San Francisco Business Times
By J.K. Dineen and Patrick Hoge
September 18th, 2009

Online gaming network Zynga is close to finalizing a deal to move its corporate headquarters to 500 Terry Francois Blvd. in Mission Bay, taking 137,000 square feet in San Francisco’s largest leasing transaction of 2009.

Under the pending four-year lease, Zynga would move to the fourth, fifth and sixth floors of a $149 million structure that has sat vacant since completion in June 2008.

The company’s 370 full-time employees are now largely divided between two office complexes — one in an abandoned potato chip factory at 365 Vermont St. that CEO and co-founder Mark Pincus owns, and the other at 444 DeHaro St. Zynga, the largest online gaming network with 100 million monthly users, has been looking for a new space so that it can bring all of its employees under one roof.

The move into a snazzy glass waterfront building would elevate the public profile of Zynga, which has been one of the city’s fastest-growing companies but is relatively unknown outside of game development circles. At 500 Terry Francois St., Zynga would plant its flag in a sub-market that continues to draw biotech and venture capital firms even as leasing has slowed to a crawl in the traditional downtown core.

Under the deal, Zynga would pay annual rent in the “mid $30s” per square foot; owner CBRE Investors would pay $50 a square foot, or $6.8 million, to build out the three floors of shell space overlooking San Francisco Bay, according to sources familiar with the transaction. The total cost of the build out will be closer to $10 million, with the tenant making up the difference. The contractor is Novo Contractors.

CBRE broker Meade Boutwell, who represents CBRE Investors, declined to comment because the lease has not been completed. Zynga also declined comment.

Michael Cohen, San Francisco’s director of economic development, said he was not aware of the details of the lease, but added that Zynga as a company “is right in our sweet spot.”

“Having a high-end digital media company in Mission Bay will complement the innovation that is already occurring there,” said Cohen.

Much of Zynga’s recent growth has come from its new Facebook game called “FarmVille,” in which players create and manage virtual farms, but other titles such as “Mafia Wars” and “Texas Hold’Em Poker” continue to break records. To keep up with its explosive growth, the company has been hiring at a furious pace. In addition to its 370 full-time employees, it has 160 job openings it is actively trying to fill. In addition, the company employs 131 contractors.

Zynga is the biggest and fastest growing company in the super-hot online social gaming sector, a relatively new category of video games in which play is often free and companies make money off sales of virtual goods, such as digital tools used to enhance gameplay, or advertising. Zynga’s offerings include casino games, word games, board games and role-playing games and are available on various social networks, including Facebook, Friendster, Bebo, Hi5 and MySpace.

CEO Pincus recently said his 2-year-old company is generating revenue at a rate of more than $100 million a year. Two thirds of its revenue comes from selling virtual goods ranging from digital farm buildings for use in “FarmVille” to poker chips for betting in “Texas Hold’Em.”

Pincus is a San Francisco booster, calling the city the “Motor City for virtual goods and social games.” In a recent interview with the Business Times, Pincus has said he wanted to stay in San Francisco, and that he would like the city government to do something to benefit his company financially in the form of tax credits or the like, given all the jobs that Zynga is bringing to the city and the high cost of living.

Kleiner Perkins Caulfield last July led a $29 million round of financing in Zynga, along with Institutional Venture Partners and previous investors Union Square Ventures, Foundry Group and Avalon Ventures.

GVA Kidder Mathews Executive Vice President Skip Whitney, who focuses on Mission Bay, said the potential Zynga deal “further endorses the model of innovation, which is why people want to be down in Mission Bay.

“It just bodes well (for) what Mission Bay is all about,” said Whitney. “It’s an eco-system of innovation and it doesn’t exclude other forms of innovation other than biotech.”

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Tom Poser, Jones Lang LaSalle, San Francisco
www.sanfranciscotenantrep.com

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