How Facebook Is Becoming A Real Estate Tycoon

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Location, location, location.

Saying Facebook Inc FB "Likes" Menlo Park, CA is a bit of an understatement. This latest transaction is yet another epic Belle Haven neighborhood purchase by Facebook of prime real estate adjacent to its East Campus corporate headquarters.

Source: City of Menlo Park public records - (site descriptions by author)

This latest purchase is located next door to its other three major parcels: the current one million square foot East Campus headquarters; West Campus (433,555 SF) scheduled for occupancy Spring 2015; and TE Connectivity campus (10 buildings totaling ~1 million SF) purchased in June 2014, which is currently leased back to the seller.

Silicon Valley - Where Real Estate Is Golden

The social media giant reportedly plunked down another $400 million to buy the 21 building, 56 acre Menlo Science & Technology Park from global logistics giant Prologis, Inc. PLD.

Assuming Facebook will eventually vacate the roads and demolish the existing buildings to create another unique 56 acre campus environment, the cost of the land in 2015 dollars would be $164 per square foot in gross.

Based on recent entitlements that could easily approach close to $400 per square foot per square foot of buildable area just for the land.

Prologis Was Proactive

In the near term, The Menlo Science & Technology Park will continue to be managed by Prologis on behalf of Facebook. However, the Prologis management team had already recognized that this asset with the proper entitlements from the City of Menlo Park would have more valuable uses than its present office industrial configuration.

"Our team has spent the past several years planning the conversion of this site for higher and better use," said Mark Hansen, senior vice president, value added investments, Prologis. Source - Prologis company presentation

"Land constraints and increased urbanization pressures in markets such as Silicon Valley support the monetization of select infill assets," said Michael Curless, chief investment officer, Prologis.

"This project and others in our portfolio benefit from our dedicated team who understand how to identify and unlock the intrinsic value in our value-added conversion properties."

Related Link: These Tech Giants Are Driving REITs To 52-Week Highs

The Next Inland Empire?

The Prologis team recognized long ago that the value of land in the Silicon Valley made new Class-A Industrial/Warehouse development impossible. The company has a new major development project underway 60 miles east of the San Francisco Bay Area -- Prologis Cordes Ranch.

The Prologis Cordes Ranch property is adjacent to its Prologis Park Tracy II where Amazon.com has recently erected a modern e-commerce fulfillment center on 90 acres of land. Prologis has a huge global land bank consisting of ~10,000 acres. As of Dec. 31, 2014 "the book value of the company's land bank totaled $1.8 billion with an estimated build-out potential of $10.7 billion."  

Bottom Line

Who would have imagined just a few years back that Facebook would become a major Silicon Valley employer and real estate tycoon through monetizing users of its free social network?

In a similar fashion to Midtown Manhattan, well-located real estate in the San Francisco Bay Area/ Silicon Valley is changing hands for top dollar.

Investors would be wise to put REITs with significant property holdings in and around this job creation mecca on their radar screens.

Image credit: Eston, Flickr