for nothing while they submit their code or coordinate their product plans. The company has the basics that rival its competitors, such as free gourmet food, laundry service and outdoor spaces for doing work and hosting meetings. The latest building, MPK 21, provides a new spin on the experience.

As he walks through the 525,236-square-foot space, Tenanes shows the choices his team made in coordination with Gehry's. There are the unfinished ceilings and walls, meant to portray the idea that Facebook, as a company, is only 1 percent done with its journey.

There are the angled corrugated metal roofs of the Biryani restaurant, meant to transport employees to India, right before the 20 massive redwoods and log benches that, according to Tenanes, make you feel like you're in Muir Woods, the national monument north of San Francisco.

In MPK 21, Zuckerberg also gets a new venue for his weekly Friday Q&A meetings with Facebook's employees: an open auditorium with standing room for 2,000 people. The space is expansive enough that it'll require projecting the presenter on seven gigantic television screens that hover above attendees.

The auditorium is near the stairs that lead to the roof, which has walking paths and shade. The windows up here are painted with tiny white dots, to make sure birds don't crash into them.

Fancy as it sounds, Tenanes emphasizes its simplicity.

“This is not an expensive building that is like a spaceship,” he said, apparently alluding to Apple Inc.'s new headquarters in nearby Cupertino, before catching himself. “I didn't make any reference. This is simple material. You're walking on dirt, some concrete. We're very cost-efficient.”

Gehry, who's best known for designing striking buildings like Los Angeles's Walt Disney Concert Hall and the Guggenheim Museum in Bilbao, Spain, with their free-form shapes, said MPK 21 didn't need the kind of “persona” he incorporates into cultural spaces. The office is more practical and intended to adapt to Facebook's growth and changing needs.

“It's something that's open-ended that you want to be able to, if you had to, slug in another chunk on,” he said. “It's intended to say, ‘I'm here, challenge, put, do, grow, make, whatever.”'

While Facebook's Bay Area real estate deals have gained attention, its expansion treads well-worn ground for big tech companies. Apple and Google parent Alphabet Inc. still occupy more space in the region than the social-media company, according to CoStar data. Amazon.com Inc. has been snatching up property in the region recently as well.

Still, Facebook's growth is part of a broader shift for how large tech companies are adapting their real estate, said Margaret O'Mara, a professor at the University of Washington who's studied the history of Silicon Valley. State-of-the-art headquarters used to be campuses where corporate cultures were built on physical proximity, she said. That's being replaced by a more dispersed model.

“These tech companies used to have all this land to sprawl out on, and now it's really crowded,” she said. “They can't be in one place anymore. They're just so big.”

—With assistance from Hannah Recht

To contact the editor responsible for this story: Jillian Ward at jward56@bloomberg.net, Kara WetzelChristine Maurus